The article “ ERP implementation failures in China: Case studies with implications for ERP vendors” by Xue Y, Liang H, Boulton W. R. and Snyder C. A (2004) discusses two main issues in legacy or disparate information systems. The two problems include: complicated communication due to implementation of separate information systems among business units, and the high cost involved in the maintenance of independent information systems.
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Issue 1: Communication Problem
Organizations in the past have relied on the independent information systems to systematize the various processes of individual departments. If each business unit of a large enterprise implements independent or incompatible information systems, communication between business units can become much more complicated and error-prone (Xue et al., p. 279). In the manufacturing industry an early attempt by manufacturers to obtain the advantages of better communications across the incompatible systems was called computer-integrated manufacturing (Xue et al., p. 280). The organizations try to automate the information systems in various business departments such as human resources, finance and accounting, sales, marketing, inventory and procurement; however all these independent departments may not be unified due to discordancy. In such situations the information available in one department may not be available to the other department that results in communication loss. This result depicts the failure of the disparate information systems and does not prove to be an advantage to the organization. For efficient communication it is required that the information must be easily accessible among departments, appropriately, and on the required time.
Issue 2: High Maintenance Cost Problem
Inflated maintenance cost for the various unsuited information systems is identified as
the second issue in the article. It is cumbersome for the executives to maintain such information systems and it is also an overhead to the organization. The article identifies two types of maintenance costs; direct maintenance cost and indirect maintenance cost. A few examples of direct cost include converting the format and structure of information to a different format that is suitable to be used in different information systems, increasing the storage capacity to store and streamline the unwanted data, updating the obsolete software code written in earlier programming languages, the salaries for the staff, and resources required for a project. Independent information systems also add to the indirect costs to the organization. Examples of indirect cost include incorrect decisions taken by the management who trust their instincts rather than providing decisions based on the reports of the information systems. These indirect costs are also referred as fixed costs and these costs do not vary with the production capacities. It is evident that the companies that follow the split information systems work disorganized.
When an organization implements an ERP system it is necessary that the systems meets all the requirements of the various departments and avoids any discrepancies. FurnitureCo had more than 10, 000 products whose costs needed to be managed by the cost-control module of the R/3 system (Xue et al., p. 288). However, in the case of FurnitureCo the results of ERP implementation were not satisfactory as the cost-control module failed to meet the requirements
of the various departments. As the price of the raw materials varied on a daily basis, the SAP ERP system could not calculate the cost of the products. The cost-control module could not also collate the market price fluctuation.
The SAP ERP system implemented in FurnitureCo had cost the company nearly 1. 22 million, and above that the maintenance fee charged per year by the vendor, SAP, was too high for this Chinese company. Managing more than 10, 000 products does require some amount of customization in the software and this customization was done by the vendor that added to the high maintenance cost. Due to the price factor of ERP system, the management of FurnitureCo and the executives of other companies that had implemented ERP R/3 decided to purchase a local ERP system made in china to save thousands of dollars on maintenance. Using a local ERP system proved beneficial for these companies as they dealt with people of same culture.
FurnitureCo Cost-Control Module
The cost-control module of an ERP system must be accurate and robust to meet the significant product changes that happen in a company like FurnitureCo. These are technical issues associated with the ERP system. The translation from English to Chinese for all the user interface messages and system outputs is a difficult and error-prone job (Xue et al., p. 292). The ERP purchased from a vendor away from China must be flexible to support the Chinese language and store frequent changes that take place on a daily basis. Such requests must be discussed in the initial phases of requirement gathering to avoid any discrepancies during software customization. ERP’s must be designed knowing that they are applied to the value chain of an organization with a motive to reduce costs and time required to deliver products to customers.
Xue, Yajiong., Liang, Huigang., Boulton, W. R. & Snyder, C. A. (2004). ERP implementation
failures in China: Case studies with implications for ERP vendors. International Journal of Production Economics, 279 – 295.