Why Do ERP Systems Fail?

What is ERP and how is it used?

Hi guys and welcome back to my blog today where I will talking about all things ERP systems.

So your probably wondering what an ERP system actually is well let me explain. Firstly, ERP is an abbreviation for enterprise resource planning. ERP is the name given to a software system that organisations use to manage their everyday operations. Companies implement ERP systems in order to speed up processes within their company, however changing software can cause a lot of problems. Installation problems in businesses are typically caused by inadequate planning, limited funds, and a failed ''Big bang'' approach.

Inadequate Planning

It is recommended that an organisation plan the implementation of an ERP system over a period of more than six months. However, some companies fail to do this and end up with an ERP system that does not work for their business. Companies should instead analyse their current business processes and outline the goals the firm wants to achieve by upgrading their software system. Most organisations fail to plan out the implementation process and weigh up the pros and cons and therefore are unprepared for the changes the company will go through.

Limited Funds

ERP system implementation can be very costly, and it may take some time before a firm appreciates the benefits of a new software system. The average cost of an ERP system to implement, in a medium to large size firm, would typically be $1.3 million and could take on average 16.9 months to be fully operational. Also, the initial anticipated cost of an ERP system typically exceeds the budget and in turn puts a financial strain on the business. The maintenance and training of management and staff need to also be considered as these costs will be continuous throughout the use of the system.

''Big Bang'' Approach

It is recommended that companies phase an ERP system one department at a time, to give each department time to adjust to a new software. However, some companies opt for the ''Big bang approach''. This means implementing the new system in every department within the organisation all at the same time. It may be seen as the best way of implementing by doing it this way, however if the system fails to cooperate with the company's business process, the company could face severe challenges. 

For example, American chocolate producer, Hershey's. Anyone have a favourite flavour of Hershey’s kisses? Mine is just the plain milk chocolate. Let me know in the comment section below.

Anyway, Hershey’s implemented an ERP system in the one big bang and it failed instantly. As a result, the company's supply chain collapsed, resulting in a significant drop in sales.

In conclusion, ERP systems, if implemented correctly within an organisation, can make a company more efficient. However, as shown above if an organisation does not take the correct steps and plan, budget, manage expectations and phase in a system, failures can occur. Therefore damaging an organisations reputation, impact staff and distrust the supply chain. 

Hope to see you next week. Bye for now!!