ERP Benefits

Many firms install ERP systems to improve the flow of information across sub-units (Kalling, 2003). Data standards eliminate the burden of reconciling or translating information that is inconsistently defined across two or more sub-units. Data standards also do away with the potential for translation or reconciliation errors as well as ambiguity about a field’s true meaning (Wade and Hulland, 2004). The integration provided by ERP also reduces the ad-ministrative costs of sharing information, since many manual activities involved with keying and translating information from one system to another are eliminated. Finally, since the

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gle database makes data universally available as it is updated, ERP improves the timeliness of information. Enhancing this flow enables the centralization of administrative activities, such as payroll and accounting. Furthermore, it allows better operational coordination, such as im-proving material flows among plants or information flows from sales offices to plants. ERP can also enhance centralized decision-making at the divisional or corporate level as informa-tion from various sub-units is centralized and standardized in a timely fashion (Davenport and Brooks, 2004). Because it allows better coordination, ERP is sometimes credited with foster-ing an inter-functional process approach to business, rather than a functionally oriented one.

Many firms also install ERP systems to replace existing IT infrastructure as well as to reduce maintenance costs and the costs of future IT improvements. With ERP systems the vendor develops and maintains the software and thus spreads the costs of doing so among numerous customers.

For years organizations have striven to realize the benefits of ERP, ES and IT invest-ments. Integrated ERP systems affect all aspects of a business (Kalling, 2003; Hong and Kim, 2002). Dhillon (2005) claimed that real benefits reside not within the IT domain but, rather, in the changes in the organizational activities that the IT system has enabled.

Several researchers have classified the types of ERP benefits, and have indicated that some approaches may be appropriate techniques for evaluating the performance or benefits of ERP systems. Irani and Love (2001) proposed a framework for meeting the challenges asso-ciated with categorizing benefits that is based on the work of Harris (1996). In a case study of an MRPII investment, it was observed that as one moves from strategically oriented IS projects through tactical to operationally oriented projects, the benefits accrued go from those that are generally intangible and non-quantitative in nature to more tangible and quantitative ones for strategic, tactical and operational benefits. The benefits of ERP systems include streamlined business processes, improved planning, improved decision making, and reduction of inventories.

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Mabert et al. (2000) surveyed about 500 business executives, and revealed the follow-ing performance outcomes of ERP: quickened response time, increased interaction across the enterprise, improved order management, improved customer interaction, improved on-time delivery, improved supplier interaction, lowered inventory levels, improved cash management, and reduced direct operating costs. Stratman and Roth (2002), using 36 measures, defined eight theoretical ERP competency constructs. They posited a portfolio of managerial, technic-al and organizationtechnic-al skills and expertise as necessary antecedents to improving business function once an ERP system has become operational and functionally stable. They argued that a firm’s ERP competency must be used effectively in order to truly harness the capabili-ties of an ERP system for competitive advantage. Vemuri and Shailendra (2006) developed a set of initial measurement items for each ERP competency. Shang and Seddon (2000) classi-fied the different types of ERP benefits into five groups as follows: IT infrastructure, opera-tional, managerial, strategic and organizational benefits. The IT infrastructure category con-sists of the typical IT department benefits arising from reduction in cost of maintaining legacy systems. It is an indication of an organization’s competency in matching IT capabilities with the changing, cross-functional business requirements of the enterprise. The operational bene-fits are those that arise from automating cross-functional processes. They encompass both ef-ficiency-based and effectiveness-based performance improvements in order to capture the en-terprise-wide business benefits. The managerial category includes benefits that arise from the use of data to better plan and manage production, manpower, inventory and physical re-sources and from the monitoring and control of the financial performance of products, cus-tomers, business lines and the geographic area. The strategic benefit category focuses on the benefits that arise from the system’s ability to support business growth. Rapidly changing business needs may require operations strategy planners to continually evaluate cross-functional business goals, and redefine the information systems’ capabilities. The stra-tegic benefits of ERP can support these goals. The organizational benefits category captures

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the benefits derived from facilitating business learning, empowerment of staff and higher em-ployee morale and satisfaction. Those studies have addressed the classification and content of ERP benefits. On the basis of the literature review presented above, we finally developed a framework consisting of five constructs and 32 measures.

In summary, as seen from the previous literature review of the different classification of ERP benefits, they revolve around business process, IT infrastructure or technical items, and strategic perspective. Stratman and Roth (2002) conceptual model of ERP competence can serve as a useful framework for evaluating the benefits of ERP systems. However, this framework does not link the competence to managerial and IT infrastructure competence as recommended by Harris (1996) and Shang and Seddon (2000). Both B’urca et al. (2005) and Biehl (2005) benefits categories also discussed less about strategic. Davenport and Brooks (2004) that there are different types of benefits from ERP system and some are likely to arise earlier than others. However, this research is interested in the relationship between benefits of ERP systems implementation and its impacts on firm competencies of SCM. We believe that to integrate the categories of benefits from Harris (1996) and Shang and Seddon (2000) might be the most appropriate technique for evaluating the benefits of ERP system. Since they em-phasized the importance of gathering information from all employment levels to evaluate the benefits gained from ERP systems. This integrated classification of benefits may help to ex-amine the relationship with firm competencies of SCM. It is mainly based on the model of Shang and Seddon (2000) and Harris (1996), and merges the benefits and measures we have proposed.