Management Information System Unit 7

Unit 7 MIS Organization Structure

Structure:
7.1 Introduction
Objectives
7.2 MIS at Management levels
7.3 Strategic Level Planning
7.4 Operational Level Planning
7.5 Economic and Behavior Theories
Build and Use
MIS for Competitive Advantage
7.6 Enterprise Resource Planning
Perception of ERP
ERP – Before and After
Best Practices
Implementation
Process Preparation
Configuration
Consulting Services
Customization Services
Maintenance and Support Services
Advantages and Disadvantages
Limitations of ERP
ERP integration
7.7 Summary
7.8 Terminal Questions
7.9 Answers to SAQs and TQs

7.1 Introduction
In the earlier unit you learnt about how to plan information requirement. You
have also learnt about management of quality in MIS. You have learnt about
Developmental models. In this unit you will learn about organization
structure of MIS. In order to achieve integration organization uses many
systems to perform various functions. ERP is one such system which is a
unique process. Today's ERP systems can cover a wide range of functions
and integrate them into one unified database. The organization need to

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carry out its process in various departments like Finance, Human Resource,
Marketing, banking, business communication, etc. Today, they can all fit in
one umbrella - the ERP system with the help of information systems.
Learning Objectives
After going through this unit, you will be able to:
 Explain Management Level planning of MIS
 Describe How to gain the competitive advantage from MIS
 Explain Enterprise resource planning.
 Explain the best practices, consultancy services
 List out Advantages and disadvantage

7.2 MIS at Management levels

Planning
Decision made about what task has to be done, when it has to be done, by
whom and how it has to be done is called as planning. The first step
involved in planning is analysis. The goals have to be targeted has to be
identified and the various resources available have to be taken into account.
The interest of various groups, associated with the organization, has to be
considered. The groups can be stakeholders and directors, employees,
management, customers, suppliers, Government and public. The process of
business planning can be broadly classified as strategic level and
operational level.

Self Assessment Questions: True or False

1. The term ERP originally referred to how a large organization planned to
use organizational wide resources.
2. Management functions were all once stand alone software applications,
usually housed with their own database and network, today, they can all
fit in one umbrella - the ERP system.
3. The process of business planning can be broadly classified as strategic
level.

7.3 Strategic level planning

This planning is adopted by the top level executives in the organization.
They decide on the goals to be targeted and the different strategies to be

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adopted by the organization. They include plans to acquire resources, to

diversify, research and development, manufacturing a new product, sales
and marketing, setting up the infrastructure and human resource planning.
Different steps in strategic planning are:
 Analyzing the business environment
 Analyzing the available resources
 Perspective of top management and groups concerned
 Identify the advantages and disadvantages
 Identify the market demand
 Evaluate the competitive strength
 Establish goals and strategies
 Efficient acquisition of required resources

7.4 Operational level Planning

The operational planning decides on the investment and the cost control.
The main objective is always to maximize the profit and to minimize the
cost. The investment and financial controls are established. They include
managing the inventory, the cash flow, fixed assets etc. Proper budget has
to be allocated to labor, transportation, advertising and other overheads.
Costing and pricing of products is also an important aspect of operational
planning. The cost of the products is identified by taking into account the
cost involved in production and marketing. The prices of the products, is
fixed considering the cost and the market demand. It also depends on
customer is a buyer or a seller.
An organization is a structure which takes in capital, raw materials,
manpower, machines etc as input. The inputs are processed and produces
output in the form of different products and services. They are also
comprised of their own rules, regulations, policies and procedures to be
followed.

Self Assessment Questions

4. The operational planning decides on the ______ and the cost _______.
5. ______ and ________ of products is also an important aspect of
operational planning.

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7.5 Economic and the Behavior Theories

Economic theory – With growing economy and reduction of cost of
information technology, it has become more feasible to replace the
manpower like middle managers and clerical workers with information
technology. This also reduces the space required. The transaction costs like
searching for the suppliers and vendors, communicating with them on a
daily basis, monitoring the workflow, tax and insurances, getting information
of various products and their sales etc have reduced. The management
costs are reduced and the efficiency increased due to the use of information
technology and thus the revenues of the organization increases.
Behavior theory – The acquisition of information and the distribution of
information is done easily at a much lower cost. The senor executives can
be in direct contact with the lower level working units and get information
about the working. Similarly, any information to the distributed to the working
units is also done directly, without any middle managers or supervisors. The
outcome of the introduction of information technology is the change in the
organizational structure, policies and procedures. When introduced, it may
face a lot of resistance.
7.5.1 Build and Use
Managers need to understand certain essential features of organizations in
order to build and use information systems successfully. All modern
organizations are hierarchical, specialized and impartial. They use explicit
standard operating procedures to maximize efficiency. All organizations
have their own cultures and policies arising from differences in interest
groups. Organizations differ in goals, grouped served, social roles,
leadership styles, incentives, surrounding environments and types of tasks
performed. These differences create varying types of organizational
structures and they also help explain differences in organizations’ use of
information systems.
What impact do information systems have on organization?
Information systems and the organizations in which they are used interact
with and influence each other. The introduction of a new information system
will affect organizational structure, goals, work design, values, and
competition between interest groups, decision making, and day-to-day
behavior. At the same time, information systems must be designed to serve
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the needs of important organizational groups and will be shaped by the

organizations’ structure, tasks, goals, culture, politics and management.
Information technology can reduce transaction and agency costs and such
changes have been accentuated in organizations using the internet. The
information systems department is the formal organizational unit that is
responsible for the organizations’ information systems function.
Organizational characteristics and managerial decisions determine the role
this group will actually play.
How do information systems support the activities of managers in
organizations?
There are several different models of what managers actually do in
organizations that show how information systems can be used for
managerial support. Early classical models of managerial activities stressed
the functions of planning, organizing, coordinating, deciding and controlling.
Contemporary research looking at the actual behavior of managers has
found that managers’ real activities are highly fragmented, variegated and
brief in duration, with managers moving rapidly and intensely from one issue
to another. Managers spend considerable time pursuing personal agendas
and goals and contemporary managers shy away from making grand,
sweeping policy decisions.
The nature and level of decision making are important factors in building
information systems for managers. Decisions can be structured, semi-
structured or unstructured, with structured decisions clustering at the
operational levels of the organization and unstructured decisions at the
strategic planning level. Decision making can also take place at individual
level or at the group level. Individual models of decision making assume that
human beings can rationally choose alternatives and consequences based
on the priority of their objectives and goals. Organizational models of
decision making illustrate that real decision making in organizations take
place in areas where many psychological, political and bureaucratic forces
are at work.
Information systems have been most useful to managers by providing
support for their roles in disseminating information, providing liaison
between organizational levels and allocating resources. However, some
managerial roles cannot be supported by information systems and

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information systems are less successful at supporting unstructured

decisions.
7.5.2 MIS for Competitive Advantage
How can businesses use management information systems for
competitive advantage?
Businesses can use strategic information systems to gain an edge over
competitors. Such systems change organizations’ goals, business
processes, products, services or environmental relationships, driving them
into new forms of behavior.
Information systems can be used to support strategy at the business, firm
and industry level. At the business level of strategy, information systems can
be used to help firms become the low-cost producers, differentiate products
and services, or serve new markets. Information systems can also be used
to “lock in” customers and suppliers using efficient customer response and
supply chain management applications. Value chain analysis is useful at he
business level to highlight specific activities in the business where
information systems are most likely to have a strategic impact.
At the firm level, information systems can be used to achieve new
efficiencies or to enhance services by tying together the operations of
disparate business units so that they can function as a whole or promoting
the sharing of knowledge across business units. At the industry level,
systems can provide competitive advantage by facilitating cooperation with
other firms in the industry, creating consortiums or communities for sharing
information, exchanging transactions, or coordinating activities. The
competitive forces model, information partnerships, and network economics
are useful concepts for identifying strategic opportunities for systems at the
industry level.
Why is it so difficult to build successful information systems including
systems that promote competitive advantage?
Information systems are closely intertwined with an organizations structure,
culture and business processes. New systems disrupt established patterns
of work and power relationships, so there is often considerable resistance to
them when they are introduced.

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Implementing strategic systems often requires extensive organizational

change and a transition from one socio-technical level to another. Such
changes are called strategic transitions and are often difficult and painful to
achieve. Not all strategic systems are profitable, and they can be expensive
to build. Many strategic information systems are easily copied by other
firms, so that strategic advantage is not always sustainable.

Self Assessment Questions: True or False

6. The management costs are reduced and the efficiency increased due to
the use of information technology and thus the revenues of the
organization increases.
7. Information systems can be used to support strategy at the business,
firm and industry level.
8. Implementing strategic systems often requires extensive organizational
change and a transition from one socio-technical level to another, which
is known as operations transitions..

7.6 Enterprise Resource Planning

Manufacturing management systems have evolved in stages over the few
decades from a simple means of calculating materials requirements to the
automation of an entire enterprise. Around 1980, over-frequent changes in
sales forecasts, entailing continual readjustments in production, as well as
the unsuitability of the parameters fixed by the system, led MRP (Material
Requirement Planning) to evolve into a new concept : Manufacturing
Resource Planning (or MRP2) and finally the generic concept Enterprise
Resource Planning (ERP)
The initials ERP originated as an extension of MRP (material requirements
planning then manufacturing resource planning). ERP systems now attempt
to cover all basic functions of an enterprise, regardless of the organization's
business or charter. Non-manufacturing businesses, non-profit
organizations and governments now all utilize ERP systems.
To be considered an ERP system, a software package must provide the
function of at least two systems. For example, a software package that
provides both payroll and accounting functions could technically be
considered an ERP software package.
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However, the term is typically reserved for larger, more broadly based
applications. The introduction of an ERP system to replace two or more
independent applications eliminates the need for external interfaces
previously required between systems, and provides additional benefits that
range from standardization and lower maintenance to easier and/or greater
reporting capabilities.
Examples of modules in an ERP which formerly would have been stand-
alone applications include: Manufacturing, Supply Chain, Financials,
Customer Relationship Management (CRM), Human Resources,
Warehouse Management and Decision Support System.

Activity 1

Read the article on Evolution of ERP

7.6.1 Perception of ERP

Some organizations – typically those with sufficient in-house IT skills to
integrate multiple software products – choose to implement only portions of
an ERP system and develop an external interface to other ERP or stand-
alone systems for their other application needs. For example, one may
choose to use the HRMS from one vendor, and the financials systems from
another, and perform the integration between the systems themselves.
This is very common in the retail sector, where even a mid-sized retailer will
have a discrete Point-of-Sale (POS) product and financials application,
then a series of specialized applications to handle business requirements
such as warehouse management, staff rostering, merchandising and
logistics Ideally, ERP delivers a single database that contains all data for the
software modules, which would include:
Manufacturing Engineering, Bills of Material, Scheduling, Capacity,
Workflow Management, Quality Control, Cost Management, Manufacturing
Process, Manufacturing Projects, Manufacturing Flow.
Supply Chain Management Inventory, Order Entry, Purchasing, Product
Configurator, Supply Chain Planning, Supplier Scheduling, Inspection of
goods, Claim Processing, Commission Calculation.

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Financials General Ledger, Cash Management, Accounts Payable,

Accounts Receivable, Fixed Assets.
Projects Costing, Billing, Time and Expense, Activity Management.
Human Resources Human Resources, Payroll, Training, Time &
Attendance, Rostering, Benefits.
Customer Relationship Management Sales and Marketing, Commissions,
Service, Customer Contact and Call Center support.
Data Warehouse and various Self-Service interfaces for Customers,
Suppliers, and Employees.
Enterprise Resource Planning is a term originally derived from
manufacturing resource planning that followed material requirements
planning . MRP evolved into ERP when "routings" became a major part of
the software architecture and a company's capacity planning activity also
became a part of the standard software activity. ERP systems typically
handle the manufacturing, logistics, distribution, inventory, shipping,
invoicing, and accounting for a company. Enterprise Resource Planning or
ERP software can aid in the control of many business activities, like sales,
marketing, delivery, billing, production, inventory management, quality
management, and human resource management.
ERP systems saw a large boost in sales in the 1990s as companies faced
the Y2K problem in their legacy systems. Many companies took this
opportunity to replace their legacy information systems with ERP systems.
This rapid growth in sales was followed by a slump in 1999, at which time
most companies had already implemented their Y2K solution.
ERPs are often incorrectly called back office systems indicating that
customers and the general public are not directly involved. This is
contrasted with front office systems like customer relationship management
(CRM) systems that deal directly with the customers, or the eBusiness
systems such as eCommerce, eGovernment, eTelecom, and eFinance, or
supplier relationship management (SRM) systems.
ERPs are cross-functional and enterprise wide. All functional departments
that are involved in operations or production are integrated in one system. In
addition to manufacturing, warehousing, logistics, and information

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technology, this would include accounting, human resources, marketing,

and strategic management.
ERP II means open ERP architecture of components. The older, monolithic
ERP systems became component oriented.
EAS – Enterprise Application Suite is a new name for formerly developed
ERP systems which include (almost) all segments of business, using
ordinary Internet browsers as thin clients.
7.6.2 ERP Before and After
Before
Prior to the concept of ERP systems, departments within an organization
(for example, the human resources (HR)) department, the payroll
department, and the financial department) would have their own computer
systems. The HR computer system (often called HRMS or HRIS) would
typically contain information on the department, reporting structure, and
personal details of employees. The payroll department would typically
calculate and store paycheck information. The financial department would
typically store financial transactions for the organization. Each system would
have to rely on a set of common data to communicate with each other. For
the HRIS to send salary information to the payroll system, an employee
number would need to be assigned and remain static between the two
systems to accurately identify an employee. The financial system was not
interested in the employee-level data, but only in the payouts made by the
payroll systems, such as the tax payments to various authorities, payments
for employee benefits to providers, and so on. This provided complications.
For instance, a person could not be paid in the payroll system without an
employee number.
After
ERP software, among other things, combined the data of formerly separate
applications. This made the worry of keeping numbers in synchronization
across multiple systems disappears. It standardized and reduced the
number of software specialties required within larger organizations.
7.6.3 Best Practices
Best Practices were also a benefit of implementing an ERP system. When
implementing an ERP system, organizations essentially had to choose

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between customizing the software or modifying their business processes to

the "Best Practice" function delivered in the vanilla version of the software.
Typically, the delivery of best practice applies more usefully to large
organizations and especially where there is a compliance requirement such
as IFRS, Sarbanes-Oxley or Basel II, or where the process is a commodity
such as electronic funds transfer. This is because the procedure of
capturing and reporting legislative or commodity content can be readily
codified within the ERP software, and then replicated with confidence across
multiple businesses that have the same business requirement.
Where such a compliance or commodity requirement does not underpin the
business process, it can be argued that determining and applying a Best
Practice actually erodes competitive advantage by homogenizing the
business as compared to everyone else in the industry sector.
7.6.4 Implementation
Implementing an ERP system is not an easy task to achieve, in fact it takes
lots of planning, consulting and in most cases 3 months to 1 year +. ERP
systems are extraordinary wide in scope and for many larger organizations
can be extremely complex. Implementing an ERP system will ultimately
require significant changes on staff and work practices. While it may seem
reasonable for an in house IT staff to head the project, it is widely advised
that ERP implementation consultants be used, due to the fact that
consultants are usually more cost effective and are specifically trained in
implementing these types of systems.
One of the most important traits that an organization should have when
implementing an ERP system is ownership of the project. Because so many
changes take place and its broad effect on almost every individual in the
organization, it is important to make sure that everyone is on board and will
help make the project and using the new ERP system a success.
Usually organizations use ERP vendors or consulting companies to
implement their customized ERP system. There are three types of
professional services that are provided when implementing an ERP system,
they are Consulting, Customization and Support.
Because of their wide scope of application within a business, ERP software
system are typically complex and usually impose significant changes on

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staff work practices Implementing ERP software is typically not an "in-

house" skill, so even smaller projects are more cost effective if specialist
ERP implementation consultants are employed. The length of time to
implement an ERP system depends on the size of the business, the scope
of the change and willingness of the customer to take ownership for the
project. A small project (e.g., a company of less than 100 staff) may be
planned and delivered within 3-9 months; however, a large, multi-site or
multi-country implementation may take years.
To implement ERP systems, companies often seek the help of an ERP
vendor or of third-party consulting companies. These firms typically provide
three areas of professional services: consulting, customization and support.
7.6.5 Process Preparation
ERP vendors have designed their systems around standard business
processes, based upon best business practices. Different vendors have
different types of processes but they are all of a standard, modular nature.
Firms that want to implement ERP systems are consequently forced to
adapt their organizations to standardized processes as opposed to adapting
the ERP package to the existing processes.[5] Neglecting to map current
business processes prior to starting ERP implementation is a main reason
for failure of ERP projects.[6] It is therefore crucial that organizations perform
a thorough business process analysis before selecting an ERP vendor and
setting off on the implementation track. This analysis should map out all
present operational processes, enabling selection of an ERP vendor whose
standard modules are most closely aligned with the established
organization. Redesign can then be implemented to achieve further process
congruence. Research indicates that the risk of business process mismatch
is decreased by:
– linking each current organizational process to the organization's
strategy;
– analyzing the effectiveness of each process in light of its current related
business capability;
A disadvantage usually attributed to ERP is that business process redesign
to fit the standardized ERP modules can lead to a loss of competitive
advantage. While documented cases exist where this has indeed

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materialized, other cases show that following thorough process preparation

ERP systems can actually increase competitive advantage.
7.6.6 Configuration
Configuring an ERP system is largely a matter of balancing the way you
want the system to work with the way the system lets you work. Begin by
deciding which modules to install, then adjust the system using configuration
tables to achieve the best possible fit in working with your company’s
processes.
Modules – Most systems are modular simply for the flexibility of
implementing some functions but not others. Some common modules, such
as finance and accounting are adopted by nearly all companies
implementing enterprise systems; others however such as human resource
management are not needed by some companies and therefore not
adopted. A service company for example will not likely need a module for
manufacturing. Other times companies will not adopt a module because
they already have their own proprietary system they believe to be superior.
Generally speaking the greater number of modules selected, the greater the
integration benefits, but also the increase in costs, risks and changes
involved.
Configuration Tables – A configuration table enables a company to tailor a
particular aspect of the system to the way it chooses to do business. For
example, an organization can select the type of inventory accounting – FIFO
or LIFO – it will employ or whether it wants to recognize revenue by
geographical unit, product line, or distribution channel.
So what happens when the options the system allows just aren’t good
enough? At this point a company has two choices, both of which are not
ideal. It can re-write some of the enterprise system’s code, or it can continue
to use an existing system and build interfaces between it and the new
enterprise system. Both options will add time and cost to the implementation
process. Additionally they can dilute the system’s integration benefits. The
more customized the system becomes the less possible seamless
communication becomes between suppliers and customers.

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7.6.7 Consulting Services

Consulting Services – usually consulting services are responsible for the
initial stages of ERP implementation, they help an organization go live with
their new system, with product training, workflow, improve ERP's use in the
specific organization, etc.
Consulting team is typically responsible for your initial ERP implementation
and subsequent delivery of work to tailor the system beyond "go live".
Typically such tailoring includes additional product training; creation of
process triggers and workflow; specialist advice to improve how the ERP is
used in the business; system optimization; and assistance writing reports,
complex data extracts or implementing Business Intelligence.
The consulting team is also responsible for planning and jointly testing the
implementation. This is a critical part of the project, and one that is often
overlooked.
Consulting for a large ERP project involves three levels: systems
architecture, business process consulting (primarily re-engineering) and
technical consulting (primarily programming and tool configuration activity).
A systems architect designs the overall dataflow for the enterprise including
the future dataflow plan. A business consultant studies an organization's
current business processes and matches them to the corresponding
processes in the ERP system, thus 'configuring' the ERP system to the
organization's needs. Technical consulting often involves programming.
Most ERP vendors allow modification of their software to suit the business
needs of their customer.
For most mid-sized companies, the cost of the implementation will range
from around the list price of the ERP user licenses to up to twice this
amount (depending on the level of customization required). Large
companies, and especially those with multiple sites or countries, will often
spend considerably more on the implementation than the cost of the user
licenses, three to five times more is not uncommon for a multi-site
implementation.
7.6.8 Customization Services
The Customization is the process of extending or changing how the system
works by writing new user interfaces and underlying application code. Such

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customisations typically reflect local work practices that are not currently in
the core routines of the ERP system software.
Examples of such code include early adopter features or interfacing to third
party applications. The Professional Services team is also involved during
ERP upgrades to ensure that customizations are compatible with the new
release. In some cases the functions delivered via a previous customization
may have been subsequently incorporated into the core routines of the ERP
software, allowing customers to revert back to standard product and retire
the customization completely.
Customizing an ERP package can be very expensive and complicated,
because many ERP packages are not designed to support customization,
so most businesses implement the best practices embedded in the acquired
ERP system. Some ERP packages are very generic in their reports and
inquiries, such that customization is expected in every implementation. It is
important to recognize that for these packages it often makes sense to buy
third party plug-ins that interface well with your ERP software rather than
reinventing the wheel.
Customization work is usually undertaken as bespoke software
development on a time and materials basis. Because of the specialist nature
of the customization and the 'one off' aspect of the work, it is common to pay
in the order of $200 per hour for this work. Also, in many cases the work
delivered as customization is not covered by the ERP vendors Maintenance
Agreement, so while there is typically a 90-day warranty against software
faults in the custom code, there is no obligation on the ERP vendor to
warrant that the code works with the next upgrade or point release of the
core product.
One often neglected aspect of customization is the associated
documentation. While it can seem like a considerable – and expensive –
overhead to the customization project, it is critical that someone is
responsible for the creation and user testing of the documentation. Without
the description on how to use the customisation, the effort is largely wasted
as it becomes difficult to train new staff in the work practice that the
customization delivers.

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7.6.9 Maintenance and Support Services

Once your system has been implemented, the consulting company will
typically enter into a Support Agreement to assist your staff to keep the ERP
software running in an optimal way. To minimize additional costs and
provide more realism into the needs of the units to be affected by ERP, the
option of creating a committee headed by the consultant using participative
management approach during the design stage with the client's heads of
departments to be affected by the changes in ERPs to provide hands on
management control requirements planning. This would allow direct long
term projections into the client's needs, thus minimizing future conversion
patches on a more dedicated approach to initial conversion.
A Maintenance Agreement typically provides you rights to all current version
patches, and both minor and major releases, and will most likely allow your
staff to raise support calls. While there is no standard cost for this type of
agreement, they are typically between 15% and 20% of the list price of the
ERP user licenses.
7.6.10 Advantages and Disadvantages
Advantages – In the absence of an ERP system, a large manufacturer may
find itself with many software applications that do not talk to each other and
do not effectively interface. Tasks that need to interface with one another
may involve:
 A totally integrated system
 The ability to streamline different processes and workflows
 The ability to easily share data across various departments in an
organization
 Improved efficiency and productivity levels
 Better tracking and forecasting
 Lower costs
 Improved customer service

Change how a product is made, in the engineering details, and that is how it
will now be made. Effective dates can be used to control when the switch
over will occur from an old version to the next one, both the date that some
ingredients go into effect, and date that some are discontinued. Part of the
change can include labeling to identify version numbers.

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Some security features are included within an ERP system to protect

against both outsider crime, such as industrial espionage, and insider crime,
such as embezzlement. A data tampering scenario might involve a
disgruntled employee intentionally modifying prices to below the breakeven
point in order to attempt to take down the company, or other sabotage. ERP
systems typically provide functionality for implementing internal controls to
prevent actions of this kind. ERP vendors are also moving toward better
integration with other kinds of information security tools.
Disadvantages – Many problems organizations have with ERP systems are
due to inadequate investment in ongoing training for involved personnel,
including those implementing and testing changes, as well as a lack of
corporate policy protecting the integrity of the data in the ERP systems and
how it is used.
While advantages usually outweigh disadvantages for most organizations
implementing an ERP system, here are some of the most common
obstacles experienced:
Usually many obstacles can be prevented if adequate investment is made
and adequate training is involved, however, success does depend on skills
and the experience of the workforce to quickly adapt to the new system.
 Customization in many situations is limited
 The need to reengineer business processes
 ERP systems can be cost prohibitive to install and run
 Technical support can be shoddy
 ERP's may be too rigid for specific organizations that are either new or
want to move in a new direction in the near future.
7.6.11 Limitations of ERP
Success depends on the skill and experience of the workforce, including
training about how to make the system work correctly. Many companies cut
costs by cutting training budgets. Privately owned small enterprises are
often undercapitalized, meaning their ERP system is often operated by
personnel with inadequate education in ERP in general, such as APICS
foundations, and in the particular ERP vendor package being used.
 Personnel turnover; companies can employ new managers lacking
education in the company's ERP system, proposing changes in business

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practices that are out of synchronization with the best utilization of the
company's selected ERP.
 Customization of the ERP software is limited. Some customization may
involve changing of the ERP software structure which is usually not
allowed.
 Re-engineering of business processes to fit the "industry standard"
prescribed by the ERP system may lead to a loss of competitive
advantage.
 ERP systems can be very expensive to install often ranging from 30,000
US Dollars to 500,000,000 US Dollars for multinational companies.
 ERP vendors can charge sums of money for annual license renewal that
is unrelated to the size of the company using the ERP or its profitability.
 Technical support personnel often give replies to callers that are
inappropriate for the caller's corporate structure. Computer security
concerns arise, for example when telling a non-programmer how to
change a database on the fly, at a company that requires an audit trail of
changes so as to meet some regulatory standards.
 ERPs are often seen as too rigid and too difficult to adapt to the specific
workflow and business process of some companies – this is cited as one
of the main causes of their failure.
 Systems can be difficult to use.
 Systems are too restrictive and do not allow much flexibility in
implementation and usage.
 The system can suffer from the "weakest link" problem – inefficiency in
one department or at one of the partners may affect other participants.
 Many of the integrated links need high accuracy in other applications to
work effectively. A company can achieve minimum standards, then over
time "dirty data" will reduce the reliability of some applications.
 Once a system is established, switching costs are very high for any one
of the partners (reducing flexibility and strategic control at the corporate
level).
 The blurring of company boundaries can cause problems in
accountability, lines of responsibility, and employee morale.

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 Resistance in sharing sensitive internal information between

departments can reduce the effectiveness of the software.
 Some large organizations may have multiple departments with separate,
independent resources, missions, chains-of-command, etc, and
consolidation into a single enterprise may yield limited benefits.
 There are frequent compatibility problems with the various legacy
systems of the partners.
 The system may be over-engineered relative to the actual needs of the
customer.
7.6.12 ERP Integration
Integration is an extremely important part to ERP's. ERP's main goal is to
integrate data and processes from all areas of an organization and unify it
for easy access and work flow. ERP's usually accomplish integration by
creating one single database that employs multiple software modules
providing different areas of an organization with various business functions.
Although the ideal configuration would be one ERP system for an entire
organization, many larger organizations usually create and ERP system and
then build upon the system and external interface for other stand alone
systems which might be more powerful and perform better in fulfilling an
organizations needs. Usually this type of configuration can be time
consuming and does require lots of labor hours.
The Ideal ERP System
An ideal ERP system is when a single database is utilized and contains all
data for various software modules. These software modules can include:
a. Manufacturing: Some of the functions include; engineering, capacity,
workflow management, quality control, bills of material, manufacturing
process, etc.
b. Financials: Accounts payable, accounts receivable, fixed assets,
general ledger and cash management, etc.
c. Human Resources: Benefits, training, payroll, time and attendance, etc
d. Supply Chain Management: Inventory, supply chain planning, supplier
scheduling, claim processing, order entry, purchasing, etc.
e. Projects: Costing, billing, activity management, time and expense, etc.

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f. Customer Relationship Management: sales and marketing, service,

commissions, customer contact, calls center support, etc.
g. Data Warehouse: Usually this is a module that can be accessed by an
organizations customers, suppliers and employees.
h. ERP Improves Productivity
Before ERP systems, each department in an organization would most
likely have their own computer system, data and database.
Unfortunately, many of these systems would not be able to
communicate with one another or need to store or rewrite data to make
it possible for cross computer system communication. For instance, the
financials of a company were on a separate computer system than the
HR system, making it more intensive and complicated to process certain
functions.
Once an ERP system is in place, usually all aspects of an organization can
work in harmony instead of every single system needing to be compatible
with each other. For large organizations, increased productivity and less
types of software are a result.

Self Assessment Questions: True or False

9. ERP delivers a single database that contains all data for the software
modules.
10. All functional departments that are involved in operations or
production are integrated in one system.

7.7 Summary
After going through this unit Students would have understood the concept of
planning out Mis at various management levels. Student would have learnt
about the advantages and disadvantages of ERP. This unit covers
conceptual topics to enable the students understand the best practices and
consultancy services.

Activity 2

Read the article on Need and applications of an efficient

ERP

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7.8 Terminal Questions

1. Describe the operational level planning process in any organization.
2. What is ERP? Explain its existance before and its future after.
3. Explain the customization process in ERP.
4. What are the advantages and disadvantages of ERP?
5. Explain the limitations of ERP.

7.9 Answers
Answers to Self Assessment Questions
1. True
2. True
3. False
4. Investment, cost control
5. Costing, pricing
6. True
7. True
8. False
9. True
10. False
Answers to Terminal Questions
1. Refer 7.4
2. Refer 7.6.2
3. Refer 7.6.8
4. Refer 7.6.10
5. Refer 7.6.11

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