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March 18, 2015

Benefits and challenges of ERP in management control

Title:
ERP in actionóChallenges and benefits for management control in SME context.
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This article is about benefits and challenges for management control when implementing an ERP system.


Benefits:


1. Top management:

(1) Enabling the vision: ERP makes it possible to implement new strategy. Growing and globalizing business needs new kind of control systems.

(2) Transparency: ERP system is a good control tool. In particular it makes business transactions transparent.

(3) Routine tasks: Top management perceives that ERP system works well in routine tasks, but only negative things will be discussed openly.


2. Administration:

(1) Transparency/bookkeeping: Accounting and book keeping work well. Monthly profit and loss statements will be gathered very quickly.

(2) Possibilities: In ERP systems are numerous functions (some not utilized).

(3) One system: Only one system. Knowledge and support will be focused on the ERP system. There is no need to support other systems.


3. Production:

(1) Transparency/bookkeeping: Accounting and book keeping work well. Monthly profit and loss statements will be gathered very quickly.

(2)Routine tasks: Basic and simple things can be done by ERP. ERP works if things happen as predefined in the system.


Challenges:


1.Top management:

Making entries: ERP is based on processes, but employees do not know what the processes are. Employees do not understand why it is required to make entries in processes. Too many steps included in the entry process. It takes time and generates incorrect entries. Employees perceive that making entries is not part of their job. If supervisors use the ERP reluctantly, shop floor workers follow their lead.


2. Administration:

(1) Making entries: It is not possible to make correct entries. Such problems occur when there are different kinds of

machines or production lines than predefined in ERP system. Employees will take a short cut and in this way speed up their tasks.

(2) Personnel resources: Key person leaves the company. In that situation knowledge is lost away from the company. There is time to utilize only the basic functions of the ERP, even if people perceive that there are a lot of other utilizing possibilities. There are no experienced people to use ERP. There is a lot of data for different kind of management control purposes, but there are no people to do that.

(3) Technical problems: ERP system breaks down or it is very slow.


3. Production:

(1) Making entries: Employees do not know what processes are and how they relate to the whole. Employees do not understand why it is required to make entries. Rapid changes in production. Production lines are required to changes (by the customers), but there is no time and no personnel resources to make these changes into ERP system. Too many phases included in the entry process. It takes time and generates incorrect entries. The ERP system is very complex. Making entries is required to be done in many different screens. Complex system takes time away from physical production, which cause that people do not want to use the system. Mistakes occur (incorrect entries) and it takes lot of time to find and correct these incorrect entries. People who have only basic skills to use ERP, cannot solve this kind of problems.

(2) Technical problems: ERP system breaks down. Data which is required in production cannot be obtained from the ERP system.

(3) Standard nature of ERP: There are predefined processes in ERP system, but production is many times unpredictable: machines will break down, production lines will be changed, and the output of the machines is many times not known.

(4) Lost focus: ERP will attract all the focus away from development of production. Resources will be used to develop the ERP system and ERP processes, which is time away from the development of production.


Reference: Teittinen, H., Pellinen, J., & Järvenpää, M. (2013). ERP in action—Challenges and benefits for management control in SME context.International Journal of Accounting Information Systems, 14(4), 278-296.


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