Enterprise resource planning or ERP software is considered to be business software that is responsible for managing the various processes in the business (Chiu et al. 2014). It helps in automating the functions of the back office and increases the operational efficiency of an organization. ERP systems are gaining importance with time. These systems are becoming an essential need of the small and medium sized organizations. ERP is an essential business innovation. Implementation of ERP systems will benefit enterprises of various sizes. SaaS model delivers a cost effective solution to the small as well as medium sized organizations. SaaS ERP solutions provide an option to the SMEs so that they can counter their issues regarding resource constraints as well as business complexities. ERP systems are being implemented in every industry.
This report discusses about the reasons and benefits of adopting ERP software by the small as well as medium sized organizations. It also points out the specific industries that can be considered to be biggest users among of ERP software. It justifies the reason for adopting ERP software by that specific industry. This report focuses on the reasons for Sarbanes-Oxley Act along with its implications. It describes how MySAP ERP meets all the implications of the Sarbanes-Oxley Act. This report identifies one company which has been successful in implementing ERP software and also talks about its success story. This report also identifies one such company which has failed in implementing ERP system and describes its success story.
Reasons for adopting ERP software
Environmental or external factors play a significant role in adopting and implementing ERP solutions. Few examples of external factors are legislative pressure, pressure from most of the clients and relative advantage over competitors (Seethamraju 2015). Adopting SaaS ERP solution for service delivery will help the SMEs to reduce resources and hardware for the purpose of backups, system administration, database administration as well as management. It will reduce the overall expense of the company.
Figure 1: Conceptual model of SaaS ERP adoption
(Source: Seethamraju 2015, p. 13)
There are several reasons why small and medium sized organizations prefer to implement and adopt ERP software. Some of the reasons are as follows:
Improvement of business performance: SMEs want to replace their existing legacy system with advanced ERP systems in order to enhance the productivity and efficiency of the business (Leon 2014). ERP system is considered to be a business tool that can be used for the purpose of conducting and executing business functions or processes. It also conducts and executes business related transactions. There are no intrinsic or internal values present. The only value that is created is by delivering advantages and benefits to several business organizations.
Figure 2: ERP System
(Source: Leon 2014, p. 10)
Employee jobs are made easier: ERP systems enable the SMEs to work in an easier and efficient manner. It integrates information from various departments of the organization and promotes effective decision making in the company (Sustainment 2014). Manual works of the employees are reduced and replaced by automatic functioning of the ERP systems. Therefore, the productivity of the employees increases. Real benefits can be obtained from the new system.
Regulatory compliance: ERP systems ensure proper reporting. It facilitates control over the reporting processes and hence ensures compliance with the regulatory requirements. ERP system helps the company to comply with the financial regulations and impact on the roles of the employees.
Integration of systems: Different branches of a company and different departments deal with separate information (Monk and Wagner 2012). These information need to be integrated for the purpose of efficient operations in the company. ERP system improves the flow of information in the organization.
Increased ROI: The existing legacy systems of the SMEs are replaced by new ERP systems for the purpose of increasing the return on investment. Updated software will improve the productivity of the company.
Company growth: Smaller organizations find it easier to implement ERP solutions because it will be less complicated for them to carry out this process. ERP systems will simplify the tasks of the organization and assists in correct decision making by integrating information from various departments and branches (Monk and Wagner 2012). It will provide a centralize database that will be accessible to the authorized internal staffs of the organization. ERP system will help the SMEs to grow and develop.
Customer service: ERP systems will help the organization to understand customer needs in an appropriate manner. This will help the SMEs to improve its customer service.
Standardize business operations: ERP systems are able to standardize the various business operations in the organizations.
Stakeholder requirements: When a company is acquired or receives funding by another organization then this company will need accounting tools like ERP system for purpose of standardizing the method of reporting and improve transparency.
Working capital: If the ERP system is used in a proper manner then this will help to reduce the working capital of the company.
ERP software usage in Industries
ERP systems are gaining importance in every industry. ERP is able to improve the operational efficiency as well as improve the productivity of the companies present in various industries.
Health industry: This industry is making extensive use of the ERP systems. ERP software is playing a significant role in patient care, supplies control as well as the payroll system of the industry (Poba-Nzaou et al. 2014). This industry has been able to improve the flow of information among various departments as well as doctors. It helps in integrating real-time information present in the clinical systems. Health industry is able to reduce its operational cost and improve the process of decision making for taking proper care of the patients.
Hospitality industry: ERP systems are utilized by the hospitality industry for the purpose of improving the level of customer service (Azevedo, Azevedo and Romao 2014). This industry is able to automate the process of workflow resulting in less wastage of time and reduction of stress (Azevedo, Romão and Rebelo 2012).
Construction industry: The main concerns of construction industries are cost control, inventory and deadlines regarding any equipment rentals and specialty trades (Mexas, Quelhas and Costa 2012). This industry is increasing its ERP use because it wants to manage the inventory and control the cost in an effective manner where the operations will be streamlined along with automated workflows. ERP systems will enable the supervisors to focus on their jobs rather than getting involved in paper work.
Manufacturing industry: Global economy is constantly changing along with the needs of the customers. ERP software allows manufacturers and distributors to keep the inventory, supply chain and cost under control. This gives competitive advantage and increases the level of customer satisfaction (Tao et al. 2017). Manufacturing industry is one of the leading users of ERP systems because it helps to streamline the processes and improves the productivity. It also prevents delays and disruptions leading to reduction of cost (Xu 2012). ERP software will be able to adapt to all types of changing business environment. The manufacturers will be able to gain competitive advantages over other manufacturers by adopting ERP systems.
Reason behind the Sarbanes-Oxley Act and Implications
The Sarbanes-Oxley Act was passed in the year 2002 by the U.S Congress for the purpose of protecting the investors from any possible fraud accounting activities by the corporations. This act had mentioned strict reforms for the purpose of improving the financial disclosures from the organizations (Willits and Nicholls 2014). The reason behind the creation of this SOX Act was the accounting malpractices that had occurred like the Enron Scandal that had decreased the level of confidence of the investors. This scandal prompted the Congress that there was an urgent need for a new standard of compliance for the purpose of public auditing and accounting (The Balance 2017). Enron had taken huge advantage of the deregulation that took place in the gas and oil industry for allowing more competition. This company had committed several crimes and the shareholders had suffered huge losses. There were other activities like corporate funds were embezzlement.
Figure 3: SOX Act
(Source: Willits and Nicholls 2014, p. 12)
The main aim of SOX Act was to improve the reliability and accuracy of corporate disclosure by closing the loopholes present in the current accounting practices, increasing disclosure requirements and accountability of corporations especially the public accountant of the corporations and the corporate executives and strengthening the rules of corporate governance. Its other objectives are strengthening compliance monitoring and whistle-blower protections, increasing the requirements for the purpose of corporate transparency and increasing the penalties for malfeasance. The section 802 of this Act has three rules which deal with falsification and destruction of records, retention period for record storing and types of records that required being stored. Some of the sections of this Act are as follows:
Section 302: This section deals with the corporate responsibility related to financial reports. It mentions that the CFO and CEO are needed to review all the financial reports and are responsible for the control of the internal accounting system.
Section 401: This section states that the financial statements must be presented in a correct manner and must contain correct information.
Section 404: This section talks about the need for including Internal Control Report in all financial reports that are generated annually.
Section 409: This section states that companies must disclose real-time information regarding material changes, financial conditions as well as operations.
MySAP ERP is considered to be a leading ERP solution that suite, meet and support the company requirements by automation of processes and improvement of productivity in an effective manner (Chong 2013). This solution enables the companies for deploying internal controls that are of industry standards. The SOX Act requires the companies to timely, transparent, accurate and fast in their accounting practices and financial reporting. Organizations are able to achieve automated tooling and industry standard process by adopting MySAP ERP software. One sub module of MySAP ERP deals with the internal control management. It deals with process modeling and documentation of the internal controls. It allows the C-level executives to access management reports that can be used for the purpose of checking the internal controls that are used and the accounting state (Mundy and Owen 2013). This complies with the Section 404 and Section 302 of the SOX Act. MySAP is well known for providing configurable accounting and financial modules (Willits and Nicholls 2014). It follows the process of disclosure and transparency. This promotes periodic, accurate, transparent and timely reporting. This complies with Section 401, Section 302 and Section 409 of the SOX Act. MySAP helps in improving audit compliance. It prevents any misuse of information. This complies with the Section 802 which deals with criminal penalties relate to altering of documents (Willits and Nicholls 2014). MySAP ERP enables to build an audit information system that allows external and internal firms that are independent to audit reviews in a structured manner. This system consists of activities and reports that are preconfigured that guides the auditors to go through for validating required compliance. It also helps to figure out the improvements and gaps. Therefore, MySAP ERP meets the implications of the SOX Act.
Success and Failure of ERP Implementation
Success Story- ERP Implementation by Cadbury
Cadbury is a multinational confectionery based in United Kingdom. It is known to be the second largest brand of confectionary. It was founded in the year 1824 by John Cadbury. Cadbury had implemented and adopted SAP ERP 6.0 and it was considered to be the largest ERP implementation (Poranki, Perwej and Akhtar 2015). Kraft had also added the master data management solution provided by SAP. Initially after the installation of SAP ERP 6.0, there were excess chocolate produced by the end of the year 2005.
ERP had increased the level of efficiency in the operations of the company. ERP enabled the company to manage the warehouse in an advanced way by an automated warehouse management system. It had developed effective work structure at the branch offices. ERP implementation helped the company to maximize its strength and remain competitive at the same time (Poranki, Perwej and Akhtar 2015). The successive ERP implementation consumed less cost as well as time which had benefitted the company. The internal processes of the company were restructured in an effective manner that automated the flow of information and the workflows (Tarhini, Ammar and Tarhini 2015). The company could monitor the system and changes. The processes of the company were streamlines in such a fashion that avoided chances of minor problems at the time of initial implementation (Poranki, Perwej and Akhtar 2015). ERP implementation also allowed the company to check their inventory via vendor connect portal. This had improved the supply chain management as well. ERP implementation generated high result at a low cost.
Failure Story- ERP Implementation by the Hershey Chocolate Company
The Hershey Chocolate Company is an American chocolate manufacturing company that was founded in the year 1894 by Milton Hershey. This company had implemented SAP R/3 ERP solution for the purpose of improving its competitiveness as well as customer service. It had also selected IBM Global services, CRM software of Seibel and SCM software. Hershey had decided to use the Big Bang Approach rather than selecting the phased approach (Pameco 2017). The ERP implementation had failed having several negative impacts on the company. Hershey was not able to deliver the products on time and there were problems related to order fulfillment, shipping and processing. The distributors were unable to supply the products to the retailers within correct time. The inventories had increased by 25 per cent. After the announcement regarding its malfunctioning, their stock price had plunged by eight per cent.
There were several reasons behind the failure of ERP implementation. They had sacrificed the phase of system testing in order to be practical and expedient (Zeng and Skibniewski 2013). This had resulted in systems, process and critical data integration issues. Another reason behind the failure was over-squeezing of ERP implementation schedule (Amid, Moalagh and Ravasan 2012). The team wanted to implement the ERP in a short time. They had decided to Go-Live during its busiest business schedule (Pameco 2017). The use of Big Bang Approach was another crucial reason for its failure. Phased Approach would not have led to this situation.
It can be concluded from this report that ERP is gaining importance and is adopted by most of the companies in order to gain competitive advantages. This report discussed about the various reasons for adopting ERP solutions like improvement of business performance, streamlining business processes, growth of business and increased productivity. It concluded that construction, health, manufacturing and hospitality industries are the biggest users of ERP systems. This report said that SOX Act was created for the purpose of protecting the investors from fraudulent financial activities. It also pointed out its implications and showed how MySAP meets the requirements of SOX Act. This report also discussed about the success story of ERP implementation by Cadbury and discussed the reasons behind the failure of ERP implementation by the Hershey Chocolate Company. It said that few reasons like use of Big Bang Approach and over-squeezing of schedule was responsible for the ERP implementation failure.
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