Enterprise Resource Planning (ERP) systems are modular application software that helps businesses increase the productivity of such mission-critical components as human resources, finance, parts purchasing, inventory control, supply chain and customer relationship management. ERP systems are enterprise-wide and claim to incorporate best business practices that replace legacy systems and current business processes.
The ERP market has reached a high level of maturity.
Although squeezing inefficiencies continues to be a business goal, enterprise systems today also have to address ecosystem dynamics such as interoperability, extended value chains, and compliance processes.
The worldwide market for Enterprise Resource Planning (ERP) solutions continues to grow on the plethora of acquisitions. The worldwide market for ERP was $16.67 billion in 2005 and is forecasted to grow at a Compounded Annual Growth Rate of 4.8 percent over the next five years, surpassing $21 billion in 2010, according to the latest ARC Advisory Group ERP market analysis.
With the ongoing saturation in the bigger segment, the small and medium enterprises segment is coming under the increased focus of ERP vendors. The strong economy has seen many small businesses expand rapidly, creating a large pool of mid-size companies. Small business is also showing considerable interest in features that hitherto would have only been used by larger firms. They are becoming more sophisticated in their approach and changing their outlook towards the technology aspect. This market was traditionally dominated by niche players who are now facing the influx of big players in the segment. The numbers of vendors are increasing not only due to the intervention of bigger players but also due to the intrusion of many smaller ones. They are expecting much more as they are becoming tech savvy now. However, they differ from large enterprises in their vision regarding the effectiveness of the software. Large enterprises look the implementation from a holistic approach including the intangible aspect of customer satisfaction while SME wants real value for money and to be able to calculate, say, a total cost of ownership over five years.
There always has been a need for integrated solutions, especially when talking about an integrated enterprise from the plant floor up to the executive offices. With the continued demand on acquisitions, along with the programs to address the Small-Medium Business (SMB) market, systems integration is a necessary evil between ERP and other enterprise solutions. Integration has been difficult, but SOA provides value to the enterprise by freeing key pieces of business functionality from individual systems and making them available for integration with other applications
Issues in the Implementation of ERP in SMEs
Traditionally SME is considered to be a conservative market in case of adoption of high-end technologies for ERP Implementation. Each vendor claims that using its product will give an enterprise a competitive advantage. SMEs want to have a safe, consistent business infrastructure that allows them to compete without a disadvantage. Large companies can afford to invest in ideas that may bring them a competitive advantage. They also have a large business to use to write off their mistakes and benefit from their successes. The SME does not have this luxury. They are pretty much skeptical about the change in their working style unless and until they are sure about the effectiveness of the new technology in terms of bottom line results.
In one of the surveys carried out by Knowledge@Wharton among Indian SME, it was found that the major reasons cited for their apprehensions included lack of knowledgeable technology vendors, inadequate follow-up support, and problems with integration.
When we are talking about the lack of knowledgeable technology vendors it means that the ERP vendors do not have sufficient knowledge about the SME sector. The SME sector differs in the way it works and needs a more insightful approach towards finding the solution. The cliché is that this SME do not need technologies, they need a solution for their existing problems. At the same time, they do not want to trash away from their existing hardware system for using a completely new one.
With regard to obstacles, the biggest tension seems to exist between too-rapidly advancing technology and the slow rate of change acceptance within organizations. An SME generally works in a short to the medium tenure of focus which does change with the changing circumstance. This can lead to shortening the usage of technology and at times it absolution. As a result, a traditional SME gives a lot of thought before investing any amount in the technology. If we talk about large-scale business they have their diversified interest in the market which helps them to scale down their losses if any one of their business goes down during the implementation. SME do not have this luxury with them.
One of the most important and critical issue in this is the total cost of ownership.
The SME segment is very cost conscious, especially about expenses with the mostly long term and intangible benefits. They are very concerned about controlling the cost of customization and implementation.
Overall there is a lack of vision in the management of the use of technology due to the non-existence of any clear cut strategy in the enterprise with respect to information technology. They have insufficient or at times the complete absence of integrated, high-level IT resources within small- to medium-sized enterprises. Their stand is that their resources don’t allow for additional staffing at a level that would solve the problem (i.e., the management level). Ultimately, this affects the IT decisions made by company management, as there is no coherent vision at the top to help a company accept various IT solutions or see them as necessary.
Many SME cites problems with vendors, who are “unable to mix and match technologies/products to provide the most optimum solution to the customer. The most common issue is that they do not have any single vendor who can provide them a complete solution customized for their requirement. Although SMEs tend to integrate technology where it is readily available and the advantages are clear, major impediments to wider adoption include prohibitive costs and a lack of insight and vendor support when it comes to integrating new technology into individual systems