Enterprise resource planning (ERP) systems are off-theshelf software systems that claim to meet the information needs of organizations. These systems are usually adopted to replace hard-to-maintain legacy systems developed by IS departments or older off-the-shelf packages that often provided only piecemeal solutions to the organization’s information needs. ERP systems evolved in the 1990s from material requirements planning (MRP) systems developed in the 1970s and manufacturing resources planning (MRPII) systems developed in the 1980s. ERP systems serve the entire organization, not just material or manufacturing planning. One advantage of ERP is that it integrates all the information for the entire organization into a single database. Implementation of ERP systems has proven expensive and time consuming. Failed and abandoned projects have been well publicized in the business press. ERP systems are “expensive and difficult to implement, often imposing their own logic on a company’s strategy and existing culture” (Pozzebon, 2000, p. 105). Most firms utilize a single software vendor for the complete ERP system throughout their organizations. The integrated nature of ERP software favors this single-vendor approach. An alternative strategy adopted by some firms is the best-of-breed approach, where the adopting organization picks and chooses ERP functional modules from the vendor whose software best supports its business processes. Organizations adopting best of breed believe that this approach will create a better fit with existing or required business processes, reduce or eliminate the need to customize a single-vendor solution, and reduce user resistance. Jones and Young (2006) found that 18% of companies used this approach to select ERP software packages. This article examines what the best-of-breed strategy is, when it is used, what advantage adopting companies seek, examples of best-of-breed implementations, and differences in implementation methods.
ERP implementation projects can be distinguished from other IT projects by three characteristics (Somers, Ragowsky, Nelson, & Stern, 2001). First, ERP systems are “profoundly complex pieces of software, and installing them requires large investments in money, time and expertise” (Davenport, 1998, p. 122). Second, ERP packages may require the user to change business processes and procedures, may require customization, and may leave the firm dependent on a vendor for support and updates (Lucas, Walton, & Ginsberg, 1988). Finally, adopting firms are usually required to reengineer their business processes. Implementation projects must be managed as broad programs of organizational change rather than a software implementation (Markus & Tanis, 2000; Somers et al., 2001).
ERP systems include functionality for basic business processes based on the vendor’s interpretation of best practices. However, the selected functionalities do not generally match the existing business processes of all organizations and may not be the best practices for a particular organization.
Typical ERP functions from SAP R/3, a major ERP vendor, are shown in Table 1. SAP R/3 modules provide a wide range of functional solutions, however, with the wide range of potential ERP customers, some organizations may not be a good fit. With the best-of-breed strategy, organizations can pick and choose the ERP modules from whichever vendor provides the best fit with their business processes and possibly reduce the amount of reengineering of business processes required, hence reducing the level of employee resistance.Table 1.
Some functions available in SAP R/3 (Source: Davenport, 1998)
|Financials||Operations and Logistics|
|Accounts receivable and payable||Inventory management|
|Asset accounting||Material requirements planning|
|Cash management and forecasting||Plant maintenance|
|Cost element and cost center accounting||Production planning|
|Executive information systems||Project management|
|General ledger||Quality management|
|Product-cost accounting||Routing management|
|Profit-center accounting||Vendor evaluation|
|Standard and period-related costing|
|Human Resources||Sales and Marketing|
|Human resources time accounting||Order management|
|Personnel planning||Sales management|
|Travel expenses||Sales planning|
Key Terms in this Chapter
Legacy Systems: They are transaction processing systems designed to perform specific tasks, or systems that have become outdated as business needs change and the hardware and software available in the marketplace have improved.
Business Processes: “A business process is a set of business events that together enable the creation and delivery of an organization’s products or services to its customers” (Gelinas, Sutton, & Fedorowicz, 2004 AU9: The in-text citation "Gelinas, Sutton, & Fedorowicz, 2004" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. ).
Enterprise Resource Planning (ERP) System: An off-the-shelf accounting-oriented information system that is designed to meet the information needs of most organizations. ERP systems enable an organization to procure, process, and deliver customer goods or services in a timely, predictable manner. These systems are complex and expensive information tools that have proven difficult and time consuming to implement.
Best of Breed: It is a combination of ERP software provided by more than one vendor and legacy systems designed to meet the needs of an organization in a manner superior to the single-vendor ERP approach.
Manufacturing Resources Planning (MRPII): MRPII extends MRP by addressing all resources in addition to inventory. MRPII links material requirements planning with capacity requirements planning avoiding over- and under-shop-loading typical with MRP.
Material Requirements Planning (MRP) Systems: They are processes that use bills of materials, inventory data, and a master productions schedule to time-phase material requirements, releasing inventory purchases in a manner that reduces inventory investment yet meets customer requirements.
Customer Relationship Management (CRM): These are software packages that enable a business to develop knowledge of their customers’ needs and buying patterns. These systems “focus on the integration of externally based customer data for the organization to pursue more customer-oriented activities like targeted advertising, one-on-one marketing, customer retention and building a real-time integrated view of the customer” ( Pan, 2005 ).
Integration: Integration is generally defined as “the bringing together of related components to form a unified whole….The primary concern of integration is ‘oneness’ and ‘harmony’ between user, technology, and the environment” ( Grant & Tu, 2005 , p. 8). Grant and Tu propose a taxonomy of ERP integration ranging from the lowest level, system specification integration, to global integration, which deals with “issues of language, time difference, culture, politics, customs, management style.” Their proposed Level II deals with system-user integration at both the ergonomic and cognitive level. Level III deals with the integration of islands of technology throughout the firm.
Supply Chain Management (SCM): These software packages exchange information with supply chain partners to order and track the procurement of goods and services. SCM can be viewed in four basic categories ( Davenport & Brooks, 2004 ): supply planning tools, demand planning tools, plant scheduling tools, and logistics systems. A newer functionality in SCM is collaborative planning, forecasting, and replenishment (CPFR). In CPFR, “supply chain partners exchange not only orders and shipment notices, but sales plans and production forecasts with each other, so that they can synchronize their respective processes more fully.”
ERP II or Extended Enterprise Systems: ERP II opens ERP systems beyond the enterprise level to exchange information with supply chain partners and customers. ERP II extends beyond the four walls of the business to trading partners. Typically, ERP II includes CRM packages, SCM packages, and e-business packages.