ERP Implementation in Small and Medium Enterprises

ITECH5402 Enterprise Systems

Federation University

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Question: Write a report of about 3000 words on research topics. The report must include at least one case study to reflect the topic of discussion.

Research topic: Challenges and opportunities of implementing ERP in Small and Medium Enterprises (SMEs)

Introduction

In order to earn profits in today's highly competitive and global market, in regards to the sustainability of the small and medium enterprises integrated, responsive, streamlined and agile are generally used to define what the organizations must be converted in to. With high technological advancements, Enterprise Resource Planning (ERP) has stepped in and it is business process management software, which enables the small and medium organizations in the use of integrated applications for the purpose of managing the business and also helps in various back-office functions relating to technology, human resources, and services. It is known globally to the big companies along with the small and medium enterprises that giving the correct information at the correct time facilitates huge success in the growth of the companies in this cut-throat competition. In order to compete in this fast and complex market, organizations need effective and efficient systems like ERP (Klemeš et al.,2018.p. 1350). However, certain issues are faced by the small and medium enterprises in the process of integration with the solutions of ERP. This report deals with certain opportunities and challenges which form the major constraints for the adaptation of the ERP implementation.

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Case Study
To identify the challenges and opportunities of implementing the ERP system in small and medium e enterprises, the report focuses on the Australian company Fusion 5, Business Solution, which was started in the year December 2002. The company offers digital innovation solution, consulting services, applications, development, cloud and managed services The company covers all the functional areas which include Enterprise Resource Planning, Human Resource Planning, customer experience, and similar others. More than 1200 customers are the clients of the company and achieving success within such a short span of time is really incredible (Ram, 2018). The reason for such success is due to the innovative thinking and their key goal is the satisfaction of the customers by providing appropriate solutions to their problems. Moreover, the company invests in talented people in order to make things happen the right way.

Opportunities for implementing ERP in Small and Medium Enterprises
An Enterprise Resource Planning System is located centrally for the purpose of data storage, management, reviewing, reporting and reusing of it, according to the need. Implementation of ERP has become a necessity to survive in this increased competition and especially for the small and medium enterprises and its process can be can be divided into three stages, namely discovery, implementation and results (Mishra, 2018). ERP has a variety of opportunities, which facilitates the growth of the company in the long run. Thus, the following mentioned are the opportunities, which the company Fusion 5, Business Solution has gained due to the implementation of the Enterprise Resource Planning System in their business activities.

• Proper Management of Time - The Enterprise Resource Planning System helps to reduce the wastage of the time taken from the order of the purchase till the time required for providing appropriate quotations. The process planning of the company Fusion 5, Business Solution gets a boost by a reduction in the number of errors and mistakes. The small and medium-sized enterprises have become the most significant driving force in this current economy as it contributes majorly to the growth of the employment. Even with a shortage of financial resources and in a stagnant economy, a small and medium-sized company which is equipped with the latest technology can penetrate the market better and can do wonders in the future. This is exactly the case with the Fusion 5, their technological advancements and implementation of ERP has enabled the company to outshine in a small span of time.

• Low Routine Tasks - Implementation of ERP in small and medium-sized enterprises has enabled in the reduction of the routine tasking or similar kind of information almost every time. This was highly needed to overcome as it is considered d one of the most important cost while running a business. Developing ERP in the small and medium-sized enterprises, such as Fusion 5, provides a good opportunity for optimization of the output and minimization of the resource at the same time (Roubaud et al., 2018.p. 100). Moreover, reduction in the human error increases the quantity and quality of the output. Implementation of ERP in the functioning of Fusion 5, has reduced their number of human errors drastically, which facilitated the growth of the company.

• Traceability and accountability - The most important opportunity that ERP has up on the organization are that it enables to keep a record or track of each and every transaction that happens within the premises of the organization. All the answers to the questions related to the transaction of the organization are achieved. Moreover, an ERP system enables the small and medium-sized enterprises to figure out a number of things by certain clicks. It is very difficult for the organizations to function properly, in which they zero knowledge and there comes the role of ERP. ERP system helps in rendering information about the genres of the organization in which the management team does not have much knowledge. The Fusion 5 has gained much knowledge with the help of ERP in the fields, in which they were black and had no information or knowledge. Moreover, ERP has helped the Australian company in the identification of the strengths, weaknesses, opportunities, and threats, which has been proven as a boon in the long run as it helps to overcome the threats in the future (Aljawarneh et al., 2018.p. 37).

• Forecasting - The users of ERP system gets facilitation of forecasting with the usage of this, as it readily supplies the tools, which are required to do more accurate prediction. Since the information, which is derived after the implementation of ERP is very much accurate, enables the organizations to make more realistic and effective estimates. The Fusion 5 has gained many profits by taking the necessary steps for the forecasts, which is being done by the management team of the company, with the help of ERP system.

• Collaboration - No organization can perform if the departments are not connected with each other. Collaboration between the different departments is very essential and forms an integral part of the business as it facilities the smooth functioning of the organization. The data entered into the ERP system is consistent and centralized; as a result, there is no reason for not working the different departments together. The ERP system is updated about all the aspects of the business and thus, it encourages interdepartmental and collaborative efforts. The Fusion 5 is famous for its interdepartmental collaboration and this quality has facilitated its smooth functioning (Satish, 2018).

• Reduced Cost - ERP software reduces the operations and administrative costs due to real-time information and one accurate source of information. This is mainly carried out by the manufacturers for the purpose of managing operations, preventing delays and disruptions in the flow of work, breaks the information into smaller parts for better understanding and thus aiding in the process of making decisions more quickly. When the company Fusion 5, was initially started became clueless as they were unable to manage their costs. With the implementation of the ERP system in the day to day business activities, has helped them to manage their costs and has also enabled them to reduce their costs of operation (Carvalho, 2018).

• Increased flexibility - The modern ERP systems are flexible, robust and configurable. ERP systems do not facilitate the idea of one size fits all, rather it can be tailored according to the needs and demands of the organization. The system also adapts itself to the ever growing needs of a small and medium-sized enterprise and even ensures the fact that the company does not have to undergo a new solution with the change in needs or growth in the business. Due to the flexibility of the ERP system, implemented in the working of the Fusion 5, it has been possible for the company to reach the height, where it is residing today and aims for further improvement with the passage of time.

Increased customer service - Implementation of ERP systems has facilitated the increased quality of the customer service. The department of sales and customer service department can interact with the customers in a better way and work towards the relation improvement with them with access to their history and information. Continued interaction with the customers has facilitated the relationship and has enhanced the customer service in the company Fusion 5 ('Regan, 2018).

Thus, the above given is the number of opportunities that the small and medium-sized enterprises due to the implementation of the ERP systems in day to day business activities.

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Challenges of implementing ERP in Small and Medium Enterprises (SMEs)

Constraints for SME's in the adoption of Standard ERP
Normally, for implementing the system of standard ERP, it requires significant input from Fusion5 in terms of time, efforts and money. SME's have comparatively limited resources, budget, skills and time than the large firms. The lack of the latest technology, quality, and quantity of business data available with IT infrastructure can be seen in SME's. These factors put an obstacle in the implementation of ERP or, in the adjustment after the deployment. There are various and major constraints and barriers that the SME's face during the implementation and adoption of ERP as per the definition of various researchers. The key constraints that the SME's face in terms of Standard ERP adoption follows (Al-Ghofaili & Al-Mashari, 2014).

Intensive nature based on Resource of Standard ERP
For the implementation of ERP, it requires workforce allocation, commitment from the top management, intensive training that should be appropriate. Furthermore, in the customization of ERP, these requirements are important.

The timeframe for long Implementation
The implementation of ERP needs more time than the other packages of software. The core business of Fusion5 may be affected negatively if there is a long time extensive usage of resources available (Yeboah-Boateng & Essandoh, 2014).

High Implementation Cost of Standard ERP
ERP is popular for the high implementation, resource, customization, some hidden costs and training involved. It is the financial constraints that play the lead role in the rejection of ERP by the SME's. Fusion5 demand solutions which should be at a reduced price and it should also be from the vendors of ERP who are limited. Generally, it becomes difficult for the ERP vendors to fulfill such requirement with a reduced price.

ERP Barriers for SME's
The adoption process becomes slow among the SME's like Fusion5 because of the existing barriers which remain in the form of operating nature and business context. Majority of the SME's like Fusion5 work in a dynamic manner and the changes which can be seen in the form of external and internal environment in the form of government agencies, customer preferences, technology advancement and so forth. Characteristics like orders, fewer employees, and customers help Fusion5 in responding to the changes which are the flexibility of the SME's. Hence, the flexibility should be retained by the SME's like Fusion5 after the adoption of the software like ERP. The various maintenance challenges which are faced in terms of ERP maintenance, which can be seen in the Figure below, issues of reengineering of business process, ERP customization, and the training required for it have been deemed as the top barriers among the SME's like Fusion5. Most of these are the ongoing challenges that Fusion5 should address while at the time of ERP implementation and its life cycle. The various noteworthy implementation of ERP lessons that Fusion5 should learn from the various case studies. The influencing factors which are the key ones can be explored further Which form barriers in the ERP adoption successfully. These can be summarized below-

Figure: Challenges faced in implementing and maintaining ERP.

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Lack of commitment or, organizational leadership from Top Management

The implementation process of the ERP system is phased with the passage of time. Commitment and interest from the SME's management decline, in the implementation phase and this, is among the most cases that take place. The SME's management may barely be able to understand the implementation aspects like scope, size and the technical problems which take place at the top level. The lack of commitment can be seen in providing the resources which are needed for the successful implementation.

Less availability of Skilled Manpower

It lacks when it comes for the business specialists and technical professionals in the SME's within the organization. The less skilled professionals put a negative impact in initiation and implementation after the adoption of technology like ERP (Almajali, et al., 2016).

Sometimes, the organization like Fusion5 may have the professional but it becomes difficult to retain them further in a long period. It happens as the demand for such professionals in the market remains high from the competitors. The attempt from the SME's to save costs on the expenses on the resources where the workloads are extended up to 50% on the employees. Such sort of situations results in the rescheduling of the tasks and the process of the ERP implementation delays too because the working employees get exhausted in the long extended work period which results in unproductive or, less productive efforts.

Reduced Competitive Advantage and Flexibility
Generally, the unstructured processes of SME's which exist with them have developed over the years. Thus, in SME's like Fusion5, the ERP implementation requires complete or, partial reengineering of the business process. It, thus, affects the procedures of the SME's with the organizational structure. As SME's work in a dynamic manner which remains extreme, it becomes important to retain the flexibility and there should not be a rush for the ERP in order to achieve benefits by going against the flexibility.

The implementation of ERP may create conflict or, can change the business logic with the existing practices of the business. It may further lead to loss of competitive advantage for Fusion5. Competitive advantages come generally from the experience and the knowledge of the employees. Business practices are carried out by using the ERP, which may seem to be contrary for the industry practice (Leyh, 2014).

Change in Internal Management
Due to the reengineering of the business process, It requires An effective change in management for the implementation of the ERP. SME's like Fusion5 may not be able to implement ERP successfully if there is no process of changing the management in a proper way.

ERP Selection
Sometimes the functional requirements for definitions are developed inadequately. SME's like Fusion5 do not focus on analyzing the features for the ERP system as per the culture and requirement. Executives, who are responsible for the implementation of ERP in Fusion5, do the implementation process with their earlier experiences. Sometimes in the selection of the ERP system, top management is involved without knowing the characteristics of the system. This sort of initiative does not help in meeting the requirements of the SME's.

Ineffective Communication
Effective communication helps the organization in the implementation of the ERP. The expectation of the management needs to be communicated to the ERP vendors at every level in the organization. A poor communication generally results in the ineffective implementation of the ERP. The problems of communication can be seen in the early stages of the beginning, it means, the time when the purpose of the implementation of the ERP is announced. This situation sometimes continues until the end where informing the staffs of Fusion5 go on to report the progress of the ERP implementation with its importance. Poor communication does not help the different part of the organization in assessing how the changes will impact the processes, procedures and the policies. The inexperience of SME's in IT projects at large occurs due to poor communication in the implementation of the ERP. Secondly, to identify the key persons of contact, it becomes difficult in the departments, due to poor communication (Johnson, 2015).

Expectations made form ERP
It is considered as the myth that ERP which is known as the intelligent system, resolves the day to day problems such as product quality, customer satisfaction and product defects of Fusion5. It is also considered that ERP acts as off-the-shelf software for accounting. As a matter of fact, ERP is used by customizing the business requirements which is operated by the staffs of the organization later, who decides further on the functionality of the software. Thus, the software requires the participation of the top management with the ERP vendors in reality.

Training for Inadequate End-User
Insufficient training which is provided for the unsuccessful implementation of the ERP takes place due to insufficient training provided on it. The only reason for this is the underestimating the resources time and budget. It is important to provide good training with a plan for making the functionality and the features of ERP useful. The staff of Fusion5 should know sufficiently-m how to interact with business processes by using the ERP. ERP may affect the business processes of the entire organization, so it is essential to get adequate user training to avoid the lack of understanding on ERP (Katerattanakul, et al., 2014).

Customization
It becomes difficult for the leading vendors to provide customization as per the need of the organization like Fusion5. This makes the ERP vendors target the large organization and this remains the main target for them. Therefore, when the customization is needed for the organization like Fusion5, It becomes difficult for the ERP to understand the business of the SME's. Sometimes, SME's like Fusion5 find that the vendors for the ERP are incompetent to meet the requirements they need.

Resistance to Change
It is the change management that helps in successful implementation of the ERP with full involvement of Fusion5. The employees of the SME's like Fusion5 resist the implementation of the ERP due to following reasons-

Stressful workload, the involvement of end-users who join late, poor communication, absenteeism in terms of communication and support needed from the top management with responsible employees and lack of adaptability and motivation (Kumar, et al.,2015).

Conclusion

In the report, all the challenges that come against the implementation of the ERP have been mentioned. Particular focus has been made on the organization like Fusion5 which is an SME and faces various troubles in the implementation of ERP as either there are fewer vendors who provide ERP to SME's or, the customization becomes the major issue for it.

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