Enterprise Resource Management

EXECUTIVE SUMMARY

This report analyzes the problems faced by implementing Enterprise Resource Planning (ERP) and states the two reasons why the costs of implementation are decreasing.

INTENTION DOES NOT MATCH RESULT

The productivity of a large organization's departments was supposed to be automated and connected via its ERP software. The operation of departments such as human resources, accounting, finance and administration was expected to be much smoother, faster and efficiently. These implementations made companies such as SAP and Oracle billions of dollars.

However, these implementations are long and drawn out. This was due to the fact that the people working on the implementations had little experience and therefore budgets are exceeded on every project by multiple factors. This has led to the bottom of the market falling out.

UNACCEPTABLE RISK

The average ERP implementation takes between one and three years and costs $15 million. The client does not benefit from the new system until thirty one months after completion. By this time, obsolescence could have hit them. Therefore, it is an unacceptable risk to take given the timelines and risks involved. Shipping delays during crucial sales cycles, deadly inventory build-ups and accounting nightmares have paralyzed entire multinational corporations, while costing shareholders and consumers billions after the fact. 1

CONFLICT BETWEEN CONSULTANTS AND CLIENTS

For example in 1992, a group consisting of the major companies in the travel industry, including American Airlines' parent AMR, Hilton Hotels and Budget Rent-a-Car, got together and wanted to create a central reservation system for air, hotel and rental car bookings.

This idea required an advanced ERP system that was guaranteed, but never occurred. More than $125 million was invested after four years and the initiative was expected to take a further two years.