Enterprise resource planning (ERP) refers to a software used in business management that is composed of integrated applications that a specific organization uses to manage, store, and interpret data from business operations that entail manufacturing, inventory management, sales and marketing and product planning (Monk & Wagner, 2012). This paper will focus on the aspects involved in ERP, elaborate total cost ownership, and discuss why defined and documented functional requirements are important in the selection of an EPR system. The paper will explore Microsoft Dynamics and personal reflections.
Components of an ERP system
The components of an ERP system include manufacturing, human resource, production planning, material management, and financial management components. The manufacturing component provides the best method and information required during manufacturing. Financial management generates reports such as general ledgers and balance sheets after gathering information from departments. Material management helps in the ascertainment of inventory requirements, the production of inventory status reports, and monitoring item usage. Production planning provides knowledge about the production process by determining current stock and previous production details. Human resource is concerned with the monitoring of human labor within the organization (Tsai, Lee, Shen, & Lin, 2012).
Third party products are computer components that have been developed by companies other than the original manufacturer. Any windows program not developed by Microsoft is thus regarded as a third-party product. These products are needed because they compose a large percentage of software while some programs support third-party plugins resulting in increased functionality of the software (Monk & Wagner, 2012).
Implementation methodology and its importance in ERP
The implementation methodology is the systematic and structured approach that integrates a component or software-based service into the workflow of a business structure or an identified end user. The methodology is important in ERP implementation because it assists in phases such as upfront, design, analysis, and diagnostic, among others (Tsai et al., 2012).
Steps in purchasing an ERP
Four distinct steps are followed when buying an ERP. These steps include the decision to change, the definition of the organizational needs, choosing the right system, and the identification of the right partner. The decision to acquire a new ERP comes from the drawbacks of the current system. The second step is the definition of the need. This stage targets the improvements that the organization seeks to achieve (Monk & Wagner, 2012). The third step in the purchase of an ERP entails choosing the right system. When choosing, the focus is on the future advantages of the product and the flexibility to suit the ever-changing business conditions. The final step during purchasing is the identification of the right partner. The Microsoft Dynamics partner chosen in this step should coincide with the identified ERP system (Tsai et al., 2012).
Total cost of ownership and its importance
TOC “refers to specific financial estimates that are intended to help buyers and owners establish the direct and indirect costs attached to a given product or system” (Han, 2011, p. 199). The total cost of ownership should be part of the ERP selection process because it offers an accurate basis for comparing the costs with the return on investment. The total cost of ownership is also important when calculating the purchase cost of ERP over its useful life (Han, 2011).
Difference between RFI and RFB
Request for information is designed to harness data from suppliers without committing or engaging them in any particular project while a request for bid (RFB) is a written or oral invitation addressed to potential suppliers to take a bid on certain material or services. FBI is not an offer because no binding agreement is attained without further negotiations (Monk & Wagner, 2012).
Instances where total cost of ownership favors in-house development or acquisition from vendors
License and subscriptions
Under this case, the total cost of ownership favors in-house development because no licensing and subscription costs will be incurred as such recurrent expenses are borne by acquiring commercial software (Walterbusch, Martens & Teuteberg, 2013).
Installation and set up
The total cost of ownership favors the acquisition of software from a vendor. The organization can acquire and install software immediately from a given seller, thus saving valuable labor hours that could otherwise be used in developing the software internally. Therefore, the cost is lower as compared to in-house development that incurs more costs and time (Han, 2011).
Customization and integration
In-house software development will enable the organization to build packages that will support changing business environments as compared to purchasing commercial software. The software will be easy integrated with the current systems to meet specific business needs. The cost incurred to customize vendor packages is high while this expense is avoided by in-house building (Walterbusch et al., 2013).
The cost of migrating data in is considerably lower when the organization is involved in building its software as compared to acquiring the software from an external vendor. In-house building enables easy integration of systems thus making data files easily transferred from one source to the next (Han, 2011).
The cost of ownership favors the acquisition of software from a vendor because it is associated with less training expense. In-house building mostly lacks specialized training to transit employees to the new ERP system components thus incurring a high cost to hire skilled software developers.
Maintenance and support
Commercial software attracts very high support and maintenance costs. The organization has to rely on the dictates of the vendors who often increase the cost of service. The in-house developed software is cheap to maintain because the users are original inventors of the software thereby making it easy to avoid and rectify technical errors (Han, 2011).
The acquisition of hardware from vendors lowers the cost of ownership as opposed to when the business engages in building its own. Most hardware vendors enjoy economies of scale and thus incur lower production costs as compared to the expenses that the business would incur to produce the same product internally (Walterbusch et al., 2013).
Benefits of defined and documented functional requirements in the selection of ERP system
Functional requirements are essential in ERP. When the organization decides to replace the current business information system with a new one, definition of what the new system aims to accomplish must be outlined precisely. The requirements document describes how the organization aspires to run its operations by including regulatory reporting and strategic visioning among other critical issues. When the functional requirements are included in the tender document, vendors are requested to respond to each requirement thereof. The responses allow the concerned organization to compare the strengths as well as weaknesses associated with each system. The ERP with more advantages and few shortcomings is selected and implemented.
Defined and documented functional requirements are used as the foundation for the exhibition of test scripts. The organization can establish how best the ERP system coincides with specific requirements of the business by appraising the responses emanating from different tender responses. Additionally, functional requirements enable the organization to choose an ERP system that matches with the ones currently in the market alongside keeping the organization on track on what is missing. Clear functional requirements enable the organization to choose a system that is lenient to its operations thus avoiding errors that originate from complicated systems.
Previously listed MS Dynamic ERP systems
They include Great Plains, Navision, Axapta, Solomon, and Microsoft Dynamic CRM.
Microsoft Dynamics AX and its purpose
Microsoft Dynamic AX is an intensive ERP solution that allows moderate and large organizations to operate across many countries and locations. Due to its high flexibility, it standardizes processes, simplifies compliance, and provides visibility across the organization (Vail, 2012).
Microsoft Dynamic SL and its purpose
This ERP system is designed to help medium-sized organizations that are project-driven to manage projects, people, and profitability. The software provides powerful remedies for operations, professional services, construction management companies, and field services. Microsoft Dynamics SL also aids in the management of project time and budget (Fife, 2013).
Microsoft Dynamics NAV and its purpose
It refers to an ERP solution that is used by midsize organizations to provide verified industry functionality, which is relevant to the organizational needs. The software serves highly specialized industries and businesses. Microsoft Dynamic NAV is available in more than 40 country versions because it is fast to configure and simple to use and implement (Vail, 2012).
Microsoft Dynamics GP and its purpose
This software is used in accounting, it develops concurrently with the organization, and it is integrated with other systems within the company. The software gives detailed financial reports required by the organization. Microsoft Dynamics GP is easy to set up, use, and customize to suit the organizational changes.
Microsoft Dynamics CRM and its purpose
To win and retain the present customers, businesses must engage in positive customer experiences. This software assists organizations to deliver excellent customer care through the provision of lasting customer relations that are personalized, predictive, and proactive across sales and marketing dimensions (Fife, 2013).
Models associated with Microsoft Dynamics ERP systems
Microsoft Dynamics CRM offers a variety of programming paradigms that ensure flexibility. In Microsoft Dynamics AX, the label files are used as part of the models. The private cloud solutions model is associated with Microsoft Dynamics SL, and it enables the organization to customize and integrate systems conveniently hence low up-front costs affiliated to software and hardware licensing. Furthermore, Microsoft Dynamic NAV is associated with the web-client model. The model assists users in interacting with the ERP system data over the network originating from a web browser (Vail, 2012).
Pricing and other relevant technical and functional data
ERP pricing requires careful assessment of some variables that change from one organization to another. Some of the factors that influence the cost of pricing the organization’s ERP include the size of the organization and the expected scope of use. Technical data is important in the ERP system because it helps the user to identify and diagnose problems as they arise in the system thus reducing errors (Vail, 2012).
Reflection on MS Dynamics
MS Dynamics gives efficient business processes resulting in high returns on investment. It acts as the link between the ERP and customer relationship management by availing software applications thereby providing business solutions in the manufacturing, retail, financial services, and public sector (Fife, 2013).
ERP is essential in business management, and it entails various components such as production planning, inventory control, and manufacturing. The total cost of ownership of an ERP system is influenced by software acquisition from a vendor and in-house development. Functional requirements play a critical role in the implementation of the ERP system, and they guide the organization to appraise a given system.
Fife, M. (2013). Extending Microsoft Dynamics AX 2012 Cookbook. Birmingham, UK: Packt Publishing Ltd.
Han, Y. (2011). Cloud computing: case studies and total cost of ownership. Information Technology and Libraries, 30(4), 198-206.
Monk, E., & Wagner, B. (2012). Concepts in enterprise resource planning. Boston, MA: Cengage Learning.
Tsai, H., Lee, L., Shen, Y., & Lin, H. (2012). A comprehensive study of the relationship between enterprise resource planning selection criteria and enterprise resource planning system success. Information & Management, 49(1), 36-46.
Vail, L. (2012). Developing Microsoft Dynamics GP Business Applications. Birmingham, UK: Packt Publishing Ltd.
Walterbusch, M., Martens, B., & Teuteberg, F. (2013). Evaluating cloud-computing services from a total cost of ownership perspective. Management Research Review, 36(6), 613-638.