Enterprise Systems
First, what do we mean by an enterprise system? This term refers to
systems that integrate data across an enterprise (organization) to support
the business processes related to a variety of business functions—from
basic functions like human and financial resource management to
managing the supply chain and customer relationships. The same system
is used by employees performing a specific function from anywhere in the
organization. Some business functions for which enterprise‐wide
solutions are often used include the following:
• Enterprise Resource Planning (ERP)
• Supply Chain Management (SCM)
• Customer Relationship Management (CRM)
• Enterprise Messaging Systems (to include email)
• Human Resources Management
• Financial Management
• Billing and Payment Processing
• Call Center and Customer Support
• Enterprise Content/Document Management
These functions can be done by one large‐scale, enterprise‐wide system
that integrates several major functions, or through linking (or integrating)
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Enterprise Systems
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individual systems through a type of middleware—usually referred to as
enterprise application integration (EAI). Generally, it is much more
effective to use a single integrated platform rather than multiple
applications that were not designed to work together.
Enterprise systems can be developed in‐house or acquired as a
commercial off‐the‐shelf (COTS) product. COTS products can be
purchased and implemented on internal servers or acquired as a
Software‐as‐a‐Service (SaaS) from a cloud service provider. To attract
more customers, the COTS/SaaS vendors implement features that all
their customers can benefit from, such as heightened security
protections, support for new industry standards and legislation, and
increased ability to separate system access and update by job function.
The focus in this section will be on COTS systems developed to manage
one or more business functions across the organization. The three most
common types of enterprise systems will be covered: Enterprise Resource
Planning (ERP), Supply Chain Management (SCM) and Customer
Relationship Management (CRM).
Enterprise Resource Planning (ERP) Systems
An ERP system is built to support an integrated approach to managing
some or all of the core processes involved in running a company: human
resources management, financial management, procurement, etc. ERP
systems were originally developed to handle these "back office"
functions. ERP is actually the business process of integrating the core
functions across an organization; the term by itself is not defined as a
"system," although many people refer to an ERP systems as an "ERP."
ERP software was developed to implement the ERP process; such
software integrates, standardizes and streamlines (or optimizes) the
business processes across departments. Users of the various functions of
ERP system are presented with common screens and system functions to
allow them to move easily between functional components, and to reduce
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training costs. Generally, the ERP system operates as a single system with
a common database employing common data definitions. Using one
database saves organizations from updating several systems with the
same data, and provides greater accuracy and collaboration between
departments. Transactions are processed against the database
immediately, and the updated information is available across the
organization immediately. This is in contrast to an organization using
multiple “stovepipe” systems with redundant (and often not synchronized)
data. For example, employee data (name, address, SSN, etc.) is stored
once and can be accessed for payroll, timekeeping, travel expense
reimbursement, facilities access, etc., and if the employee makes a
change, it is changed in one place for all to access.
In summary, the characteristics of an ERP include:
• enterprise‐wide integration,
• a common database,
• real‐time operation and processing of data and transactions, and
• consistent look and feel.
Business Benefits of ERPs
ERPs improve the efficiency and effectiveness of business operations by
providing:
• Integrated information that is consistent across the enterprise and
provides a "single truth" in areas such as
◦ Financial information—There is one set of financial figures that
everyone can use.
◦ HR information—Employees can enter updates directly into the
system, and their skills and experience can be viewed by
managers across the organization.
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◦ Order information—Orders affect inventory, accounting,
distribution, and manufacturing, all of which can be updated in
the single system when an order is placed.
◦ Customer information—The same customer information is
available to all departments.
• Best practices—The systems are designed to implement best
business practices for each of the functional areas and streamline the
steps in the process, reducing the time required to complete each
process.
• Standardized business processes—All users of the system perform
the function in the same way, and every process is supported by the
system with a similar look and feel for all users, regardless of their
department.
• Lower IT costs—The use of a single system for multiple functions
reduces total costs associated with acquiring, operating, and
maintaining multiple systems; however, if the ERP is significantly
modified to fit the organization, the cost advantage may disappear.
• Reduced training costs—Employees use a similar interface for all
major business functions.
• Consolidated procurements—The use of a single system for
purchasing products provides opportunities to consolidate similar
orders from various departments to receive volume discounts.
• Improved compliance—Time and effort are reduced in responding to
the wide variety of government reporting requirements, including
financial reporting, human resources and wage reporting,
environmental reporting, etc. Compliance is also enforced through
the standardized business processes implemented in the ERP.
ERPs lead to better decision‐making.
• Common data that is shared across the organization is used for
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analysis and decision‐making.
• Better data improves planning and reporting.
• ERPs promote collaboration across departments and levels of the
organization since all involved have the same version of the facts.
• ERPs support distributed decision‐making, as participants can act
locally in accordance with the guidance provided and the results of
their actions are available throughout the organization.
ERPs lead to increased organizational agility.
• The standardization and simplification of the business processes and
the use of a common system allows the organization to adapt quickly
when necessary.
ERPs provide enhanced security for corporate data.
• Data that is stored in one location can be better secured than data
that is stored in multiple locations, especially since corporate data
may be stored on hundreds of servers and personal computers
anywhere and its existence may even be unknown to the security
specialists.
• Vendors serving multiple customers can provide better and more
extensive security for systems and data than individual organizations
are able to provide.
Industry‐specific ERPs are designed to support the unique business
processes of the industry, such as those required by financial institutions,
service industries, government, health care, higher education, and
hospitality. The way that processes are carried out in each of those can
be quite different. ERPs are also designed specifically for small, small‐to‐
medium size, large, and very large international organizations. The size
and type of organization are taken into account when selecting an ERP.
Major Disadvantages of Implementing ERPs
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• The time it takes to implement them: Since ERPs are used
throughout the organization, many departments are affected and
much coordination is required. Further, since the ERP may be
replacing a myriad of systems implemented throughout the
organization (including on individual desktop PCs), it takes a
considerable amount of time to discover all those legacy systems and
determine if and how to incorporate the data into the new system.
• The cost of the system: There are initial purchase costs, which can be
quite high, and significant implementation costs to coordinate the
implementation across the enterprise. Depending on the amount of
customization needed, the ongoing maintenance costs can be very
high, since each new release from the vendor needs to be thoroughly
tested, and any modifications already made need to be applied to the
upgraded system.
• Change management is required before, during and after
implementation to align business practices with the way the system
works.
There have been some very well publicized ERP implementation failures,
and you may have witnessed one where you work(ed). Among the causes
of failure are:
• Selecting the wrong ERP. As mentioned above, ERPs are designed
for various sizes of organizations. Choosing an ERP with too many
features may overwhelm a small organization; conversely, not having
enough features to support a very large and diverse organization can
lead to failure. Although ERP systems were originally designed for
large organizations, there are now many products available for small
to mid‐sized businesses.
• Customizing the ERP. When organizations implement an ERP, their
business processes must be adapted to the way the system is
designed. If an enterprise determines that they will modify the
software to match their process, many issues are introduced. The
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time to implement and the costs go up significantly, as does the risk.
Future upgrades from the vendor may not function without
significant code changes due to the customization.
• Employee resistance. People resist change, but employee resistance
seems much more common with ERPs, where the changes are more
pervasive and obvious. The process changes that an ERP requires
may remove flexibility formerly enjoyed by the staff, who might
perceive a loss of autonomy and control.
• Lack of common data definitions. When an ERP is implemented,
data from multiple stovepipe systems must be migrated to the single
database. Most often those legacy systems each have their own
definitions and formats for the data – and the same data item stored
in different systems may be called by a different name and/or may be
formatted differently. Before the data can be loaded into the ERP, a
common set of definitions and formats is needed. For some
organizations, this is an insurmountable problem, and they end up
abandoning their ERP implementation.
ERP Summary
ERP systems have been extended in many organizations to include
seamless integration of supply chain management (SCM) and customer
relationship management (CRM) processes and data across the
organization. Linked with ERPs, SCM and CRM systems provide the end‐
to‐end visibility of a company's information; the ERP provides the "glue"
to allow all the systems of an enterprise to work together to get the right
information to the right people at the right time.
By now two things should be clear:
1. Effective ERPs can provide great strategic advantage to an
organization and help break down the stovepipes of information
aligned to specific functions (like human resources, finance, etc.).
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2. ERPs require significant investment of time and money and can be
very expensive to effectively select and implement.
Supply Chain Management (SCM) Systems
If you think of the basic model of a business, it is: input/process/output.
Resources (human, financial or supply resources) come in, and then the
work of the company is to transform them some way into something that
customers want (process), and then provide it to the customers (output)—
the output could be to wholesalers, retailers, or individual customers. A
simplistic overview of the input/process/output supply business model is
provided in the table below:
Input/Process/Output Supply Business Model
Industry Input Process Output
Manufacturing Raw materials Combine raw
materials to
make a product
Product
Consulting Information;
human capital
(analysts)
Analysis Report
Restaurant Fresh or frozen
food
Cooking/Prepara
tion
Meals
SCM can be thought of as "the management of the chain of supplies." It
encompasses the range of activities needed to plan, manage, and execute
the development of the product, from the acquisition of raw materials,
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through production and distribution, all the way to the final customer.
The objective is to do so in the most cost‐effective manner possible.
In the example of a simplified manufacturing supply chain, we might start
with several suppliers of raw materials—all the things needed to make the
product. Each of these items may come from a different supplier, in
different quantities, and on different schedules. All of the necessary items
need to be assembled at the manufacturing plant and then they are put
together to make the product. The product then is shipped to a
warehouse where it is stored. At the appropriate time, product is moved
from the warehouse to a retail store, where it is put on a shelf to be sold.
The supply chain does not stop there. After the product is sold, it may
need service, or the customer may wish to return it. Every one of these
steps have costs and complexity associated with them. Through SCM,
both management and employees can view what's happening along the
supply chain to make better decisions. Each step in the supply chain
provides an opportunity to impact profitability, quality, etc.
In today's world, it is impossible to have an effective supply chain without
the use of technology, including the right technology solution to
implement the business strategy. Companies compete on the basis of
who has the right product, in the right place, at the right time. Once
again, getting the right information to the right people at the right time is
critical to successful SCM, and that is exactly what good SCM systems do.
Businesses use SCM to plan, source, make, deliver, and return their
products. SCM helps them develop a plan for managing all the resources
needed; choose reliable suppliers; manufacture their products or services;
implement their logistics processes (receive and fulfill orders and receive
payment); and provide for returns, excess product, and customer support.
This is an iterative process that goes on continuously as companies
monitor, evaluate, and modify their supply chains. SCM is a clear example
of the relationship between people, information, business processes, and
information technology.
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Customer Relationship Management (CRM)Systems
CRM, like ERP and SCM, is a business philosophy, not a technology,
although many people use the term to represent a system. CRM is based
on the idea that a strong competitive advantage can be achieved by
understanding customer needs. Companies that recognize that their
customers are not just generators of revenue but are valued assets are
moving quickly from a focus on their product to a focus on the customers.
As companies deal with customers around the world and expanding
competition, they find that adopting a CRM strategy is essential. It costs
much less to make a repeat sale to an existing customer than it costs to
make a sale to a new customer.
CRM helps organizations of all sizes, but the larger the company, the
more complex the problems become. Here's where an information system
can provide immense value—allowing the company to capture
information, make it available to all functions that need to know
something about the customers, and provide superior customer service.
In addition, the availability of this data enables companies to analyze the
information to determine patterns and trends in customer habits, analyze
demographic profiles of customers to target marketing campaigns, and
identify ways to build customer loyalty. CRM systems can link customer
information from a variety of sources, including social media. While they
are designed for use by marketing, sales, and support organizations, the
information they contain can inform a wide variety of business decisions,
such as production levels, geographic distribution of their products,
markets for new products, etc.
ERP, SCM, or CRM System?
SCM and CRM systems bring similar advantages and disadvantages to
those discussed above for an ERP. Organizations determine which type
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of enterprise system is appropriate based on analysis of the requirements
of the organization, just as for any other system. If the organization
simply wishes to automate its "back office" functions, then an ERP
(focused on accounting or finance) may suffice. If the organization can
take advantage of an industry‐specific ERP to perform those functions in
a way that is uniquely suited to the industry, then that is the category of
ERP that should be researched. If the organization needs supply chain or
customer relationship management tools, and already has an ERP in place,
it might look for additional modules from the ERP vendor to perform
those functions. Such solutions should come with built‐in integration with
the ERP, which could greatly benefit the organization. If an SCM or a
CRM is needed and there is no ERP in place, the organization should
consider the totality of its requirements and determine whether a
combined capability is needed or a point solution (just SCM or CRM) is
what is needed. Certainly an SCM or a CRM can be implemented on its
own, but as the organization looks forward, it may wish to select such a
system that has the ability to be expanded to include other modules as
may be needed in the future. The selection should, therefore, be based on
a combination of what the needs are, what systems are already in place,
and what future needs should be considered.
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