The 21st century has been characterized by a great advancement in technology and especially Information Technology (IT). The vast advancement in IT has necessitated improvements of businesses performance which have resulted to enormous expansion of Small and Medium Enterprises (SME) into multinational corporations. The increased growth and expansion of businesses has been accompanied by challenges in the management of information flow, inventory, accounting, logistics, marketing as well as tracking of past sales in order to forecast future performances of businesses. Prediction of business performance is imperative in order to plan for loaming hiccups in advance (Berger 2003; Dehning & Stratopoulos 2003)
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Traditionally, the IT systems that were being adopted by businesses were designed in a manner to support single departments or groups in an organization. The systems architectures were configured as single function software that specialized in accounting, logistics, analyzes and inventory. The great expansion of businesses demands more effective software that supports centralized storage, processing as well as analyzes. Thus, the emergence of enterprise systems has greatly benefited large organizations to manage their resources more effectively and efficiently (Wallace 2001).
LVHM group great expansion has resulted to a lot of challenges in product planning, inventory, accounting as well as tracking orders and purchases despite the presence of comprehensive IT systems in all its departments. In response to these challenges, the management has put a lot of effort to enhance the performance of the company in vain. The human resource department has ensured that it has hired very qualified and experienced professionals to find out whether there will be any significant improvement but with no major achievements. However, after scrutinizing the IT systems adopted by the firm, it was noted that the firm uses traditional IT systems that cater for departmental requirements. Therefore, the company lacks a centralized system that integrates all the company’s performances. This has been the cause for all the aforementioned challenges.
The main aim of this report is to show how implementation of an ERP will help LVHM Group improve its performances by improving its inventories, accounting and logistics.
- To find out how an ERP system will help LVHM Group improve its businesses processes
- To find out the challenges that LVHM will face in implementing an ERP
- To find the best strategy that LVHM Group can use to implement an ERP
Justification of the study
The following Discussion is based on the assumption that LVHM Group has not implemented an Enterprise System and that is the reason why it is experiencing some problems in its accounting, inventory, order tracking and logistics. This assumption was important in order to justify the need for the company in implementing an ERP.
Purpose of the Study
Implementation of an ERP will help LVHM to enhance its business processes, information flow, data storage and analyses. Implementation of an ERP system will help the management to make effective decisions that are based on unified perspective of operations and financial plan data that is linked with key metrics and information. Similarly, the software will help the company in its logistics processes through exploring data, assessing models, examining assumptions as well as matching up current performance with historical data as well as external benchmarks (Williamson 2007).
The methodology used for this was a secondary research that entailed a review of available literature about the subject matter from journals, books and articles.
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Benefits and Limitations of ERP
Enterprise Resource planning (ERP) are enterprise management software that makes it possible for organizations to use integrated systems to manage enterprise processes, storages and analyzes. EPR programs are specialized to be used in various areas. For example, some EPR are tailored for use in product development, material purchasing, marketing, accounting, inventory and Human Resource. There are many benefits that are associated with implementations of ERP (Paul 2006).
For instance, adoption of ERP requires employees to master only one single system that they use to accomplish multiple tasks. Moreover, an ERP makes a business to save a lot of time because of its efficiency, reduced errors. Lastly, ERP helps businesses to access relevant data more easily which it uses to compare past data with current data and forecast future performances and adjust accordingly (Kraemmer 2003).
Principles that Support Enterprise System
Principle 1 recommends for the use of a holistic strategy in enterprise transformation. Companies aspiring to adopt enterprise systems should avoid focusing on short term improvements, but concentrate on realizing long term businesses level benefits. Those companies that focus on short term benefits only achieve short term improvements that are not sustainable.. In order to ensure a holistic approach to system transformation, organizations should make sure that transformation operates at both strategic and tactical levels. The strategic level is where improvements are undertaken.
The second principle includes identifying appropriate stakeholders and establishing their value propositions. This principle requires the enterprise to account for the benefit that all concerned stakeholders deliver by adopting the enterprise system. The enterprise should not concentrate only on the dominant stakeholder as it is the case with tradition enterprise theories (Gibson 2000).
The third principle recommends an enterprise to first emphasize on effectiveness before efficiency. In order to ensure adherence to this principle, the enterprise should first determine its goals as well as resources present to oversee delivering of value proposed. It is important to make sure that the enterprise transformation undertaking is right before focusing on doing it in the right manner (Shields 2001).
The forth principle is aimed at making sure that the enterprise cater for both the internal and external interdependencies. Therefore, when carrying out enterprise system transformation, it is advisable to differentiate those internal factors that the enterprise is able to control such as product designs, manufacturing and marketing value streams. Similarly, it is also important to identify the external interdependences that exist in the supply network and enterprise transformation. It is equally necessary to recognize the distribution network values together with constraints that are caused by the ever changing consumer preferences towards an enterprise (Monk & Wagner 2009).
The fifth principle entails guarantee there is stability and flow within as well as across the business. It is noted that stability of value delivery is essential in establishing the current performance of a business and usually acts as the baseline for improvements. In a business the flow of information is considered as the most important element, rather than the flow of materials. It is essential to ensure end-to-end value delivery for both within as well as across a business (Turban 2008).
The sixth principle involves ensuring effective leadership to support and drive business conducts. Effective leadership skills are essential for ensuring successful enterprise transformations. Senior managements should make sure that effective transformations are well resourced in terms of finances and human resources. It is noted that commitment at all levels of managements (senior, middle as well as lower levels) is instrumental in ensuring successful enterprise transformations (Hunter 2009).
The seventh principle stresses on the importance of organizational learning. The principle advocates for both top down and bottom up approaches. These approaches ensure that a business is engaged at all levels. It is believed that a learning enterprise is ever experimenting as well as gaining knowledge about its process and how it delivers benefits from them. The principle proposes on enabling the business to learn from every localized improvement efforts (Johnson 1992).
System Architecture Framework
System Architecture Framework that views an entire system as a holistic system is essential for enterprise transformation. System architecture advocates at viewing an enterprise as an overall integrated system that entails strategy perspective, process view, policy, knowledge view as well as interdependency between these views among others (Valerdi & Nightingale 2003).
Enterprise Transformation Roadmap
Research has shown that the failure of many enterprise transformations results because of unsustainable transformations as well as failure of project teams to realize desired strategic goals. Transformation road map that consists of three stages is very instrumental for ensuring successful enterprise transformations. The first cycle is the strategic cycle that involves establishing a business transformation strategy with the assistance of enterprise leaders. The second cycle is the planning cycle that involves analyses of the present and future performance of an enterprise in order to establish future business vision. Lastly is the execution cycle that involves executing the plan (Sheldon 2005).
Case Study of LVHM Group
The company offers assorted luxury products such as Perfumes and Cosmetics, Fashion and Leather products, Watches and Jewelry among other luxury goods. The implementation of an ERP system will help the company in managing its inventories as well as tracking orders for it’s over 3,000 stores. In addition, the ERP system will help the sales and marketing department to access past sales data as well as current data for logistic purposes in order to establish future performances of the business.
LVMH has over 100,000 employees which make it very difficult for the human resource management (HR) to handle them accordingly (LVMH Group 2012). The implementation of an ERP system in the organization will make it more easily for the HR to track qualifications, experiences as well as performances of appropriate persons for the purposes of appraisals, promotions as well as successions (Hudson 2010; Robb 2012).
The implementation of ERP solution for LVMH Group will be challenging. The company will require switching all its applications to the new system. This will entail training the employees on how to use the new system which is costly in terms of finances and time involved in the process. In addition, the new system will negatively impact on the production as a result of the down time as the employees get to learn on how to use the new system. Another challenge that LVMH will experience is the huge costs that are associated with implementation of the system. ERP systems are considered very expensive in reference to the costs of purchase, lost sales, training as well as maintenance costs (Peterson 2009; Simon 2010).
LVMH Group should ensure that it uses the seven enterprise principles, the architecture framework as well as the transformation roadmap for successful implementations of the ERP system.
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Theories essential in the Implementation Process
The study used three theories to guide the implementation process. These are the Structural Contingency Theory that tried to establish the relationship between the structure of organization and the company. In undertaking the change process, the management ensured low centralization with high formalization in order to ensure that the change process is embraced by majority. The theory was also essential in determining the most suitable vendor to assign the task for implementing ERP solution. This was done by comparing LVHM structure with the organization emended in the ERP system in order to find out the best match.
Resource Based Theory highlighted three essential resources for effective Enterprise System Implementation. These are IT infrastructure, Knowledge resources as well as relationship resources. The LVHM managers were very instrumental in establishing the synergies that existed between LVHM and ERP packages in order to identify the best set of resources to be employed in implementing ERP solution.
Technology Accepted Theory was used to identify the most appropriate ERP system to adopt depending on the one that is most users friendly and the one that is perceived to greatly improve the performance of LVHM group (Mullick 2010).
Implementation of an ERP will help LVHM Group to improve its performance. The company will at first experience a reduction in production as the employees learn how to use the new system. However, after a while, the company will realize great improvements in the overall performance of the company. The enterprise should make sure that it uses theories of ERP theories, seven enterprise principles, the architecture framework as well as the transformation roadmap for successful implementations of the ERP system.
List of References
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