Enterprise Resource Planning System Management Essay

Abstract

Enterprise Resource Planning systems are importantly a very vital investment that has high competition and performance of a company. This presents a framework for selecting a suitable ERP system. This important framework is supposed to be systematically constructing the objectives of ERP selection in order to support the business goals and of all the strategies of an enterprise. It also helps in identifying the appropriate attributes and consistent evaluation standard for a alleviating a group decision process. This project later would describe the enterprise resource planning in an organization.

INTRODUCTION

In today, supply chain management is eventually becoming a core competency wherein the enterprise resource planning (ERP) system is supposedly an integral part of supply chain management (SCM). However establishing an ERP system is very expensive and risky. The competition around the globe means that all organization which hopes to survive must set up highly responsive supply chains, with all up, mid and downstream partners. Supply chain management is said to be a network of independent or semi-independent business entities together which is responsible for procurement, manufacturing and distributing activities linked with one or more families of associated products. Considering the enterprises associated with supply chain management is more likely to increase the control over their own suppliers thus enhancing their SCM capabilities by getting power from information. Thus most of the companies in today have started to implement ERP systems which are mainly designed to integrate and optimise several business processes like order entry and production planning across the entire firm. This basic investment has made it possible for sharing large amount of information along with their supply chain which has eventually enabling real-time collaboration between supply chain partners letting organizations with forward visibility bettering inventory management and distribution. ERP allows transmission and processing of information required for synchronous decision making which can be observed as an enabler of SCM competencies. Additionally many of the firms deploying ERP systems have thought about extending system scope importantly to integrate their suppliers and customers or even both to system in order to provide additional e-commerce or e-business operations and to increase supply chain functionalities. It is said that there are many advantages using the ERP systems as they thought to be fully realized in a business organization and as well as can be expected to gain many benefits like those of reduction of cycle time, better and faster transactions, improved financial management, which eventually lays down the groundwork for e-commerce linked to the whole organization together seamlessly. This helps provide instantaneous information making tacit knowledge very clear. ERP can render as a backbone in an organization which would respond swiftly to customers as well as suppliers. As stated by few researchers ERP systems are assumed to widely contribute to SCM in technical areas like standardization, transparency and as well as globalization. ERP systems are like one of the leading tool for this purpose and are anticipated to be an integral component of SCM. Many of the organizations are capable of undertaking the difficult process of conversion in order to get possible benefits of an integrated system. By adopting an integral ERP system, apparently firms performance has had mixed results may be or not affecting its benefits. As it is observed practising ERP systems is highly expensive and risky, as it needs large amount of capital and its rigidity makes it quite frequently difficult to implement across all the sectors within a large corporation. Some businesses seem to have invested a lot of money in ERP or IT

without any positive results. Few researchers have also argued that high interdependence between organizational sub-units would eventually supplement to positive ERP related effects as ERP seems to facilitate coordination and information periods. Survey made by few researchers has observed some betterment in

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manager’s perceptions of performance, but that few firms have found to reduce direct operational costs. Improvement was observed only terms of profitability but not is stock returns. On the contrary, recent evidence has apparently proved large benefits and has uncovered significant productivity gains from IT investments. Many of the academic research have contributed by confirming the fact about the relationship between SCM and firm performance. Recently resources and operations have become so important in order to determine how to integrate several ERP modules into SCM especially for planning, control and execution of materials. Furthermore, we would focus on the SCM and ERP issues. We would review a past research on ERP and SCM to describe the ERP benefits and SCM competencies.

Aims and Objectives

The main objectives of this report are to understand the ERP systems and Supply chain management.

This report would describe the major risks and major benefits, their limitation of ERP in supply chain management.

The case study on Wal-Mart portrays a better understanding on their enterprise resource planning in supply chain management. This would help in clarifying about the ERP systems in Wal-Mart and in organisations similar to Wal-Mart.

Literature Review

Before getting into the depth of ERP systems it is important for us know to know a little bit about Supply Chain Management (SCM). Supply chain is a term used in the spirit of value chain concept. Supply chain is said to be a dynamic process and basically calls for the constant flow of information, materials and funds across several functional areas of both within and between chain members. Considering supply chain management, it is said to be the integration of key business processes between a network of interdependent suppliers, manufacturers, distribution centre’s, and retailers in order to ameliorate the flow of goods, services and as well as on the information from original suppliers to the final customers. This is done with the objective of reducing costs widely on systems while maintaining required service levels. This particular approach is consistent with integrated way today’s global business managers plan and control the chain plan of goods and services to the final destination that is the market place.

Major Risks

Major competencies of SCM are quite vast and are dispersed across much area. During recent times, supply chain design and its competencies and performance has received much attention from several researchers and practitioners. Apparently, competencies are stated to focus on certain capabilities steady with its strategy, and the as well as competencies as this is once of the firms important capabilities. Researchers have identified that each competency is composed of different multiple underlying capabilities, that are known to guide philosophies and processes in order to complete specific logistics and several other supply chain activities to overcome obstacles that counteract both internal and external integration of value-added supply chain

operations. Enterprise Resource planning is said to be the core corporate activity helping an firm make speedy decisions and improved considerable reduction of business operational cost. The definition of ERP used in the present research is as stated by : ”An enterprise-wide set of management tools that balances demand and supply, containing the ability to link customers and suppliers into a complete supply chain, employing proven business processes for decision making, and providing high degrees of cross-functional integration among sales, marketing, manufacturing, operations, logistics, purchasing, finance, new product development, and human resources, thereby enabling people to run their business with high levels of customer service and productivity, and simultaneously lower costs and inventories; and providing the foundation for effective ecommerce.”

Major Benefits

Integrated ERP is supposedly said to affect all sectors of a business which claims that the real benefits dwell not within the IT domain but alters the organizational activities that the IT systems has enabled. Few researchers have although said that there is proposed framework for meeting the challenges associated with categorizing benefits based on survey made by them. The conclusion after the survey happened to be that nearly about 500 business executives stated the following outcome of the ERP performance:

– Fastened response time

– Elevated interaction across the enterprise

– Better customer interaction

– Faster delivery on-time

– Better interaction with suppliers

– Low inventory levels

– Better cash management

– Decreased direct operating costs.

Few researchers have also happened to classify ERP benefits into five groups: As the IT infrastructure, operational, managerial, strategic and organizational benefits. Apart from all of these benefits with the ERP, there lies an impact on SCM as well due to impact of ERP. Many of the researchers have apparently stated supply chain challenges within their ERP systems. IT apparently covers all of the information systems that also include ERP systems.

Limitations

The most important challenge found was on the key limitations of current ERP systems when they provide effective SCM support. In today many vendors have started to enhance their offerings with great extended supply chain applications in an attempt to make seamless, integrated information flow right from suppliers through manufacturers and distribution. ERP systems are also to automate business process and help enable process changes as one would expect them to better the SCM competencies in operational process thereby improving customer responsiveness and satisfaction. ERP projects have often found to be complex and as well as is risky to implement in the business enterprises. The risk of ERP projects makes it very important for an organization to point on ways to make the practice as ERP successful. The ERP and SCM systems are generally

used to make an organizations performance better. ERP as said is automated and ingrates corporate cross functioning like those of the inventory control, procurement, distribution etc. Even though ERP software has got

significant benefits they also cost millions of dollars to buy and time to install as well they need disruptive organizational changes. Some companies have though found it to be really helpful others seem to be unhappy with it. Time as well as cost could be enormous and also could involve large number of stake holders which could drastically increase the hidden cost during ERP cycle. Further we would discuss on a case study focusing on Wal-Mart which practices supply chain management and its strategies.

Case-Study

Introduction Wal-Mart was founded in 1962 by Sam Walton and is been in the business of selling anything and everything people need for their everyday life with an everyday low price strategy [Carlson. S, 2004]. The success of Wal-Mart is mainly due to its focus on continuously improving operations through its efficient supply chain management practices. Sam Walton was not mainly concerned about opening more stores in small towns, but also came up with several innovative practices to improve the way business was conducted in the store [Chandran. M. P, 2003]. From the inception, Sam Walton provided products at a reduced cost than its competitors (Moore, 1993). Wal-Mart follows the “Everyday low prices” business model. As the years passed Wal-Mart grew to a size which gave it power to bargain the cost of products with its suppliers [Carlson. S, 2004]. To provide customers with “Everyday low prices”, Wal-Mart has highly invested in IT system to effectively manage their supply chain activities. Wal-Marts company philosophy is to be at the leading edge of logistics, distribution, transportation and technology [SCM Case Studies, 2008].

Wal-Marts procured goods directly from the manufacturers bypassing the middlemen in the supply chain and it spent significant time to meet with its suppliers and understand their cost structure [Chandran. M. P, 2003]. Wal-Marts supply chain mainly provides horizontal collaboration; it creates collaboration among suppliers, retailers and customers to create value [Ching et al, 2010]. Wal-Mart has built up its protocol with the following strategies, Distribution Centres, Cross Docking, Trucking Fleet, Barcode System, RFID Technology, Point of sale terminals, large scale satellite system, CPRF – Collaborative Planning, Forecasting and Replenishment program, Information Sharing, Electronic Data Interchange, and VMI. IT systems are tightly integrated to assure economies from system security, compatibility, and integrity. The system security, compatibility, and integrity provide the technological foundation for economies of scale and scope.

Retail Information System & Satellite Network

Wal-Mart, in 1987 had installed a large scale satellite system to mainly improve communication amongst the stores, the distribution centre and the suppliers. The Retail Information System which was later established in 1991 acts as a data warehouse tool to provide real time inventory data of all the stores to Wal-Marts central computer system. Allows daily sales data management and adjustments and each stores sale information can be retrieved and compared. The Retail Information System along with the Satellite communication system enables seamless communication of inventory data across all Wal-Mart stores and helps to schedule their production cycle with the suppliers [Hayden et al, 2002; Chandran. M. P, 2003; Forwarder. F, 2010; Ching et al, 2010; Wei. M, 2007].

Distribution Centre, Cross Docking & Trucking Fleet

Wal-Mart employs a two-step Hub and Spoke distribution system to distribute materials from the manufacturers to different retail stores. The distribution centres receive goods from various suppliers, these goods are sorted based on the requirements of various stores and shipped to them. This process is called Cross-Docking, to avoid inventory and handling costs and to reduce the product cost by 2% or 3%, Wal-Mart orders truck load of items. Once the products

reach the Distribution Centres, they are cross docked to company owned trucks, the company owned trucks has different products that are to be shelved in particular stores. The cross docking is done using forklift trucks. The drivers of these trucks are instructed by the computer on what merchandises to transport, from and to where. The status of the delivery is updated in the system then and there; this cross docking model helps Wal-Mart to be productive and efficient in sorting and shipping merchandise. The truck drivers are provided with the latest traffic information and adjust the delivery line.

A continues contact between the distribution centres, the suppliers and point of sale system helps to efficiently identify and replenish merchandise globally at all Wal-Mart stores. This created a Pull environment on the manufacturers rather than being pushed.

Collaborative Planning, Forecasting and Replenishment

Customer demand forecasting plays a very important role to efficiently manage cost savings with respect to inventory. The presence of the Retail Information System enables Wal-Mart to see in real time the availability of merchandise/inventory in each store. Rather than doing demand forecasting, what Wal-Mart does is a collaborative forecasting and replaces the goods that have been sold. As a retailer, Wal-Mart requests suppliers only with the goods that have been sold and replaces the exact quantity. This process helps Wal-Mart to avoid the Bullwhip effect. Barcode, Radio Frequency Identification, Massively Parallel Processor and Point Of Sale

The Point-Of-Sale helped Wal-Mart to identify inventory deductions and resupplies. This POS was connected to the Retail Information System and became an integral part of demand forecasting. To further track the flow of inventory over the supply chain and the type of the item that leaves the store, RFID and Barcodes were used. Wal-Mart

Standardized the bar-coding of items across all suppliers and when delivered by the supplier the barcodes are scanned and fed into the central database, creating an inventory list. RFID tags are microchip with built in antennas, these chips hold information about the product. Whenever the chip comes in contact with the receiver, the data in the chip is taken into the system. This enables Wal-Mart to track the item across the supply chain. The main advantages of RFID are to improve logistic efficiency, save time identifying merchandise, convenience in checking inventory and reducing human labour. Wal-Mart is not able to fully migrate into RFID based SCM because of the investment involved in RFID, the RFIDs capabilities to work on wet, metallic and glass pallet and finally the requirement for all

suppliers to move to RFID. The Massively Parallel Processor (MPP) is the central system that holds massive amounts of data regarding the sales, inventory and POS transactions. The main purpose of the MPP is to keep track of stock and movement.

Vendor Managed Inventory & Electronic Data Interchange

Electronic Data Interchange is mainly used by Wal-Mart to help them reduce the transaction cost in terms of ordering products and paying of invoices while dealing with suppliers. EDI would also enable Wal-Mart to have control and coordination and scheduling and receiving the product delivery from the supplier. EDI helps to ensure the right product is delivered at the right time to the right distribution centre. Wal-Mart does not store inventory in the distribution centres for long, the inventory holding period is until the cross docking takes place and immediately merchandise is shipped to the stores. The suppliers have a period of 4 days to get the items to the DC’s. Because of strict rules dictated by Wal-Mart on delivery of goods by suppliers, some suppliers use third party logistic

warehouses to stock their inventory and provide it to Dell just on time. These warehouses are not managed by Manufacturers, but are rented by the suppliers in the 3PL warehouses. This concept is the Vendor-Managed-Inventory.

Conclusion

This study thus mainly helps in providing benefits of ERP on an organization. Thus the main objectives have been tried to describe and has been concluded that it is necessary to adopt an ERP system first to serve as a corporate framework of information before the deployment of other corporate information systems which could help the firm gain desired effect. It is also observed that ERP systems could be successful and become the backbone of company operations in new and future economy. Although in order to measure ERP benefits and SCM competencies more measurements for firm competencies needs to be drawn from the ERP systems. The major limitations that could be observed is that most of the companies fail to keep records or even did not bother to trace back or evaluate firm’s performance after the project has been completed during the past.

Future research could be based on the comparative analysis on the effect on performance of adoption of an ERP system alone or by adopting SCM system alone or even could be simultaneous adoption of both system types.