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Thesis (M.A.), 2017
79 Pages, Grade: MA
Methodology and Data
Main features of the ERP system implementation market
Development strategy and the role of ERP-systems in achieving
the companies’ goals. Composition of the ERP-system
The main problems of implementation and use of ERP-systems
Evaluation of the effectiveness of the implementation of ERP-systems
Development of recommendations based on the analysis
of projects for the implementation of ERP-systems in enterprises
Management of changes in the implementation of ERP-systems
High competition is one of the main characteristics of the modern market. In order to ensure the competitiveness of its goods (works, services), it is necessary for the company to learn how to effectively manage all business processes, starting from the nomenclature of raw materials and ending with the control of financial flows and the formation of reporting. Creating a unified management system for all these processes is a task that ERP systems successfully solve. ERP systems SAP provide the customers with effective tools for accounting, planning, and management of all business processes occurring in the organization.
Increasing competitiveness is one of the main goals of implementing SAP ERP, for the implementation of which all functions of the system are directed. This goal can only be achieved by building a transparent and understandable business process management system based on complete and reliable information about the company's activities.
ERP systems have one more indisputable advantage, providing a stable development of the company - scalability. This allows maximizing the rational use of all their capabilities to support business growth and meet new challenges.
The purpose of the work is to analyze the key factors of the successful implementation of ERP-systems within the framework of the problem of interaction between management, employees of the company, and the external environment. In the course of the research, the following were conducted: analysis of the ERP system market, identification of the main trends, problems and prospects; highlighting the main advantages and disadvantages of implementing ERP-system in the enterprise; analysis of approaches to assessing the cost-effectiveness of implementing the ERP-system; generalization of ERP system implementation experience at specific enterprises, evaluation of implementation efficiency; development of recommendations for replicating the ERP-system in accordance with the analysis.
As a result of the research, it was found that the implementation of ERP-systems is an expensive and resource-intensive process that distracts the management and production personnel of the company from the main activity for a long time. In this connection, studies of mechanisms for reducing these costs and overcoming resistance to change are relevant. The typification of the implementation of ERP-systems is expected to reduce the negative factors.
The existing severe price competition in the economy and unstable macroeconomic conditions lead to the fact that in most sectors of the economy it is impossible to compensate for the consequences of excessive company costs arising from its unadjusted business processes by increasing the value of the products sold. As a consequence, one of the main tasks of management is to reduce the company's internal costs, primarily through the optimization of business processes.
The introduction of business applications is one of the main ways to improve the efficiency of the enterprise. This is the original purpose of corporate IT systems. Over the past 15-20 years, a large number of business applications appeared on the market, theoretically capable of solving most of the tasks facing the company. The most fully-featured business applications, including virtually all the company's required set of modules, are ERP (Enterprise Resource Planning system) -systems.
The implementation of the ERP-system is a complex technological process, which requires the enterprise to spend a lot of financial resources and staff time. At the same time, the implementation process involves a lot of internal and external factors that have a significant impact on the results of implementation, which results in a high probability of inconsistency of the final results of the implementation with the initial expectations. If it is not possible to use the implemented ERP system in the company due to the discrepancy between the realized functionality and the real needs of management and personnel, the enterprise not only loses the financial resources spent for implementation, but also faces the threat of a decrease in the efficiency of its work, due to arising of additional costs on the parallel implementation of activities in accordance with existing business processes at the enterprise and entering of information into an automated information system.
Therefore, the decision to implement the ERP system with a comprehensive assessment of the potential benefits of implementation is one of the key objectives of management when solving tasks to reduce the medium- and long-term costs of the company. This problem is especially acute when introducing complex, multifunctional systems that must solve not one specific task but provide solving a wide range of various tasks facing management.
As business, universities, and other enterprises become more vibrant, there is a constant need for these enterprises to seek new opportunities to enhance not just their productivity but also their competitiveness. This is critical in as far as meeting the demands of the consumers and end-users are concerned and enhancing the enterprises’ agility. In terms of the enterprises’ agility, this entails the following:
1) The response time of the enterprise to its direct and indirect consumers;
2) The quality of the products;
3) The efficiency in the enterprise’s production and;
4) Overall production.
According to Davenport (1990, p.2), information technology is now being accepted and considered as one of the fundamental changes that enterprises must adopt in order to make sure that their agility is met. Albeit this suggested change in information technology, such change goes beyond switching from manual enterprises operational process to automated processes. With this comes the enterprise resource planning or the ERP system. In terms of information technology, applied in businesses and other enterprises, the ERP is considered to be one of the most advanced information systems that can augment the competitiveness of the business or enterprise.
Particularly, when adopted and applied properly to a business, will result to the acquisition of knowledge that pertains to organized management of the operations. It will also result in the ability of the businesses to provide its consumers with the right products or services at the right time with very low or with minimal cost. With this, one can simply adduced that the enterprise resource planning forms part of the backbone of a business. Hence, without it, the business can be exposed to the risk of failing. This is also the reason why huge corporations and even universities have incorporated and adopted the enterprise resource planning in their operations in order to ensure that their processes are integrated in a more effective and well-organized manner.
One of the most important innovations in enterprise resource planning system is the evolution of what is known as cloud computing. Over the years, cloud computing has resulted to the major changes how businesses and corporations use information technology to their advantage. With cloud computing, businesses have transformed the manner in which products and services are being paid for, devised, industrialized, deployed, measured, updated and preserved. The main purpose of cloud computing is to make sure that even with the integration of functionalities of information technology, the cost can somehow be managed effectively. This is because the upfront cost of the application of information technology and even the enterprise resource planning is burdensome to business owners. Bajwa et al predicted that by 2014, cloud computing will boom to become a $150 billion dollar business (2004, p.85). This prediction is not far off with the current standing of cloud computing because of the distribution of the system into three major models of service known as infrastructure, software business, and platforms. The use of cloud computing also adjusts to the needs of the consumers and businesses. There are options for public, private or the combination of both which is called hybrid cloud deployment (Coyne et al, 2016, p.154).
In terms of the enterprise resource planning system, on the other hand, researchers assert that the current application of the system on premise is not sufficient to meet the current demands and needs of e-businesses. Additionally, it is said that the intensive requirements needed for data and storage might cause for another innovation known as the ERP II or enterprise resource planning 2.0 (Gupta, 2009, p.337).
Basically, the enterprise resource planning system is not limited to what it offers to business owners of both huge corporations and small local businesses. It helps in most of the day-to-day business operations that owners can benefit from as productivity and efficiency increases. Its functionalities include but are not limited to:
1) Management of the business supply chain;
2) Automation of operations;
3) Efficient production and management of relationships between business and consumers, finances and accounting (Vaman, 2007, p.133).
The advantages of the enterprise resource planning system, when properly incorporated into a business or corporation can lead to vast opportunities for growth and expansion. However, it cannot be denied that there are also situations wherein the enterprise resource planning system poses risk and disadvantages to businesses. Hence, it is imperative that these advantages and disadvantages are studied in order to further understand how enterprise resource planning system can be appropriately applied in business and other enterprise.
In the traditional view, the evaluation of the feasibility of introducing an ERP-system is methodologically based on financial and investment analysis or approaches to project management and process analysis. At the same time, each of these methods is suitable for the analysis of only a part of the evaluation components of the feasibility of implementation. Methods of economic analysis are based on investment indicators that are difficult to be assessed prior to the implementation process and virtually any assessment embedded in the model for calculating investment indicators, initially based on empirical assessment of implementation risks, will ultimately be very different from reality and cannot accurately predict the return on investment in the ERP system. The methods of process analysis involve the evaluation of efficiency through the application of project management methods and monitoring of the duration of work and the level of their implementation, but they do not allow a pre-investment evaluation of efficiency and make a choice of the ERP system that best suits the tasks of the company.
Thus, proceeding from the increasing contribution of complex automation to the final result of the company's activities and the presence of tasks which are not solved by methods currently available for assessing the feasibility of implementing ERP systems, it becomes necessary to shape an integrated approach to the decision to implement an ERP system that includes both traditional financial and investment, as well as expertly evaluated quality parameters, which determines the relevance of the topic of this study.
In this regard, the aim of this paper is to identify the various advantages and disadvantages attached to the implementation of the enterprise resource planning software system to businesses and enterprises. Specifically, this paper will answer the following:
1) What are the advantages of the implementation of enterprise resource planning to a business?
2) What are the disadvantages of the implementation of enterprise resource planning to a business?
3) How can the identified disadvantages be mitigated or eradicated?
In accordance with the stated goal, the following tasks are assumed in the work:
- To analyze the current trends in the development of the market for the implementation of ERP-systems, the main methodological approaches to implementation and the difficulties that management faces when implementing a project for automating business processes;
- To investigate the basic functions and tasks solved by constructing a formalized development strategy (strategic vision);
- To analyze the role of a formalized strategy in deciding whether to implement ERP;
- To conduct an analysis of the main methods for assessing the effectiveness of implementation and operation of ERP-systems;
- To develop recommendations for the implementation of ERP-projects for the enterprises.
The practical importance of the work lies in the fact that the application of scientific and methodological developments and recommendations of the author allows increasing the organizational stability and efficiency of the process of implementing integrated management systems at enterprises.
There are many definitions of ERP-systems. One of them (the most frequently encountered recently) is the following: ERP-system is a set of integrated applications that allow creating an integrated information environment (IIE) for automation of planning, accounting, control, and analysis of all major business operations of the enterprise (Dillard & Yuthas 2006). It is generally accepted that IIE of the enterprises may include ERP-system; electronic document management software; information support for subject areas; communication software; collaborative software (tools to organize teamwork of employees); operational analysis of information and decision support; project management software; built-in tools and other products (for example, CAD/CAM/CAE/PDM systems, personnel management software, etc.). The basis of enterprise IIE is namely ERP systems (Laukkanen, Sarpola & Hallikainen 2007).
The impact of MRP/MRPII ERP systems on modern business cannot be overestimated. Already by the mid-1990s, the MRP/MRPII/ERP concept had become the main business model that manufacturers had used around the world to achieve production efficiency. For example, according to Advanced Manufacturing Research, by 1994 more than 48,000 of the 60,000 US industrial enterprises had operated these systems (Eden, Sedera & Tan, 2014).
ERP-systems have become so important for the operation of enterprises that, with any failures in their work, users have had considerable problems. For example, according to a survey of 886 IT managers of some of the world's leading companies (conducted by MERIT Project), their enterprises suffered the following losses due to forced downtime of ERP systems installed on them: from $359,000 to $1.07 million - 43.8%; from $2.5 million to $5 million - 35.3%; from $9.3 million to $10.7 million - 20.9% (Koh Gunasekaran & Goodman, 2011). The data obtained by AMR Research after studying 13 branches of American industry and 800 companies are also interesting. The purpose of the study was to find out which share of its budget the companies spend on ERP-systems. The results of the research are as follows: high-tech companies - 28%; pharmaceutical companies - 20%, financial companies - 15% (Coyne et al., 2016).
As analysis of the literature on the implementation and use of ERP-systems shows, the following main reasons can be singled out, as the result of which enterprises around the world are striving to introduce ERP systems (Behesti 2006; Haddara & Zach 2012; Tingting & Tortorella & Fries 2015; Ugrin 2009):
1. The main goal of implementing the ERP-system is the integration of all business processes of the enterprise under uniform rules and ensuring prompt receipt of information by management on all aspects of the enterprise's activities.
2. Ability to replace the set of derived stand-alone enterprise applications (for the most part obsolete) that do not meet the requirements of modern business, by one ERP-system. For example, one well-known in the world oil producer, after implementing the ERP-system, stopped using about 350 derived applications.
3. Increasing the competitiveness of the enterprise.
Nevertheless, according to survey of the Worldwide Benchmark Project conducted among some of the world's leading companies, when using the MRPII/ERP system, it is more correct to speak of a reduction in corporate expenses rather than of real profit (82.5% of respondents when implementing the ERP system are monitoring costs and only 15% carry out observance of the growth of profits). However, more importantly, immediately after the deployment of the ERP-system, its indirect advantages begin to appear: the management of the enterprise has more time for comprehensive analysis and development of strategic decisions; closer relationships with customers and suppliers are developing; the burden on the administrative apparatus is reduced, etc. All this, in the end, leads to an increase in the efficiency of the entire enterprise (van Vuuren & Seymour 2013).
Successful companies always have room for growth and as they grow, departmentalizing would be their step towards an organized operation. It is important for companies to make sure that departmentalizing or separating functions into different divisions will not affect the efficiency of the company. This will be highly possible if there will be no communication barriers. For smaller companies, there may be tools they can use to solve this problem of expansion and division of work. However, larger companies need a more effective tool especially if they have a more complicated supply chain, larger number of suppliers and customers (Grant, 2003, p.99). These variables can make it hard for corporations to bridge the link between each department. However, because of enterprise resource planning or ERP, companies are successful with their aim in bridging information gap without affecting the operation’s effectiveness.
If used correctly, ERP allows companies to tie the functions of each organization together where each department knows the events of the company in real time. It is highly beneficial for a company to have knowledge readily available to each department all across the entire organization. The implementation of ERP system offers efficiency and is one of the top ten benefits it can offer to an organization. The ERP system has various aspects that will make the operation process a lot easier and as a result, efficiency comes out naturally. Manual entry will also be lessened if not eliminated and thus, duplicate entry errors will be minimized too. This will also allow for the work process to speed up and work faster than the normal speed (Behesti, 2006, p.187). With the improvements and efficiency that the enterprise resource planning system has to offer, employees can in turn use their time and utilize their expertise in other ways for the benefit of the company. The act of improving the uniformity and availability of information creates a possible impact to the efficiency of the company operation process because it reduces the cycle time of the process (Grant, 2003, p.112). The improvements are the result of the software ability to standardize the processes among departments within the company. With the help of the system, each department has the ability to immediately respond in orders, which took them a substantial amount of time to complete with the previous process without the ERP system.
To understand the Enterprise Resource Planning or ERP better, the following scenario is a good thing to consider. Someone placed an order for a product with unique specifications. If the company does not have the enterprise resource planning system, there is a tendency that they will contact every department and suppliers in order to complete the parts needed to assemble the product. However, for a company with enterprise resource planning system, a few keystroke of the computer will do wonders including parts request, job order for workers, invoice creation, and even accounting entry.
With the given scenario, the job that took days or weeks with the company’s previous process is done in minutes with ERP system. Another benefit that ERP offers to the company is the ability of the employees to make sound decisions on a daily basis as a response to the fast changes of their company. These benefits are accomplished in different ways. One way is the encoding of the data, that made easier and more automated, which resulted in a more accurate work. These data will now be the data available for use in all departments, available for collection daily without the need of a separation file or compilation making it readily available at all times. With the data and report available in seconds, executives enjoy the benefits of having reliable information that will support their decision when forced by the management to make decision within a short notice.
The use of ERP system also gives companies the ability to integrate technology because the software offers various integration options with e-commerce and supply chain partners. Considering the mentioned scenario above, the available technology that a company can integrate for the said scenario is to automatically place the customer’s order on a concerned company’s website. In a simultaneous manner, those suppliers with ERP system will get the message immediately, which is truly a great way to save time. After the order has been placed, all the concerned departments within the supply chain will get the updated status all because of the ERP system and web based collaboration systems. With the said modern process and collaboration, companies can now offer a service that is above and beyond what is expected, which is an advantage with today’s fast paced society. Looking at all of the advantages mentioned, it is quite obvious that the main advantage companies enjoy with ERP is cost saving because it will lessen the time spent on a certain jobs. In fact, if the company would not want to utilize an employee’s time, they can actually reduce manpower and save cost. With the efficient process, cycle times are already reduced and will result into more units produced. To have a better picture, we can take for example a simplified inventory process following order receipt will immediately show update to the inventory on hand thus will immediate reduce the inventory cost.
Also, the data provided will help the company in making sound decision for cost saving purposes. With enterprise resource planning system it would be easier to decide as to how much inventory to keep on hand because with the real-time update of inventory records, the company will have the idea and evaluate of its movement. With enterprise resource planning system, purchasing different software for different department will be eliminated and thus another cost saving benefit that companies will enjoy. This will also allow IT personnel to have a deep and effective analysis of the system because they will familiar only a single system, which will eventually saves their time and spend it into enhancing their knowledge of the enterprise resource planning system. With only one system, training cost will be minimized as well because employees can already introduce and train their new peers to the same enterprise resource planning system they are using (Fisher, 2006). Thinking of all the possibilities companies can do and the benefits they can enjoy, the enterprise resource planning system is truly an effective transformation tool for a company. Everyone in the organization from different departments can do their assigned tasks efficiently and in a timely manner. Fisher rightly claims that if the people in every department will not communicate, the company or organization as a whole will fail (Fisher, 2006). Because every department and its people have an important role in an organization, an effective way of communication is important and enterprise resource planning or ERP is the best tool for it.
However, as research shows (Maditinos, Chatzoudes & Tsairidis 2011, Muscatello & Chen 2008, Venkatraman & Fahd 2016), despite the undeniable advantages of ERP-systems, we should mention some problems that their users are currently facing.
Inefficiency of implementation. This problem is the main one and shows that any state-of-the-art technology will be useful only if it is correctly implemented and used. At many enterprises, which spent huge amounts of money for the acquisition and implementation of ERP-systems, their launch led only to negative results. It should be noted that according to analysts, up to 70% of ERP implementation projects fail (Venkatraman & Fahd 2016). In particular, the management of Hershey Foods, which spent $112 million to implement a comprehensive automation system, remained very dissatisfied with the significant deviation of the ERP-system implementation from the plan (the project included the supply of software, equipment, and services of SAP AG, Siebel Systems, Manugistics and IBM) ( BCG 2016). At the same time, according to the Gartner Group, the compliance of the implementation projects with the planned indicators is estimated at 60% for ERP systems (of which “early implementations” is about 3%), and completely failed projects - at 10% (Haddara & Zach 2012). Other results of the BCG study also are quite indicative. A small number of successful implementations are noted. There is also no conclusive evidence that the enterprise benefits from the implementation of the ERP system. In addition, many respondents believe that the cost of implementing the ERP-system is too high (BCG 2016).
The complexity of effective integration of ERP-systems with third-party applications (primarily with e-business applications). If the previously created ERP systems were designed to integrate only the internal business processes of an enterprise (for example, passing orders or making payments), now more and more users want to combine their internal system (the so-called back office system) with an external frontend system, through which interaction with customers and partners is carried out. The main reason for respondents' dissatisfaction is the inability of ERP systems to successfully interact with e-commerce applications (Hanafizadeh & Ravasan 2011a).
Among the shortcomings also the low performance of ERP systems when integrating them with e-business applications (especially B2B) are noted, when it is necessary to quickly process simultaneous requests of many thousands of users about the status of their orders (Yongbeom, Zoonky & Gosain 2015).
The biggest disadvantage of an enterprise resource planning software system is the cost. Especially for small to medium sized businesses, the direct cost of the whole implementation process starting from exploration, preparation, testing, designing and customizing of an ERP can be very expensive. Aside from the financial cost, the training time spent for the employees and other stakeholders, and deployment of manpower should also be first considered by business owners if implementing an ERP system would be worth their time and money (Hardwood, 2003, p.36).
Since ERP is a generic system, business owners might opt to have their own customized system integrated in their current system, or build a new one. And since there are only a few experts in the field of ERP, it would take more time to train or employ an expert, than building their own. Like any other applications, web-based, offline or online software, a customized one can be very advantageous to a business, otherwise if not done correctly can do more damage than the business owners and corporations are prepared to (Hardwood, 2003, p.112). If business owners are opting to have their ERP to be customized, they should start aggressively from the planning phase. Entrepreneurs should also take into consideration the opportunity cost that will be spent on the adaptation of the new hardware to their company.
The usual pitfall of customization is the huge costing since an enterprise resource planning system project may take 1-3 years. This is why this is not applicable to small to medium sized businesses. Therefore, larger companies who have stretchable budget are more likely to customize their enterprise resource planning systems.
Customization of the enterprise resource planning system has various disadvantages. One of which is that it might be difficult to integrate with the other business processes and operations when it is under customized. Secondly, the over customization of the same system might cause the production and operation to slow down. Finally, it could make it difficult for owners to upgrade the system (Huang et al, 2004, p.683).
Other disadvantages of the enterprise resource planning systems include but are not limited to:
Cost - Unlike if companies will just use those that are already available for free like Microsoft Excel or Access that comes upon purchase of the Microsoft Operating System, ERP charges companies accordingly. The charging is based on different factors making it an expensive investment for companies. Factors considered for ERP pricing are the number of users, application required, customization level and the hosting place. ERP cost is dependent on the number of users a company has. Therefore, larger companies will be charged more for they will surely have a larger number of users and they surely will require more applications for them to function effectively. Some companies also need a customized system especially those that are into specialized processes. Hosting can also be a huge factor for companies planning to use ERP system because they are to decide if they have it hosted in their own premises or in cloud storage.
Time Consuming – many of the companies claimed that they have no time for implementation because after a company decided to use the ERP system, the preparation will take 60 to 90 days or even more. If the company is a large institution, implementation of the ERP system could take years. Companies will have to undergo the process of going through the requirements making sure the software will perform and do its job and after the purchase has been done, the implementation process will immediately follow through including the evaluation and review, training and finally going live. While companies may use their in-house IT personnel for cost saving purposes, it is highly advised that they will seek assistance from an ERP expert, which will require time to complete because ERP implementation experts can only be counted by hands (Grant, 2003, p.99).
Training Required – it is important that in every department, there will be someone who are highly knowledgeable, otherwise, implementation would take longer. Therefore, an experienced user in every department is also important so that the implementation process will go on smoothly. In addition, while doing the training, every employee undergoing the ERP training will have to stop from working to focus in the training in order for them to have a better understanding of the system. This would only mean more pending jobs while training is on-going (Fisher, 2006).
Security Issues – many companies refused to use the ERP system because it will make them prone to information theft because ERP cannot protect companies from this type of security issue. Other than information theft, another security issue that a company can encounter if they chose to use the ERP system is the increased risk of misused information.
The choice of a specific ERP system for implementation is a complex and multi-criteria process due to the following main reasons (Hanafizadeh & Ravasan 2011b): the high cost of the purchased product (reaching several million dollars); a wide variety of ERP-systems offerings; the duration of training of specialists for the product being introduced, the pre-sales cycle (from several months to several years), and the implementation cycle itself (the ERP system implementation cycle can last up to several years even on one production site), as well as a number of other reasons.
In general, according to a fair observation of the researchers, when choosing an ERP system, one must understand that automation for the sake of automation does not make sense (Kim, Lee & Gosain 2005). It should be clear that the best ERP system in the world will not be able to solve all the problems of the enterprise. Any ERP system is, first of all, a tool for increasing the efficiency and quality of enterprise management, making the right strategic and tactical decisions based on automated processing of current and reliable information. At the same time, ERP-system is not only a tool for business but also a technology for its conducting.
The theoretical and methodological basis of the dissertation was made by the works of domestic and foreign scientists, as well as specialists and analysts in the following fields: information technology, assessment of the effectiveness of IT systems implementation, management and strategic planning, change management. For the processing of primary information, general scientific methods of analysis and synthesis were used. Methods of comparative, quantitative, and qualitative analysis, system analysis were applied, along with organizational methods of selecting and implementing ERP-systems.
This research paper will utilize the interview and qualitative data gathering method as it allows for a deeper comprehension of the behavior of the subjects of the research. It also allows for a fair interpretation of such behavior (Creswell, 2009, p.55). With the utilization of this method, the researcher will be asking broad questions as a part of data gathering which consists of impressions and opinions. This method will rely heavily on the ability of the author to provide correct and accurate interpretation of data to establish a clear answer to the questions posted. In addition, this research will benefit from the flexibility of the method as far as the presentation of additional questions is concerned; contextual factors; and the utilization of an appropriate theoretical framework (Creswell, 2009, p.55). With this type of research method, the researcher will be able to gather first-hand information and data pertaining and relevant to the topic of the research.
Also, open-ended questions will be used to gather direct and first-hand information from the participants in the study. In addition, second hand research will likewise be utilized in the completion of this paper. This means that the researcher will make an analysis and conclusion about the findings of the study based on the researches that have been published and written by other scholars. This type of research will utilize the information gathered from sources such as governmental reports, published journals, books, industry studies and other traditional forms of written works (Creswell, 2009, p.55).
The academic novelty of the research presented in dissertation is in the development and justification of the conceptual and methodological provisions that ensure the successful implementation of ERP-systems.
The distinctive feature of the results stated in the dissertation is the concept of a comprehensive assessment of the effectiveness of the ERP system integration as a means to improve the enterprise resource management system. In the author's opinion, the operation of the ERP-system is effective only in the case of a system solution of the management tasks set. If a decision is made to automate only one local task of the system (aimed at achieving a local optimum), then the ERP system in this case will be ineffective, since it will be an unnecessary burden, and not an instrument for increasing the effectiveness of management decisions.
Initially, the term ERP was applied to capacity utilization planning systems. Despite the fact that the term ERP arose in the production sphere, today it has a wider scope. Modern ERP-systems ensure the performance of all the basic functions of the enterprise, regardless of its type of activity or charter. Currently, ERP-systems are used both in commercial and non-commercial structures, in governmental and non-governmental organizations.
ERP-systems are often mistakenly called internal (back-office) systems, indicating that customers and the general public do not directly interact with them. They are opposed to external (front-office) systems such as customer relationship management systems with which customers work directly or e-business systems, such as e-commerce, e-government, e-telecom and electronic Finance (eFinance), and vendor management systems (SRM).
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