Why A Company Needs An Erp System Information Technology Essay

Enterprise Resource Planning attempts to integrate all branches, modules and functions of a particular organization in a solitary system that can provide service to various branches and departments. Each of those departments generally has its own information technology section; each is optimized for the particular ways that the department does its work.

ERP combine them together into a single software that runs with a single database and links the various departments across the organization and thus communication and sharing of information becomes easy.

Why a company needs an ERP System?

In today’s world, there is competition everywhere so in order to survive organizations need to have good systems to be able to battle in the fierce competition.

Enterprise Resource Planning (ERP) being a strategic tool helps the company to gain competitive edge by integrating all business process and optimizing the resource available.

Following are few reasons that inspire a company for a large preliminary investment in implementing an ERP system: [2]

Reduced Overheads and inventory

Timely response

Market share and Image enhancement

Faster design to manufacturability

Keep up with technological changes

Goals of Implementing an ERP System

ERP system integrates databases, interfaces, applications, tools and Business Process Reengineering (BPR) in a Company. It aims at complete integration of systems not only across the departments but also across the enterprise as a whole. It provides a better project management and better customer service. It aims at incorporation of latest technology in company. Major goals of implementing an ERP system includes inventory reduction, inventory accuracy improvements, faster customer responsiveness, better communications with suppliers and vendors, more timely and accurate forecasting, rapid delivery of custom quotes or special orders, and the elimination of redundant procedures. [3]

ERP Major Benefits

Improving effectiveness and information correctness

Controlling costs while increasing the capability to react pro-actively to commercial confronts.

Optimizing procedures and leveraging customer-focused opportunities

Seamlessly integrating the enterprise across varied activities

Supplying information visibility all through the supply chain thus improving service delivery

Ensuring corporate governance and compliance standards. [4]

ERP in Service Sector

Enterprise resource planning (ERP) has received significant consideration among service industry due to its potential to increase operational efficiency by integrating business processes and systems. The last few years has seen ERP system suppliers such as J.D. Edwards, SAP, Oracle and PeopleSoft proliferated in size, increase the capacity of their applications, and influence the thinking of both business and information technology (IT) executives. [5]

ERP in the Airline Industry (using oracle)

The airlines industry is under tremendous pressure from increased competition, rising fuel costs and operational, financial and security challenges. To overcome these challenges, airlines are seeking out opportunities to reduce costs and improve business processes by innovatively applying technology. Below are some examples how airlines are capitalizing on the opportunities being promised or projected by ERP:

1) Virgin Atlantic plans to implement certain modules of its system e.g. Financials, Human Resources, Payroll, and iLearning with Oracle across its offices in U.K., U.S., Caribbean, Africa, India, and Far East offices.

Virgin Atlantic made the choice of Oracle because of the cost and the advantage of having an integrated system for all the different modules.

The airline transports about 4 million passengers each year and the introduction of the new ERP system in the organization will be incredibly advantageous to the employees working at Virgin Atlantic. Management at the Company was overwhelmed by Oracle’s industry knowledge and the closeness of the fit of its functionality to their business requirements. The company is persuaded that the benefits of this project will permit excellent returns for both in terms of cost savings and in business process development. [6]

ERP Implementation

The table below lists some Airlines that have successfully implemented Oracle ERP.

Company

Revenues

ERP Vendor

Project Budget

ERP Modules Implemented

-Lufthansa [8]

$15.2 B

Oracle

$15 M

Human Resource, Finance, Sales, iProcurements

-Hong Kong Dragon Airlines Ltd (Dragonair) [9]

$1 B

Oracle

$18 M

General Ledger, Finance, Payroll, Human Resource, Purchasing

-Cathay

Pacific Airways [10]

$ 1 B

Oracle

$20

Consulting Services, iProcurements

Lufthansa

Lufthansa is one of the largest and most famous airlines in the world. The airline has successfully responded to the challenges of globalisation and liberalisation. In the year 2009 Lufthansa registered a record of more than 55 million passengers on board their flights. In 1996 the airline developed its COSMIC project – Customer Oriented Service Management Improvement in the Cabin. COSMIC relies on Oracle Database for storing data and Oracle9i Application Server Discoverer for reporting. The Oracle database and tools have helped them considerably to improve customer satisfaction and employee motivation by allowing them to scrutinize the quality of in-flight services [8]

Hong Kong Dragon Airlines Limited (Dragonair)

Hong Kong Dragon Airlines Limited (Dragonair) serves mainly passengers with destinations across Asia. It is a new airline when compared to others in Hong Kong and it is equipped with the most advanced aircraft fleets in the region. Dragon Airlines standardizes core business applications on Oracle E-Business Suite under Long-Term strategic plan. The company aim to bring all of their diverse Information Technology (IT) systems together into a single low-cost consolidated infrastructure. In the early 1990s, Dragon Airlines relied on Cathay Pacific’s Central Accounting System.

Key benefits derived are:

Positioning the company to meet aggressive goals for growth

Gains quick and easy communication with Dragonair’s 2,000 dispersed employees

Reduces procurement spending through collective purchasing

The Oracle solution enabled Dragon Airlines to leverage their corporate wide buying power, thus helping them negotiate better contracts with suppliers and substantially reducing it’s spending. [9]

Cathay Pacific Airways

Cathay Pacific Airways, based in Hong Kong, is an international airline. Cathay Pacific Airways employs over 14,300 people in 35 countries, with more than 10,000 working in Hong Kong.

Cathay Pacific effectively implemented a live pilot system with Oracle Internet Procurement in less than sixty days. The solution, “CXeBuy,” including both Oracle Internet Procurement and Purchasing Intelligence, has been deployed initially to a selected group of users and suppliers in Hong Kong.

This e-Procurement initiative is one of Cathay Pacific’s key e-business projects, part of a $260 million investment over the next three years to further Cathay Pacific’s position as Asia’s leading e-business airline. Internet Procurement is expected to help lessen the airline’s overall expenses by more than $40 million a year by 2003, with a great deal of the savings coming from online purchasing and a considerable reduction in inventory carrying costs Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov.

….. Click the link for more information. [10]

Based on the above illustrated table, it is a fact that ERP implementation has been successful in the Airlines industry, as all the companies are deriving benefits from their investments, although there are some hidden costs that have to be taken into consideration.

ERP in the Airline Industry (using SAP)

Japan airlines limited

Japan airlines limited fleet consists of 160 airplanes and each of them must be managed. At first Japan airlines limited used a separate information system to manage data and information. This resulted to operational inefficiencies; the system did not provide adequate data integration to support our business flow.

This has lead to issues involving duplicate data entries and human errors. The authorities had to improve this situation and to enhance productivity.

The solution adopted by Japan airlines limited was to use Sap fir the different modules: maintenance and planning, quality control, component inventory and distribution.

Japan airlines limited chose SAP ERP because of its solid track record in the aviation industry. The introduction of SAP proved to be successful in Japan airlines limited.

Air india

Air india has selected SAP as their backbone of their IT solution. SAP will help in their strategic decision making, monitoring and control systems.

The introduction of SAP will be very beneficial as

It has improved profitability by the availability of real-time information on route network.

It offers better reliability in the accounting department

Reduction in costs especially in inventory.

Choosing ERP System (Oracle vs SAP)

This has always been an issue in many organizations to choose between Oracle and SAP. However according to researches and surveys carried out, that over 1300 implementations carried out across the world it is found that on average that Oracle is implemented in less time and at a lower cost compared to SAP.

Another reason for Velogic Airlines Limited to go towards the choice of Oracle is that they have already implemented the Administration, customer care and Air Ticketing services department using Oracle and therefore it would be better to incorporate Oracle in the other department as the integration with the other modules will be much easier with Oracle rather than SAP.

Hidden costs of ERP

Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. ERP professionals vote the following areas as most likely to result in budget overrun. [11]

(1) Training

Training expenses are high because workers have to learn a new set of business processes not only a new software interface.

(2) Integration and testing

Another often-underestimated cost is testing the links between ERP packages and other corporate software links that have to be built on a case-by-case basis. If the company needs to add additional components that the ERP packages does not have, then additional costs will be incurred.

(3) Customization

Customizations can affect every module of the ERP system because they are all tightly linked together.

Data conversion

It costs money to move company information, such as customer and supplier records, product design data, employee’s records, from old systems to new ERP systems. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some repair to match process modifications required by the ERP implementation.

Consultants

When users fail to plan for lack of involvement, consulting fees increases. To avoid this, companies should identify objectives for which its consulting partners must aim when training internal staff.

(6) Implementation teams can never stop

Most companies intend to treat their ERP implementation, as they would do for any other software project. Once the software is installed, they figure the team will be spread and everyone will go back to his/her day job. But this is not the case for ERP, as the implementers are too valuable. This is so, because they have worked personally with ERP, they know more about the sales process than the salespeople and more about the manufacturing process than the manufacturing people. Companies can’t afford to send their project people back into the business because there’s so much to do after the ERP software is installed.

(7) Waiting for return on investment (ROI)

Compared to traditional software project management, ERP systems do not reveal their value until after, companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system. Hence, project team is not going to be rewarded until their efforts are successful.