The Impact on the Planning and Control Process

Chapter 6 Discussions and Implications

6.2 The Impact on the Planning and Control Process

There are six items in the planning and control process of the SCM construct (Table 4.2). From the regression results (Table 5.5) it can be concluded that the hypotheses Ha2, Hb2, Hc2 are strongly supported (0.24^*^*^*, 0.24^*^*^*, 0.45^*^*^*), and from the SEM results (Figure 5.1), that the hypotheses Ha2, Hb2, Hc2 are also supported (0.25^*^*^*, 0.28^*^*^*, 0.48^*^*^*), demonstrat-ing that SCM competencies in the planndemonstrat-ing and control process are positively impacted by the operational, managerial, and strategic benefits of ERP. Especially, the strategic benefit of ERP is the most dominant predictor for SCM competencies in the planning and control process, because the beta coefficients of some items are high, such as information management (SPCP1, 0.41), internal communication (SPCP2, 0.50), connectivity (SPCP3, 0.38), collabor-ative forecasting and planning (SPCP4, 0.37), and functional assessment (SPCP5, 0.31). Just as with the construct of the operational process, both regression and SEM results show that the impact of IT infrastructure and organizational benefits (Hd2, He2) are not significant.

Both results can be interpreted as indicating the operational, managerial, and strategic benefits of ERP enhanced SCM competencies in the planning and control process.

6.3 The Impact on the Behavioral Process

There are five items in the behavioral process of the SCM construct (Table 4.2). The regression results (Table 5.5) support the hypotheses Hb3, Hc3 (0.26^*^*^*, 0.30^*^*^*), and in the SEM results (Figure 5.1), the hypotheses Hb3, Hc3 are also supported (0.19^*^*^*, 0.26^*^*^*), de-monstrating that the managerial and strategic benefits of ERP have the most impact on SCM competencies in the behavioral process. Both regression and SEM results indicate that the or-ganizational benefit of ERP (He3) is not a significant predictor of the behavioral process.

CHAPTER 7 CONCLUSIONS AND REMARKS

This chapter provides (1) Conclusions and discussion, (2) Summary of research find-ings and major contributions for implications for practitioners, (3) Limitations of the research and recommendations for future research.

7.1 Conclusions and Discussion

The purpose of this paper was to propose and test a model of the relationship between the benefits to Taiwanese IT industries of their adoption of ERP systems and their impacts on SCM competencies. A number of important findings emerge that have both theoretical and managerial implications.

7.1.1 The operational, managerial, and strategic benefits are significant predictors for the SCM

A significant contribution of this study is the empirical test of theoretical assumptions in the extant literature of the influence of ERP benefits on SCM competencies. It confirms that of the five constructs of ERP benefits, the three that positively impact on SCM competencies are operational, managerial, and strategic benefits. This finding underscores the important role an ERP system plays in the functioning of supply chain organizations. The unequivocally pos-itive results are not surprising, yet differ from those of most other studies, such as Hitt et al.

(2002), Akkermans et al. (2003), Hendricks et al. (2007), and McAfee (2002). Three possible explanations for the remarkable finding are as follows:

1. Manpower and knowledge background of the Taiwanese IT industry

Much of Taiwanese IT firms’ technology, and a considerable proportion of their know-ledge, were transferred from the U.S. (Chow et al., 2008), Europe, and Japan. As we know,

the United States and European countries have always been leaders in applying information systems. Moreover, a considerable number of Taiwanese IT firms’ managers have been edu-cated, worked, or trained in the U.S. (Chow et al., 2008), Europe, or Japan, and have obtained first-hand experience of using ERP systems or observed the adoption of these systems in those industrialized countries. Accordingly, the experience and knowledge background of those managers may contribute to the adoption of ERP systems.

2. The center-to-satellite network structure of the Taiwanese IT industry

In terms of size, many of Taiwan’s semiconductor manufacturers or electronics firms are large enterprises. TSMC, UMC, Foxconn, Acer, and ASUS are typical examples. Never-theless, some Taiwanese IT firms are small and medium-size enterprises (SMEs). The scale of manufacturing SMEs in Taiwan is smaller than of those in the United States (U.S. manufac-turing SMEs typically have up to 1000 employees). No matter the size of those IT firms, their customers include such well-known large European and American companies as Intel, IBM, Apple, Dell, HP, Compaq, and Nokia. In contrast, the vast majority of the suppliers of those Taiwanese IT companies are SMEs. The manufacturing SMEs in Taiwan, however, have strong networks, and play an important role for much larger organizations within their mul-tiple supply chains. Consequently, those SMEs operate in a satellite-type network structure around the larger Taiwanese IT companies. The success of the center-to-satellite network structure has greatly enhanced the competitiveness of Taiwanese IT manufacturers (Chen et al., 2008).

For large Taiwanese IT firms, ERP systems have been successfully used as the internal integration tool to centralize IS, which are often at multiple locations. In addition to internal process integration, the scope of systems integration has extended to collaborative supply chains partnerships, where suppliers are typically represented by SMEs. In order to facilitate information transmission and communication with partners, those SMEs (IT firms or up-stream/downstream parts suppliers and satellite factories) have also adopted ERP systems or

information systems. The systems thus satisfy the needs of large foreign customers to stay in close touch with their parts and components suppliers, and enhance overall supply chain per-formance. Furthermore, the government of Taiwan has systematically commissioned interna-tional firms to assist domestic manufacturers to adopt ERP systems. The MOEA’s (Ministry of Economic Affairs, R.O.C.) Project A is one such example. Satisfying the needs of customers and responding to the requirements of globalization and SCM thus inevitably becomes part of system specifications during the assessment, selection, and adoption stages. As a result, the enterprises in the supply chain not only have effective integrated processes within a business, but also have synchronization of the operations of all partners in the supply chain. That is, ERP implementations in these Taiwanese companies have a significant impact on other com-panies, both large and small, within the global supply chain.

3. Effectiveness of system adoption

The informatization of Taiwanese large and medium-size IT firms makes them a model for the country's other firms and industries. Although the adoption of ERP systems at big firms is a relatively large and complex undertaking, the adequate budgeting and relatively good consulting, talent, and technical support resources at such firms work to good effect (Chen, et al., 2008). On the other hand, the experts consulted for this study mentioned that since many small firms previously were poorly informatized, they have little historical burden during the adoption process, making system adoption much simpler than at large firms. These small firms invariably embark on a full-scale upgrading campaign when they decide to deploy a new system, and can often rely on consulting and assistance from their larger customers. In other words, the less well established a firm is in IS/ES/ERP, the less it will be locked in into its existing information infrastructure, and the more beneficial will be its use of ERP. Another possible issue is that while early adopters may have received some competitive advantages, late ones generally have benefited from upgraded systems and a better implementation know-ledge base (Mabert et al., 2003b). For these reasons, small firms can also achieve excellent

IS/ES/ERP system effectiveness, which enables them to significantly enhance their SCM ca-pabilities. As reported in Mabert et al. (2003b), companies of different sizes approach ERP implementations differently across a range of issues. The benefits differ by company size.

Larger companies report improvements in financial measures, whereas smaller companies report better performance in manufacturing and logistics.

To sum up, the comments from the follow-up interviews and the analysis of data brought out the fact that the operational cost was reduced for those Taiwanese IT firms that adopted an ERP system, probably because of the process improvement, which in turn is a re-sult of better information flow among all of the entities in the supply chain. Better information flow leads to cycle time reduction, since, apart from the internal functions improvements, the supply chain will be better equipped to answer customers’ real-time demands. Answering real-time demands in turn leads to an overall increase of productivity, and of product and de-livery quality. Furthermore, such firms strip redundancy and duplication of materials from supply chain operations. The managerial benefits of ERP, which include better resource man-agement and improved decision making and planning, performance improvement, partnership management, scheduling, and quality management, are (with a path coefficient of .34) the most important factors impacting the operational process of SCM. For example, they now know how many material and service suppliers to include in synchronized operations. More-over, strategic benefits of ERP, which include building external linkages and extending the value chain, improve those firms’ ability to make important integration decisions.

7.1.2 The IT infrastructural and organizational benefits are not significant predictors of SCM

Another important finding is that IT infrastructural and organizational benefits of ERP do not directly impact SCM competencies. The comments from the follow-up interviews

suggest two possible explanations for this finding:

1. The need for flexible management and further system modifications

According to a prominent consulting company that responded to this study, compared to the relationships between consultants and managers in large companies, which are mostly contractual, project-based, and formal, the relationships between consultants and own-er-managers in SMEs are mostly friendly, informal, and trust-based. As the experts mentioned, Taiwanese IT firms’ internal operations were sometimes excessively flexible during that time when their level of informatization was still low. While flexible management may have led to administrative complexity, it may also have enabled these firms to satisfy their customers’ va-ried needs. For instance, Taiwan’s Notebook PC manufacturers have had to flexibly adjust or even eliminate many relevant time-consuming management steps in order to fulfill such near-ly-impossible customer demands as Dell’s 973 and 982 shipment policies (973 requires ship-ment of 97% of orders within three days; the current 982 policy requires shipship-ment of 98% of orders within two days). It has often been necessary to flexibly schedule employee overtime in order to fill orders on time. While this flexible approach to management has certainly re-solved many short-term problems in the face of growing competition and increasingly exact-ing demands, it is gradually crackexact-ing under the burden it must withstand.

Nevertheless, many firms expect to retain a certain degree of flexibility and some of their past habits after adopting an ERP system, even when such flexibility entails tax issues.

In particular, SMEs with relatively fluid organization structure and dynamic strategic planning seek greater flexibility. Although ERP software is a holistic solution with pre-existing mod-ules and functions, many Taiwanese firms have also emphasized keeping modifications to the source code to a minimum. Those companies — perhaps for the reasons discussed above — demand a degree of system modification during the adoption stage greater than that sought by European and American firms. As reported in Bennet and Robson (2002), although over 95%

of SMEs use external advice, some owners strongly believe they know their business very

well. This makes them very skeptical about new advice from external sources. Researchers agree that the role of the negotiation process for management consultants working with SMEs is more important and challenging than it is in large companies (Dalley and Hamilton, 2000;

Chen et al., 2008). Because the integrative design of ERP systems increases the complexity involved in source code modifications, however, most companies significantly underestimate the effort required for modifications. Modifications not only lead to increased costs and im-plementation times; they also make further upgrades of the system difficult (Mabert et al., 2003a, 2003b).

This study’s analysis of IT infrastructure and organizational performance makes it clear that these two benefits of ERP do not have positive impacts on corporate SCM competencies, and some items may even have a negative effect on SCM. While this finding is somewhat at odds with the results presented in the literature review, it is not surprising. As some studies in the literature have noted, organizational collaboration and information sharing, in turn, are expected to improve organizational performance. The complexity of organizational collabora-tion and investing in informacollabora-tion technologies may facilitate it (Sanders, 2007). Insufficient managerial capabilities, strategic change and complexity, and excessively flexible operating control procedures may, however, cause management complexity and wasted time at SMEs (Bennett and Smith, 2004; Riemenschneider et al., 2003). In addition, the initial confusion that ensues after a new system’s adoption may temporarily obscure many of the system’s ben-efits. The literature includes suggestions that the time factor be taken into consideration when assessing the effect of ERP system adoption on corporate performance (Hendricks et al., 2007;

Hitt et al., 2002; McAfee, 2002; Mabert et al., 2003a).

2. The impact of the Chinese market

It deserves to be mentioned that as SMEs globalize, Taiwanese SMEs unite against for-eign competitors, and have made aggressive outbound investments in Southeast Asia and China. As the roles of Asian nations in the world economy grow, especially those of China

and the other BRIC countries (Brazil, Russia and India), the substantial impact of Taiwan’s SMEs on the Pacific region is increasing (Chen et al., 2008). Taiwanese IT firms also have moved most if not all of their production sites to China, and these companies are, in fact, among the major behind-the-scenes drivers of China’s status as “the world’s workshop.”

Nevertheless, as many multinational firms have noted, many systems in the newly-opened China market are either ineffective or at variance with international practice. The best-known examples involve China’s tax procedures. Firms with plants in China that wish to use the same information system or ERP system to handle tax matters often encounter the dilemma of contradictory specifications.

The differences between the data from Western countries and Taiwanese data suggest different managerial perceptions of how ERP benefits impact SCM competencies or firm per-formance. More important, they suggest that perceptions of how these components influence SCM competencies may be affected by different worldviews and, perhaps, international cul-tural differences. Thus, the association between supply chain components and organizational performance may differ_according to place. As a result, in view of the legal system, organiza-tional culture, and habits prevailing in China, it is not surprising that ERP-based IT infra-structure and organization have little short-term positive effect on SCM competencies.

Last, this study found that three of the five benefits of ERP have a positive impact on SCM competencies, while the remaining two benefits have no positive effect. When the study questionnaire asked whether it would be feasible for a firm to adopt a specialized SCM sys-tem in order to improve supply chain management instead of first adopting an ERP syssys-tem, however, more than 80% of respondents felt that it was necessary to first adopt an ERP sys-tem to serve as a corporate information framework before the deployment of other corporate information systems (such as an SCM system) could achieve the desired effect. Accordingly, our research result is also consistent with the literature (Mabert et al., 2001), and supports the finding that the ERP system can successfully become the backbone of company operations in

the new economy. It is neither a myth nor merely imitative behavior. The immediate and cur-rent issue for IT managers is less whether to adopt an ERP system and more how to best plan that adoption so that firm and supply chain performance are enhanced.

7.2 Major contributions to the academic community and its implications for practitioners

The results of this study have several important implications for practitioners. Primarily, as today’s competition shifts from among organizations to between supply chains, organiza-tions are increasingly adopting ERP systems, aiming to enhance their SCM competencies, re-duce SCM costs, and secure competitive advantage. However, doubts linger over the potential effectiveness of ERP systems. The findings of this study confirm that adopting an ERP system is indeed an effective competitive strategy, and that implementation of an ERP system strong-ly impacts a firm’s SCM competencies.

Secondly, this study defines the five constructs of ERP benefits and three constructs of SCM competencies, to determine which aspects actually have a substantive impact on SCM competencies. The study discovered that among the operational, managerial, and strategic benefit areas of implementing ERP, the strategic benefits were the strongest, managerial bene-fits were second and operational benebene-fits were third. No significant impacts were noted for IT infrastructure and organizational benefits areas. From the results, we recommend that it would be best to choose an ERP system to serve as the backbone of enterprise systems and to raise firm competencies of SCM. Whether to implement an SCM system or other ES depends on the budget of the enterprise. No matter whether an SCM system or other ES is called for, these must be built on the integrated and real-time information collected by an ERP system.

Only then will the benefits of the system be fully achieved. Moreover, when selecting ERP modules, priority should be given to operational functionality, followed by managerial and

strategy related modules. Although our research results reveal that operational benefits rank third in terms of greatest impact, because operational functions collect transaction processing data that then serve as the base data for all modules, the introduction of ERP modules with operational functionality should take precedence.

Thirdly, this study noted the expensive cost of ERP systems. But analyzing the scale of enterprises surveyed for this study, notes that a high rate (around 70%) of SMEs (capitalized under 100M USD) implement ERP systems. With the lowering of the cost-benefit ratio for such software, frequent functionality updates, low cost of localized ERP systems and multina-tional software vendors implementations among larger corporations reaching the saturation point in market trends, the numerous advantages afforded by streamlined solutions for SMEs add up to a considerable incentive for SME-scale enterprises to implement ERP systems.

Fourthly, in the case of the Taiwan IT industry, when recommending that an enterprise implement ERP, improving the user interface can help raise the enterprise's acceptance of new software, when it's inappropriate to request substantial system modifications of the software vendor. This can also reduce future complexities of system upgrades and generally raise the effectiveness of implementations.

7.3 Limitations of the Research and Recommendations for Future Re-search

The study developed ways of measuring ERP benefits’ impact on the SCM competen-cies model. Although validity and reliability checks were performed on the measurements, if we can use more measurements for firm competencies drawn from the ERP software or con-sultant companies, instead of self-reporting by the firms, the results will be more convincing.

The limitation is that it seems that most of the consultant companies either did not keep records or did not trace back or evaluate the firm’s performance after the project was finished.

Future research based on the results of this study could integrate financial data of the surveyed enterprises, analyzing how much Taiwanese IT firms invested in IT software as a percentage of their total turnover, to enable more accurate analysis of the size of the firms, the

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