A structural equation model for analyzing the impact of ERP on SCM

A structural equation model for analyzing the impact of ERP on SCM

Yi-fen Su

, Chyan Yang

a

Institute of Information Management, National Chiao Tung University, 1001 Ta Hsueh Road, Hsinchu 300, Taiwan, ROC b

Institute of Business and Management, National Chiao Tung University, 118 Zhong Xiao West Road, Taipei 100, Taiwan, ROC

c_{Department of Information Management, Minghsin University of Science and Technology, 1 Hsin Hsing Road, Hsinfong, Hsinchu 304, Taiwan, ROC}

a r t i c l e

i n f o

Keywords:

Supply chain management (SCM) Enterprise resource planning (ERP) Structural equation model (SEM)

a b s t r a c t

Enterprise resource planning (ERP) and supply chain management (SCM) represent important informa-tion technology investment opinforma-tions for operainforma-tion or IT managers, and have been acclaimed in the prac-titioner and academic literature for their potential to improve business performance. The purpose of this article is to provide further insights into the adoption of ERP systems and the impacts on firm competence in SCM. We propose a model featuring ERP benefits to firm competences in supply chain management. We also hypothesize that three constructs of ERP benefits positively impact firm competences in SCM. To clarify the relationships among these constructs, structural equation model (SEM) is conducted to examine the model fit and nine hypotheses. The SEM results clearly demonstrate that there exist close interrelations among the benefits of implementing ERP systems and firm competences in SCM. The data from Taiwanese IT firms was collected through interviewing of experts and surveys. The results provide empirical evidence that the beneficial impacts of ERP on the supply chain do lead to better overall SCM competence. That evidence confirms that operational benefits, business process and management bene-fits, and strategic IT planning benefits of ERP in turn enhance firm competences of SCM in operational process integration, customer and relationship integration, and planning and control process integration. Ó 2009 Elsevier Ltd. All rights reserved.

1. Introduction

Business organizations today are facing a more complex and competitive environment than ever before (Chen & Lin, 2009a; Ell-ram, 1991). Business success is no longer a matter of analyzing only the individual firm, but rather the chain of delivering and sup-plying organizations; the individual firm is only a single part of the supply chain. Therefore, companies are focusing on supply chain strategies to streamline internal operations, boost plant productiv-ity, improve product qualproductiv-ity, and reduce manufacturing costs. One reason for these initiatives is the substantial cost reductions to be achieved by improving the firm competences of supply chain man-agement. Another reason is the advent of the Internet economy. The internet is challenging the traditional supply chain structures that firms have employed to get goods and services to markets (Rahman, 2003). Markets are becoming more transparent; cus-tomer demands are being met in a more customized manner, and the rate of change in the business world keeps increasing ( Ell-ram, 1991). All these developments are having a profound impact on the enterprises of supply chains. Therefore, how to enhance

the firm competences on supply chain management is becoming more important.

The literature on new business models for the Internet age is growing rapidly. In particular,Fine (1998) has pointed out that as the business environment changes, supply chain design is becoming a core competence. At the same time, another busi-ness-driven phenomenon, the adoption of enterprise resource planning (ERP), is sweeping across industry. Adoption of ERP sys-tems may motivated by pressure from competitors, or by requests from partners or customers in the supply chain for linkage or sys-tem upgrades, or simply by the need to replace the legacy syssys-tems. When ERP systems are fully realized in a business organization, they can be expected to yield many benefits: reduction of cycle time; faster transactions; better financial management; the laying of the groundwork for e-commerce; and making tacit knowledge explicit. Since the potential benefits are large, many organizations are willing to undertake the difficult process of converting from whatever they currently use to an ERP system. Installing an ERP system is, however, an expensive and risky venture (Chen & Lin, 2009b;Markus & Yanis, 2000).Roach (1991)stated that although business was investing huge sums of money in IT, positive results could not yet be observed in the US economy.Strassman (1990)

also failed to find positive returns from IT investments in his study of IT expenditures in the 1980s. Other researchers during this same time period found similar outcomes (Pentland, 1989). More recent,

0957-4174/$ - see front matter Ó 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.eswa.2009.05.061

*Corresponding author. Address: Institute of Information Management, National Chiao Tung University, 1001 Ta Hsueh Road, Hsinchu 300, Taiwan, ROC. Tel.: +886 2 2349 4936; fax: +886 2 2349 4926.

E-mail address:professor.yang@gmail.com(C. Yang).

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evidence, though, has, on the contrary, demonstrated large benefits from IT investments and uncovered significant productivity gains from IT. Other recent studies (Hitt & Brynjolffson, 1996; Mukho-padhyay, Kekre, & Kalathur, 1995) have argued persuasively that enough evidence has been gathered on the positive effects of IT to justify the conclusion that ERP investment does pay off.

As reported inChang et al. (2008), while the external environ-ments and alliance partnerships facing an enterprise are becoming more complex, executive should enhance efficiency and perfor-mance of supply chain management as well as to gain potential competitive advantages. Although many academic researchers have contributed by confirming the relationship between supply chain competences and enterprise performance or by confirming the relationship between ERP benefits and enterprise perfor-mance, determining just how the ERP system was expected to work as an integral component in supply chain management has been less studied and is not understood. Our research, therefore, focuses on the impact of ERP benefits on the firm competences of SCM, rather than on the relationship between ERP or SCM and enterprise performance. From the above historical perspective, and after reviewing the selected literature on ERP and supply chains, we first listen to practitioners. What do experts from busi-ness, who recently have been or are currently going through ERP or SCM systems implementations, think about the strengths and weaknesses of ERP with respect to enterprises and SCM? The pres-ent study is based on the Taiwanese IT industry for two reasons: First, it has achieved outstanding results over the past two dec-ades (Chang and Yu, 2001, chap. 12). ‘‘Made by Taiwan” (Tai-wan-made) IT products dominate the worldwide market in many categories. Most of them dominate over 50% of the world-wide market. Many scholars have conducted research into the SCM of firms in some developed countries (Benton & Maloni, 2005; Lim & Palvia, 2001). These studies cover many types of industry, such as the chemical, pharmaceutical, bioengineering, automobile, etc. They also include a wide range of high-technology firms. The IT industry in developing countries, such as Taiwan, China, and Korea, has not, however, been comprehensively stud-ied. Second, in the IT industry, product life cycle is extremely short. Companies need to deliver new products before they have any market value. In the Taiwanese IT industry, the main type of business is original equipment manufacturing (OEM) and original design manufacturing (ODM). An OEM/ODM business is different from an own brand manufacturing (OBM) business in many as-pects. With OBM, companies can entirely control their marketing activities. In the case of OEM/ODM, on the other hand, firms are not involved in their OEM/ODM customers’ sales/marketing activ-ities. Companies isolated from the customer base, still need to sat-isfy customer needs and to react to all the customer changes immediately. They are compelled to closely cooperate with all of the members on the supply chain so as to be able to react to any unexpected changes. To cope with the rapid changes in cus-tomer needs and the extremely short product life cycles, the cross-functional cooperation of information systems in the IT industry may be more important than those industries with a longer product life cycle. These two unique features – the rapid customer changes and short product life cycles – of the IT industry indeed encourage the companies to improve SCM competences and performance. There is much academic research and there are many empirical studies that show that firms with superior supply chain management competence have better performance (Byrd & Davidson, 2003;Closs & Mollenkopf, 2004; Gunasekaran, Patel, & McGaughey, 2004; Narasimhan & Kim, 2002); but how can ERP be expected to support or create firm competences in SCM? Are there any limitations to or weaknesses of the impact of SCM while companies are under going ERP implementation? The evidence that the Taiwanese IT industry has had a highly

suc-cessful growth experience with SCM competences shows that it can be documented, and lessons can be learned.

This article sets the stage for recently completed research con-centrating on SCM and ERP issues. First, definitions of those terms are provided, and compared with recent usage. Second, a review of past research on ERP and SCM is presented to illustrate the ERP benefits and supply chain competences. A conceptual research model is proposed. Third, data collected from Taiwanese IT firms through a survey and interviewing of experts is presented. The respondents to the survey were, primarily, chief information offi-cers or IT industry related engineers or users and other top IT exec-utives. And fourth, the confirmation of the overall proposed model is important because it provides empirical evidence that ERP im-pact on the supply chain did lead to better overall SCM competenc-es. The results confirm that ERP provides benefits in the following areas lead to significant improvement in the firm competences of SCM: (1) operational benefits, relating to cost reduction, cycle time reduction, productivity improvement, quality improvement, and customer service improvement; (2) business process and manage-ment benefits, relating to better resource managemanage-ment, improved decision making and planning, and performance improvement; and (3) strategic IT planning benefits, involving building business flexibility, IT cost reduction, and increased IT infrastructure capability.

2. Literature review

2.1. Supply chain management and firm competences

Supply chain management (SCM) is a 21st century paradigm of IT infrastructure. It focuses on globalization and information man-agement tools that integrate procurement, operations, and logistics from raw materials to customer satisfaction (Kovacs & Paganelli, 2003). Further, it increases manufacturing flexibility, transporta-tion speed, and informatransporta-tion availability, as well as management complexity. In recognition of these challenges, practicing managers and academic researchers have realized that SCM has been a major component of competitive strategy to enhance organizational pro-ductivity and profitability.

Not everyone, however, means the same thing by the term ‘‘supply chain.” Generally, it has three levels. Some have restricted its meaning to apply to only the ‘‘relational” activities between a buyer and seller (Ellram, 1991). A second use of ‘‘supply chain” takes a broader view by including all ‘‘upstream” suppliers to a firm (Dobler & Burt, 1996). Yet a third view takes a ‘‘value chain” approach, in which all activities required to bring a product to the marketplace are considered part of the supply chain (Lee & Bil-lington, 1993). Manufacturing and distribution functions are thus included as part of the flow of goods and services in the chain.

The definition of supply chain used in the present research fol-lows the spirit of the value chain concept. The supply chain is the network of facilities and activities that performs the functions of product development, procurement of material from vendors, the movement of materials between facilities, the manufacturing of products, the distribution of finished goods to customers, and after-market support for sustainability. Such a holistic approach is consistent with the integrated way today’s global business man-agers are planning and controlling the flow of goods and services to the market place.

The literature on SCM that deals with strategies and technolo-gies for effectively managing a supply chain is quite vast. In recent years, the competences and performance of SCM have received much attention from researchers and practitioners. The relation-ship between firm competences and the impact on the perfor-mance of enterprise and supply chains has been remarkably

strong. According toStalk, Evans, and Shulman (1992), competenc-es emphasize technological and production expertise at a specific point along the value chain.Prahalad and Hamel (1990) character-ize core competences as the collective learning of the organization, especially the knowledge of how to coordinate diverse production skills and integrate multiple streams of technologies. Accordingly, in our research we examined the company with powerful capabil-ity of supply chain management as the most important factors in the performance of supply chain management.

The 21st Century Logistics framework was developed at Michi-gan State University and introduced in 1999 (Bingi, Sharma, & God-la, 1999). The framework identifies six firm competences critical for logistics and supply chain management. Each competence is composed of multiple underlying capabilities, which guide philos-ophies and processes to complete specific logistics and supply chain activities. The competences leading to high supply chain per-formance can be grouped into operational, planning, and behav-ioral processes. A major challenge to empirically demonstrating the relationship concerns how to measure a firm’s ‘‘success.” Firm performance must certainly incorporate financial measures, but should also include broader measures. The 21st Century Logistics framework was developed using a measurement model that con-siders both firm and supply chain performance using 13 logistics and supply chain variables representing five key performance areas. These are customer service, cost management, quality, pro-ductivity, and asset management. Since this framework was intro-duced, many authors have applied the framework to international environments. For example, Carranza, Maltz, and Antun (2002)

used the framework to discuss and compare the logistics strategy of Argentinian firms. Morash and Lynch (2002) investigated the relationship between public policy and supply chain capabilities and performance in three global regions: North America, Europe, and the Pacific Basin. This research made a contribution by con-firming the relationship between supply chain management best practice and firm performance for the U.S. sample. And the results of the research suggest that the above six firm competences are reasonably robust across environments and confirm that firm com-petences do lead to improvement of the supply chain performance. 2.2. Enterprise resource planning and the benefits

The need for firm competences in supply chain management led to a significant development in information systems (IS). At the same time, one such information system, the enterprise resource planning (ERP) system, is sweeping across industry. An ERP system is an integrated enterprise computing system that is designed to automate the flow of material, information, and financial resources among all functions within an enterprise on a common database. Prior research suggests different ways of defining ERP: that is, from a business perspective, a technical perspective or a functional per-spective. One way of looking at ERP is as a combination of business processes and information technology.Davenport (1998)proposed that implementing ERP systems brings many benefits to the orga-nization, including reduction of cycle time, improving information flow, rapid generation of financial information, promotion of the E-business, and assistance in development of new organizational strategies.Koh, Gunasekaran, and Rajkumar (2007)suggest that the future will see a firm being increasingly core competence dri-ven with increasing divestment of non-core activities. This would lead to a heightened supply chain, with a multitude of firms ‘com-pleting’ the competence to provide the aforementioned goods and services. Furthermore, from a more strategic perspective, Chiplun-kar, Deshmukh, and Chattopadhyay (2003)suggest as a benefit the capture of the complete business environment in a business pro-cess reengineering (BPR) project with the help of information tech-nology, specifically supported by the system that improves the

performance of the enterprise as a whole. From a technical per-spective, ERP can be seen as the logical extension of the Material Requirement Planning (MRP) systems of 1970s and the Manufac-turing Resource Planning (MRP II) systems of 1980s. The ERP was subsequently designed to overcome the operational problems that companies experienced with previous information systems. ERP systems should not be looked at simply as tools that have a fixed and measurable output, but rather as comprising a technological infrastructure designed to support the capability of all other tools and processes used by a firm. Functionally, an ERP system primar-ily supports the management and administration of the deploy-ment of resources within a single organization. One significant feature of an ERP system is that core corporate activities, such as manufacturing, human resources, finance, and supply chain man-agement, are automated and improved considerably by incorporat-ing best practices, so as to facilitate greater managerial control, speedy decision making and huge reduction of business opera-tional cost (Holland & Light, 1999). Most of the researchers agree that the task requires a mix of cross-functional strategic planning and enterprise-wide corporate diplomacy (Bingi et al., 1999). ERP is fundamentally tied to the integration, standardization, extension and assurance of future flexibility for corporate processes.

In the past decade, nearly all literature on ERP focused on rea-sons for implementation and on the challenges of the implementa-tion project itself (Davenport, 1998). Recently, several distinct research streams on ERP are observed in the literature. Some researchers have turned their attention to the contribution of ERP systems to supply chain coordination, when the supply chain is composed of several legal entities, such as in virtual enterprises or in an international context.Akkermans, Bogerd, Yucesan, and van Wassenhove (2003)studied the future impact of ERP systems on supply chain management. One of their main findings is that the panel experts saw only a modest role for ERP in improving future supply chain effectiveness and a clear risk of ERP actually limiting progress in SCM: ERP was seen as offering a positive contribution to only four of the top 12 future supply chain issues. Moreover, they identified key limitations of current ERP systems in providing effective SCM support. The problem is that the first generation of ERP products has been designed to integrate the various operations of an individual firm, whereas in modern SCM, the unit of analysis has become a network of organizations, making these ERP products inadequate in the new economy.Kelle and Akbulut (2005)argue that even if ERP software provides different tools that can support supply chain integration, at the same time it has several features that prevent the integration with business partners. They based their analysis on the inventory management aspects of supply chain coordination, and their results can be used in enterprise soft-ware to measure the potential monetary value of policy coordina-tion, to promote cooperacoordina-tion, and to minimize the total supply chain system cost. Moreover, several researchers have classified the types of ERP benefits, and have indicated that some approaches may be appropriate techniques for evaluating the performance of ERP systems.Markus and Tanis (2000)indicated that the balanced scorecard is such a technique. Chand and Hachey (Chand, Hachey, Hunton, Owhoso, & Vasudevan, 2005) derived a new ERP frame-work for evaluating the strategic impacts of ERP systems, and illus-trate that an ERP system does indeed impact the business objectives of the firm. To evaluate the performance of ERP benefits,

Zuboff (1985)notions suggest that the success of ERP implementa-tions and operaimplementa-tions depends on the firm’s intention to use the ERP system to ‘automate’, ‘informate’ or ‘transformate’ the organiza-tion.Shang and Seddon (2000)classify the different types of ERP benefits into five groups as follows: IT infrastructure benefits, operational benefits, managerial benefits, strategic benefits and organizational benefits. Although there is no analytical framework for measuring the contributions and the impacts of ERP systems on

the firm competences of supply chain performance, Byrd and Davidson (2003)have examined how the antecedents, IT depart-ment technical quality, IT plan utilization, and top managedepart-ment of IT positively affected IT impact on the supply chain.Wade and Hulland (2004)provide an overview of the literature on IT-related resources and their impact on firm strategy and performance, where IT means all of the information systems, including ERP sys-tems.Stratman and Rothe (2002)propose an integrated conceptual model of ‘‘ERP Competence,” which they define as comprising sev-eral organizational aptitudes, including strategic planning, execu-tive commitment, project management, IT skills, business process skills, ERP training, change readiness and learning. They argued that a firm’s ERP competence must be used effectively in order to truly harness the capabilities of an ERP system for competitive advantage.

3. The research model and hypotheses

Our research model is shown inFig. 1. The definitions of various constructs in the model are summarized inTable 1. In this study, the authors construct the research model based on reviewing the selected literature on ERP and on SCM. As discussed earlier, our re-search model encompasses and relies on two areas: firm compe-tences in SCM, based on the 21st Century Logistics framework as extended byBowersox, Closs, and Stank (1999), and ERP benefits as referred to in the classification of ERP benefits, inShang and Sed-don (2000) and Stratman and Rothe (2002). Although the 21st Cen-tury Logistics framework made a contribution by confirming the relationship between logistics best practice and firm performance for the U.S. sample, our research focus is on the impacts of organi-zational information systems on SCM competences. Thus, we select the firm competences of SCM that could be related to organiza-tional information systems from the 21st Century Logistics frame-work in order to construct our research model. Also, for ERP benefits, we integrate them into three categories based on the above-mentioned literature. The model includes three constructs (Shang & Seddon, 2000) for ERP benefits, namely: operational, business process and management, and strategic IT planning ben-efits; and three constructs (Bowersox et al., 1999) for firm compe-tences of SCM, namely: operational process integration, customer and relationship integration, and planning and control process integration. We also hypothesize ERP benefits as antecedents to improve firm competences in supply chain management after an

ERP system is operational and functionally stable. Therefore, this model investigates the relationships between the benefits of ERP implementation and the impacts on the firm competences in sup-ply chain management. A detailed description of six constructs of firm competences of SCM and ERP benefits follows:

3.1. The firm competences of SCM

To improve firm performance, a firm needs to enhance its com-petences in SCM. The 21st Century Logistics framework identifies six firm competences as critical for logistics and supply chain man-agement. Each competence is composed of multiple underlying capabilities, which guide philosophies and processes to complete specific logistics and supply chain activities. Based on this frame-work and suggestions from experts who have recently gone or are currently going through ERP or SCM systems implementations in Taiwanese IT industry, we identify the firm competences that may be impacted by ERP benefits and may lead to high supply chain performance and group them into three constructs. These are operational process integration, customer and relationship integration, and planning and control process integration. 3.1.1. Operational process integration

AsBowersox et al. (1999)defined in the 21st Century Logistics framework, operations involve the processes that facilitate order fulfillment and replenishment across the supply chain. Effective or-der fulfilment requires coordination both within a firm and between supply chain partners. Within the operational process, the firm needs to build up its capabilities of internal integration and material and service supplier integration. If an enterprise on the critical path can reduce operation time effectively, the order fulfilment ability of the SCM may be increased (Chen & Huang, 2006). Successful inter-nal integration centers on the ability to merge multiple operatiointer-nal activities into one synchronized, synergistic process that involves cross-functional planning, sourcing, manufacturing and delivery to achieve excellence throughout the enterprise. Successful external supply chain integration, however, is, to a significant degree, related to internal process integration. Nowadays, the IT industry is shifting from push methods driven by anticipated sales to pull methods that focus on delivering value to customers through rapid response to demand. To do this profitably, firms must strip redundancy and duplication of materials and effort from supply chain operations. The task is all the more challenging because it is not limited to

Operational Benefits Business Process & Management Benefits Strategic IT Planning Benefits Operational Process Integration Customer & Relationship Integration Plannin &Control Process Integrationg

ERP Benefits Firm Competency of SCM

Ha1 Ha2 Ha3 Hb1 Hb2 Hb3 Hc1 Hc2 Hc3

internal activities. It requires linking internal work processes with those of material and service providers. Thus, an important integra-tion decision is how many material and service suppliers to include in synchronized operations. That is, integrating operations with material and service suppliers to form a seamless flow of internal and external work overcomes the financial barriers of vertical own-ership while retaining many of the benefits. A successful SCM of operational process integration, cross-functional unification, stan-dardization, simplification, compliance, structural adaptation, operational fusion, and supplier management capabilities must be developed.

3.1.2. Customer and relationship integration

The customer and relationship construct includes customer and relationship integration. Customer integration builds lasting dis-tinctness with customers of choice. Relationship integration refers to the ability to develop and maintain a shared mental framework with customers and suppliers regarding inter-enterprise depen-dency and principles of collaboration (Bowersox et al., 1999). Qual-ity relationships can improve trust among a firm’s members, and further promote their attitude to and intentions of knowledge sharing in an organization. Extending the relations from simple buyer–supplier cooperation to a whole supply network form raw material suppliers to final customers provides several advantages that included for the buyers a large pool of suppliers, reduced transaction costs, market transparency, purchase transparency, lower prices, dynamic pricing models, control of maverick, buying, and lower inventory costs. For the suppliers the benefits among others are large pools of buyers, real time information, time to market, aggregation of small orders, efficient fund transfer (Kelle & Akbulut, 2005). The customer and relationship integration cate-gory is a competence that enables firms to build lasting distinctive-ness with customers of choice and to share a mentality with customers and suppliers regarding interdependency and principles of collaboration. Six capabilities drive customer integration ( Bow-ersox et al., 1999). The idea of segmental focus is that firms should identify core customers best suited to be their business clients, and then meet or exceed expectations by providing unique value-added services. Relevance requires firms to satisfy not only existing needs, but also those that may emerge. Responsiveness is the effi-cient and effective accommodation of unique customer requests.

Flexibility is the capability to adapt to unexpected operational cir-cumstances. Role specificity is the capability to clarify leadership processes and establish shared, as contrasted with individual, enterprise responsibility. Information sharing involves the willing-ness to exchange key technical, financial, operational and strategic information with others in the supply chain. Any firm seeking sup-ply chain performance must demonstrate strong commitment to the customization required for effective customer and relationship integration.Bowersox et al. (1999)suggested, in the Supply Chain 2000 framework and assessment process, that the best way to start the search for integration gaps is by reviewing how a firm coordi-nates with customers and relationships (Bowersox et al., 1999). Thus, it is clear that consistent success ultimately depends on a firm’s competence to create value for customers by providing prod-ucts and services at prices that cover total cost and provide a profit to meet customers’ needs.

3.1.3. Planning and control process integration

The planning and control process includes competences of tech-nology and planning integration refers to information systems capable of supporting the wide variety of operational configura-tions needed and to the development of measurement systems that facilitate segmental strategies and processes to serve diverse market segments (Bowersox et al., 1999). Across the supply chain, information technology and measurement systems must facilitate planning and control of integrated operations. AsBowersox et al. (1999)explain in the 21st Century Logistics framework, success of technology and planning integration rests upon six capabilities: information management, internal communications, connectivity, collaborative forecasting and planning, and activity-based and to-tal cost management. Information management focuses on supply chain resource allocation through seamless transactions across the total order-to-delivery cycle. Internal communication uses techno-logical systems to exchange information across functional bound-aries in a timely, responsive, and usable format. Connectivity extends internal communications capability to supply chain part-ners. Collaborative forecasting and planning involves customers and suppliers developing a shared vision supported by a mutual commitment to jointly generated action plans. Activity-based and total cost management uses activity-based costing, budgeting, and measurement to obtain a comprehensive picture of the cost/ Table 1

Definitions and constructs in the model.

Construct Definitions Key references

Operational benefits The benefits of ERP systems that result from automating cross-functional processes, the use of data to better plan and manage production, manpower, inventory and physical resources, and from the monitoring and control of financial performance of products, customers, business lines and geographic areas

Shang and Seddon (2000), Stratman and Rothe (2002) and Vijay Vemuri and Palvis Shailendra (2006)

Business process and management benefits

Business process benefits are expected to improve the day-to-day business process (long-term impact), reflecting long-term benefits such as improved customer responsiveness, improved customer satisfaction, on-time delivery, and improved decision making

Shang and Seddon (2000), Stratman and Rothe (2002) and King and Teo (1996)

Strategic IT planning benefits

Focuses on the benefits that arise from the system’s ability to support business growth, reduce the cost of maintaining legacy systems, and capture the benefits derived from facilitating business learning, empowerment of staff and higher employee morale and satisfaction

Shang and Seddon (2000), Fiedler et al. (1996), Kettinger et al. (1994), King and Teo (1996) and Segars et al. (1998)

Operational process integration

Firm has the competences to support customer requirements, and supplier integration links externally performed work into a seamless congruency with internal work processes

Bowersox et al. (1999)

Planning and control process integration

Planning and control process integration refers to information systems to support the wide variety of operational configurations needed to serve diverse market segments, and the capabilities to develop the measurement systems that facilitate segmental strategies and process

Bowersox et al. (1999)

Customer and relationship integration

Firm has the competences to build lasting distinctiveness with customers of choice; also refers to the ability to develop and maintain a shared mental framework with customers and suppliers regarding inter-enterprise dependency and principles of collaboration

revenue contribution of a specific customer or product. Operational excellence must be supplemented and supported by integrated planning and measurement competences. This process involves joining technologies to monitor, control, and facilitated overall supply chain performance.

3.2. The ERP benefits

Markus and Tanis (2000) and Markus and Yanis (2000)identify various reasons that motivate organizations to implement ERP sys-tems. They also suggest that there should be a connection between the reasons for adoption of ERP systems and the benefits.Shang and Seddon (2000)compiled an ERP benefits list from ERP vendor success stories published on the World Wide Web. Follow-up interviews and analysis led Shang and Seddon to classify the differ-ent types of ERP benefits into five categories.Stratman and Rothe (2002) identified eight theoretically important ERP competences andVijay Vemuri and Palvis Shailendra (2006)developed a set of initial measurement items (seeAppendix A) for each competences of ERP. Based on Shang and Seddon’s classification of ERP benefits, Stratman and Roth’s competences of ERP and Vemuri’s measure-ment items, we must also heed the suggestions of experts who have recently been or are currently going through ERP or SCM sys-tems implementations in Taiwanese IT industry. We conclude that ERP benefits may improve firm competences in SCM, and group those benefits into three constructs. There are operational benefits, business process and management benefits, and strategic IT plan-ning benefits.

3.2.1. The operational benefits of ERP

Shang and Seddon (2000)determined that the operational ben-efits of an ERP system arise from automating cross-functional pro-cess. They encompass both efficiency-based and effectiveness-based performance improvements in order to capture the enter-prise-wide business benefits. Those benefits are expected to im-prove day-to-day operations (short-term impact), which include improved inventory control, improved cash management, and reduction in operating costs (Stratman & Rothe, 2002). They will also lead to improvements in production, information and cus-tomer service quality.Byrne and Heavey (2006) has argued that an ERP system can improve information sharing between the sup-ply chains echelons. Today’s ERP solutions offer even more bene-fits. Many vendors have begun to enhance their offerings with extended supply chain applications in an effort to create a seam-less, integrated information flow, from suppliers through manufac-turing and distribution. ERP is a suite of application modules that can link back-office operations to front-office operations, as well as internal and external supply chains.Latamore (1999)has argued that a core ERP system for operational function must include appli-cations for forecasting, production scheduling, material planning, inventory control, warehouse management, etc. Thus, comparing the firm competences of SCM with those operational benefits of ERP, it is not hard to find some correlation between the operational benefits of ERP and the firm competences of SCM.Vijay Vemuri and Palvis Shailendra (2006)have developed a set of scales to directly measure the operational benefits, and these form the basis of our measurement items and our hypothesis. Hence, in our model, the firm competences of SCM in operational process integration, cus-tomer and relationship integration, and planning and control pro-cess integration are driven by the operational benefits of ERP. Therefore, the following research model and hypotheses are given: Ha1. The operational benefits of ERP positively affect firm

compe-tences of SCM in operational process integration.

Ha2. The operational benefits of ERP positively affect firm compe-tences of SCM in customer and relationship integration.

Ha3. The operational benefits of ERP positively affect firm compe-tences of SCM in planning and control process integration.

3.2.2. The business process and management benefits of ERP The business process and management benefits arise from the use of databases to plan better and for better management of pro-duction, manpower, inventory and physical resources. Also, firms are getting benefits from monitoring and controlling of financial performance in the contexts of products, customers, business lines and geographic area (Shang & Seddon, 2000). Since ERP systems can automate business processes and enable process changes, one would expect them to offer all of the above types of benefits. Also, since process knowledge is dynamic, organizations may de-rive benefits from procedures and practices that continuously al-low fundamental business processes to be improved in a systematic fashion. That is, business process and management ben-efits are expected to improve the day-to-day business process (long-term impact) which reflects long-term benefits. Those bene-fits include improving customer responsiveness, customer satisfac-tion, on-time delivery, and decision making (Karsak & Ozogul, 2009). They are provided by centralizing the database and built-in data analysis capabilities. Furthermore, ERP systems provide information benefits to process and resources management. Firms are likely to increase control over their suppliers by gaining power from information (Stratman & Rothe, 2002; King & Teo, 1996), and ERP applications, or similar integration solutions, are a leading tool for this purpose. By integrating computers and data communica-tions into the business process, companies benefit from exchang-ing information electronically, in that they reduce paperwork, minimize cost and improve response time (Goutsos & Karacapili-dis, 2003) When an ERP system is implemented, the advantage of business process skills is demonstrated by understanding of how the business operates, and the ability to predict the impact of a particular decision or action on the rest of the enterprise. At the same time, those benefits, such as production orders, capability planning, resource allocation, production tracking and reporting, inventory management, waste/reject tracking, etc., also meet the competences needs of supply chains (Latamore, 1999). Hence, the research contained in the above-mentioned literature and the classification of ERP benefits of Shang and Seddon (2000) form the basis of our scale items and hypothesis. In our model, firm competences of SCM in operational process integration, customer and relationship integration, and planning and control process integration are also driven by the business process and manage-ment benefits of ERP. Therefore, the following research model and hypotheses are given:

Hb1. The business process and management benefits of ERP pos-itively affect firm competences of SCM in operational pro-cess integration.

Hb2. The business process and management benefits of ERP pos-itively affect firm competences of SCM in customer and rela-tionship integration.

Hb3. The business process and management benefits of ERP pos-itively affect firm competences of SCM in planning and con-trol process integration.

3.2.3. The strategic IT planning benefits of ERP

The strategic IT planning benefits of ERP are a consequence of the system’s ability to support business growth, reduce the cost of maintaining legacy systems, and capture the benefits derived from facilitation business learning, empowerment of staff and higher levels of employee morale and satisfaction (2000). Strate-gic IT planning is an indication of an organization’s competence

in matching IT capabilities with the changing, cross-functional business requirements of the enterprise. Several studies suggest that it is critical that a firm’s information technology systems sup-port the strategic goals of the firm (Fiedler, Grover, & Teng, 1996; Kettinger, Grover, Guha, & Segars, 1994). Strategic IT planning helps to ensure that IT development goals are aligned with the needs of the organization (King & Teo, 1996; Segars, Grover, & Teng, 1998). Dynamically changing business needs may require operations strategy planners to continually evaluate cross-func-tional business goals and define the information systems capabil-ities that are required to support these goals. Thus, a formal strategic IT planning process is posited to contribute to the quality of this ongoing activity, especially activity that can leverage sup-ply chain processes to enhance performance need in each partic-ular operating arena.Segars et al. (1998)have developed a set of scales to capture the domain of strategic IT planning, and these form the basis of our items and related hypotheses about the stra-tegic IT planning benefits of ERP. In our model, the firm compe-tences of SCM on operational process integration, customer and relationship integration, and planning and control process integra-tion are driven by strategic IT planning benefits of the ERP system. Therefore, the following research model and hypotheses are given:

Hc1. The strategic IT planning benefits of ERP positively affect firm competences of SCM in operational process integration. Hc2. The strategic IT planning benefits of ERP positively affect firm competences of SCM in customer and relationship integration.

Hc3. The strategic IT planning benefits of ERP positively affect firm competences of SCM in planning and control process integration.

4. Research design

4.1. Instrument design and refinement

To develop the research instrument, where possible measure-ment items were adapted from the literature. We followed a two-stage normative process of scale development (Churchill, 1979). In the first stage, we identified the constructs of ERP bene-fits and SCM competences that were hypothesized to be important antecedents of successfully creating firm competences in SCM. Our point for construct definition and measurement item selection was a literature review encompassing the areas of ERP and SCM in stra-tegic management, operations management, organizational behav-ior, and information technology. This was followed by iterations among site visits, interviews, and further literature reviews. In to-tal, we visited one business that had operational ERP systems and another that had both ERP and SCM systems, where we gathered first-hand knowledge about ERP systems and SCM systems at mul-tiple levels in the organization, including users, IT technicians, engineers, production planners, supervisors, managers, and consul-tants. Visits were supplemented by structured and unstructured interviews with executives knowledgeable about ERP and SCM sys-tems and adoption practices. This process resulted in our research model, which identified the constructs of ERP benefits, SCM com-petences (see Fig. 1), and a set of initial measurement items. New measures were developed following standard psychometric scale development procedures (Boudreau, Gefen, & Straub, 2001). The domain of the relevant construct was initially specified, and the items were subsequently developed based on the conceptual definition. Based on the constructs, we developed a questionnaire draft. The backward translation method (with the material trans-lated from English into Chinese, and back into English; versions

compared; discrepancies resolved) was used to ensure consistency between the Chinese and the original English versions of the instrument (Mullen, 1995). The preliminary instrument was pilot tested and reviewed by IT managers from eight Taiwanese IT firms, doctoral students and EMBA students. The items were modified following a pre-test of the survey instrument with a sample of 15 experts, using the same data collection methods, following pro-cedures recommended by Churchill (1997). The pre-tests indicate that the questionnaire is deemed appropriate to examine the rela-tionship between ERP and SCM in Taiwanese IT firms. A seven-point Likert scale anchored at ‘‘strongly disagree” (1), ‘‘strongly agree” (7), and ‘‘neither agree nor disagree” (4) was used to collect most responses, while some questions involved absolute numbers, percentages or binary variables. The final questionnaire consisted of 35 items for six constructs, and 10 questions pertaining to industry, number of employees, estimated revenue, type of ERP/ SCM related software used, and the number of months and years since the ERP/SCM system initiatives.

4.2. Data collection

In the second stage, survey data was collected from a sample of Taiwan IT companies listed in the Taiwan Stock Exchanges (TSE) and screened according to whether they had operational ERP sys-tems or SCM syssys-tems or both. Empirical, confirmatory analyses were conducted using the items tapping into each of all the con-structs and measurement items defined in stage 1 to produced re-fined scales. Each item’s scale had measurement properties that fit into the commonly accepted guidelines for reliability and validity. The authors screened the candidates by accessing the database of the TSE and the companies’ websites. Finally, 138 firms were in-cluded in the sample population. For the respondents’ conve-nience, the questionnaire was delivered to the presidents of the 138 firms in one of two forms: e-mail and regular mail. Along with the questionnaire, a personalized letter was sent to the president. It asked that he/she select the proper strategic business units (SBU) in his/her company and forward the questionnaires to the selected IT/MIS managers. To encourage participation, all the infor-mants were assured that their response would be kept confidential and would be shown only in an aggregated form. The authors also promised to give a copy of the results to all respondents. After sev-eral follow-up e-mails and phone calls, 285 usable responses were received from 76 IT/MIS managers, 158 senior engineers and 42 others employed by 138 companies. The total process of data col-lection started from Q1 2006 and ended in Q2 2007.Table 2 pre-sents a summary of the demographic characteristics of the respondents.

Table 2

Demographic characteristics of the respondents.

Number Percentage (%) Type of industry PC systems 101 35.5 Peripherals 24 8.4 Communications 10 3.5 Semiconductors 105 36.8 Consumer electronics 20 7.0 Components 20 7.0 Software 5 1.8 285 100 Job classification

Top IT/MIS manager 76 26.7

Lower-middle IT/MIS manager 158 55.4

Purchase related 12 4.2

Marketing related 39 13.7

5. Data analysis

5.1. The measurement model

We propose a structural equation model (SEM) to analyze the relationship between ERP benefits evaluation factors and firm per-formance of SCM. Joreskig introduced the structural equation mod-el in the early 1970s; it comprises two parts, the measurement model and the structural equation model. The measurement model specifies how latent variables or hypothetical constructs depend upon or are indicated by the observed variables. The model de-scribes the measurement properties (reliabilities and validities) of the observed variables. The structural equation model specifies the causal relationships among the latent variables, describes the casual effects, and assigns the explained and unexplained variance (Joreskig & Sorbom, 1996a, 1996b). One of the unique characteris-tics of an SEM is its ability to provide parameter estimates for rela-tionships among unobserved variables. Structural equation modeling resembles path analysis by providing parameter esti-mates of the direct and indirect links between observed variables (Joreskig & Sorbom, 1996a, 1996b).Fig. 1illustrates the hypothe-sized model used in this work, which chooses the model compo-nents and the structural relationships among them, based on the above proposition.

Exploratory factor analysis (EFA) was first conducted to check whether the proposed factor structures are indeed consistent with

the actual data. The factor structures suggested by the EFA match the one proposed in the research model. The various loadings are shown in Table 3. Next, confirmatory factor analysis (CFA) was conducted to check the reliability and validity of the measurement model. In this measurement model, no unidirectional path was specified between any latent variables. Instead, a covariance was estimated to connect each latent variable with every other latent variable. This measurement model was estimated using AMOS6.0. The properties of the measurement model are summarized inTable 4.

5.2. Instrument reliability and validity

To validate our measurement model, content validity, construct validity (including Cronbach alpha), convergent validity, and dis-criminant validity were assessed. Content validity was established by ensuring consistency between the measurement items and the extant literature. This was done by interviewing senior practitio-ners and pilot-testing the instrument. For the construct validity, the items were tested for scale reliability.

The Cronbach alpha ranges from .831 to .954 for the six con-structs, indicating a high internal consistency. Except for one item in firm competences of SCM in the planning and control process integration construct, all the items were retained. Various reliabil-ity test results are shown inTable 5. The construct validity is also tested for convergent and discriminant validity. We assessed Table 3

Results of exploratory factor analysis.

Construct Components

Items 1 2 3 4 5 6 Communality

Operational benefits of ERP EOP1 .744 .093 .186 .201 .207 .102 .690

EOP2 .788 .228 .211 .233 .138 .168 .819

EOP3 .819 .216 .155 .241 .186 .186 .869

EOP4 .843 .222 .195 .224 .187 .143 .905

EOP5 .806 .125 .228 .149 .212 .153 .808

EOP6 .833 .183 .168 .154 .175 .085 .818

Strategic IT planning benefits of ERP ESIP1 .134 .784 .154 .175 .193 .227 .776

ESIP2 .276 .595 .167 .194 .179 .121 .542

ESIP3 .168 .802 .170 .197 .205 .137 .801

ESIP4 .105 .789 .189 .168 .230 .096 .759

ESIP5 .144 .752 .210 .100 .290 .074 .729

ESIP6 .189 .713 .133 .179 .128 .170 .639

Operational process integration of SCM SOP1 .211 .135 .759 .196 .143 .207 .740

SOP2 .187 .180 .694 .239 .103 .276 .693

SOP3 .273 .180 .663 .216 .078 .204 .641

SOP4 .194 .183 .765 .153 .106 .175 .722

SOP5 .128 .240 .807 .191 .086 .187 .805

SOP6 .176 .134 .761 .246 .196 .231 .780

Business process and management benefits of ERP EBPM1 .199 .287 .200 .781 .076 .196 .816

EBPM2 .128 .332 .223 .757 .145 .164 .797

EBPM3 .184 .088 .242 .655 .191 .114 .579

EBPM4 .280 .266 .160 .721 .180 .149 .749

EBPM5 .262 .124 .194 .709 .233 .117 .693

EBPM6 .212 .120 .262 .712 .263 .123 .719

Customer and relationship integration of SCM SCR1 .198 .394 .176 .294 .534 .206 .639

SCR2 .147 .447 .073 .227 .577 .170 .640

SCR3 .245 .374 .092 .247 .575 .126 .615

SCR4 .237 .325 .084 .212 .679 .141 .695

SCR5 .286 .225 .238 .155 .726 .157 .765

SCR6 .268 .222 .172 .220 .728 .152 .752

Planning and control process integration of SCM SPC1 .184 .190 .108 .190 .197 .692 .635

SPC2 .141 .105 .242 .123 .039 .689 .581 SPC3 .087 .091 .265 .049 .154 .651 .536 SPC4 .064 .132 .232 .124 .212 .708 .638 SPC5 .157 .169 .140 .157 .016 .755 .667 Eigenvalues 15.773 2.544 2.380 1.739 1.476 1.139 % of Variance 45.066 7.269 6.799 4.968 4.218 3.255 Cumulative % 45.066 52.335 59.135 64.103 68.321 71.576

convergent validity by reviewing the t tests for the factor loadings and by examining composite reliability and average variance ex-tracted from the measures (Hair, Anderson, Tatham, & Black, 1998). Although many studies have used 0.5 as the threshold reli-ability of the measures, 0.7 is a recommended value for a reliable construct (Chin, 1998). As shown inTable 5, our composite reliabil-ity values range from 0.831 to 0.953. For the average variance ex-tracted by a measure, a score of 0.5 indicates acceptability (Fornell & Larcker, 1981). Table 5 shows that the average variances ex-tracted by our measures range from 0.5 to 0.774, which are above or equal to the acceptability value. In addition,Table 6exhibits the loadings of the measures in our research model. As expected, all measures are significant on their path loadings at the level of 0.01. Finally, we verified the discriminant validity of our instru-ment by comparing the average variance extracted (AVE) (Fornell & Larcker, 1981) of each latent construct to the square of correla-tion between this construct and every other construct, which has been used by some IS studies (Segars & Grover, 1998). The result

inTable 7 confirms the discriminant validity: the square of the average variance extracted for each construct is greater than the levels of correlations involving the construct. The results of the in-ter-construct correlations also show that each construct shares larger variance with its own measures than with other measures. 5.3. The structural model

The structural model tested in the present study is shown in

Fig. 1. This model was estimated using AMOS 6.0. The statistic of 2.097 is within the acceptable limit (Byrne, 1989). Several good-ness of fit indices of the measurement model have been widely used in IS research and are presented inTable 8. The Tucker-Lewis index, also known as the non-normed fit index (NNFI), and the comparative fit index (CFI) are all above .90, suggesting a good fit between the structural model and the data. RMSEA is well below the suggested threshold value of 0.08 (Brwone & Cudeck, 1992). The parsimony-adjusted NFI of the revised model is 0.867, which Table 4

Summary of constructs.

Construct name Construct identifier Initial number of items Number of items carried forward to the analysis

Operational benefits of ERP EOP 6 6

Business process and managerial benefits of ERP EBPM 6 6

Strategic IT planning benefits of ERP ESIP 6 6

Operational process integration of SCM SOP 6 6

Customer and relationship integration of SCM SCR 6 6

Planning and control process integration of SCM SPC 6 5

Table 5

Summary of the measurement model.

Latent construct Indicator Mean Std. Dev. Item-to total

correlation Standard loading Cronbach alpha Composite reliability Average variance extracted estimates EOP EOP1 5.45 .607 .762 .759 .954 .953 .774 EOP2 5.69 .602 .858 .903 EOP3 5.73 .638 .895 .945 EOP4 5.71 .679 .925 .964 EOP5 5.53 .653 .848 .845 EOP6 5.53 .647 .854 .847 EBPM EBPM1 5.63 .594 .823 .895 .918 .918 .652 EBPM2 5.62 .578 .807 .883 EBPM3 5.21 .537 .665 .666 EBPM4 5.63 .583 .785 .850 EBPM5 5.36 .633 .755 .751 EBPM6 5.32 .615 .773 .776 ESIP ESIP1 5.27 .607 .796 .905 .915 .914 .642 ESIP2 5.49 .659 .636 .627 ESIP3 5.22 .592 .820 .922 ESIP4 5.22 .598 .797 .828 ESIP5 5.21 .661 .778 .784 ESIP6 5.37 .688 .727 .700 SPC SPC1 4.79 .596 .645 .741 .831 .831 .500 SPC2 4.95 .612 .607 .676 SPC3 4.85 .614 .577 .639 SPC4 4.86 .616 .654 .727 SPC5 4.76 .649 .662 .738 SOP SOP1 5.22 .552 .790 .816 .924 .925 .672 SOP2 5.19 .579 .759 .808 SOP3 5.17 .633 .721 .759 SOP4 5.22 .552 .760 .797 SOP5 5.16 .585 .834 .873 SOP6 5.18 .591 .816 .859 SCR SCR1 5.20 .649 .715 .778 .902 .903 .607 SCR2 5.16 .622 .701 .748 SCR3 5.29 .714 .697 .749 SCR4 5.29 .725 .747 .783 SCR5 5.33 .720 .762 .806 SCR6 5.42 .660 .770 .810

is significantly above the suggested value of .60 (Williams & Hazer, 1986). Williams and Hazer (1986), indicating highly acceptable levels of parsimony and fit of the overall model. All of these fit indi-ces are acceptable, suggesting that the overall structural model provides a good fit with the data. The results of estimating the structural model are presented inFig. 2.

The squared multiple correlation (SMC) values, which are simi-lar to in regression analysis, show that this model accounts for 47% of the variance in operational process integration, 70% of the vari-ance in customer and relationship integration, and 40% of the var-iance in the planning and control process integration construct. All of the paths are significant and positive, supporting the corre-sponding hypotheses. These findings are discussed below. A sum-mary of the hypotheses test results is provided inTable 9.

Fig. 2andTable 9show the results and illustrate that the firm competences of supply chain management on operational process, customer and relationship, and planning and control process inte-gration were positively influenced by ERP benefits. These results basically support all of our hypotheses.

6. Discussion of results

The main objective of this study is to investigate the relation-ship between ERP benefits and firm competences of SCM. The find-ings show how ERP benefits impact on firm competences of SCM. Based on these results, some interesting propositions are exhibited. 6.1. ERP benefits contribute to firm competences of SCM in operational process

With all hypotheses supported, the empirical results provided strong overall validation for the research model. The hypotheses Ha1, Hb1, and Hc1 are strongly supported (0.23, 0.39, 0.30, p < 0.001), demonstrating that firm competences of SCM on opera-tional process integration are positively impacted by operaopera-tional, business process and management, and strategic IT Planning ben-efits of ERP. This result can be interpreted to mean that those items of constructs enhance firm competences of SCM in operational pro-cess integration. The goal of SCM on operational propro-cess integra-tion is high-level basic service at the lowest total cost. Linking internally performed work into a seamless process supports cus-tomer requirements, and integrating operations with material and service suppliers to form a seamless flow of internal and exter-nal work overcomes the financial barriers of vertical ownership while retaining many of the benefits. The analysis of data results and our visits to businesses and plants brought out the fact that since the ERP system integrates disparate processes across the organization, the end result is more streamlined business pro-cesses, smooth and transparent flow of information, and linking of the flow of internal and external work. In the case company, the smooth and transparent flow of information improved on- time delivery and inventory management. The improvement has re-sulted in decreased costs. In short, the operational functions of Table 7

Comparison of AVE and squared correlations.

Var. EOP EBPM ESIP SOP SCR SPC

EOP .774 EBPM .371 .652 ESIP .275 .365 .642 SOP .318 .410 .293 .498 SCR .438 .475 .558 .328 .672 SPC .249 .304 .272 .430 .340 .607

_{AVE are on the diagonal; square correlations are off-diagonal.}

Table 8

Fit indices of structural model.

v2 ₁₁₄₉

df 548

v2_{=df 2.097}

Normed fit index (NFI) .867

Tucker–Lewis index .919

Comparative fit index (CFI) .925

GFI .802 RMR .021 RMSEA .062 Lower bound .057 Upper bound .067 Table 6

Loadings of the measures.

Construct Items Standard

loading

Standard error

t-Value Construct Items Standard

loading

Standard error

t-Value Operational benefits of ERP EOP1 .759 .054 15.658 Operational process integration of SCM SOP1 .816

EOP2 .903 .048 20.847 SOP2 .808 .067 15.516

EOP3 .945 .048 22.812 SOP3 .759 .074 14.489

EOP4 .964 .050 24.007 SOP4 .797 .062 15.790

EOP5 .845 .054 18.722 SOP5 .873 .066 17.269

EOP6 .847 SOP6 .859 .066 17.130

Business process and management benefits of ERP

EBPM1 .895 .067 16.505 Customer and relationship integration of SCM SCR1 .778

EBPM2 .883 .066 16.222 SCR2 .748 .069 13.339

EBPM3 .666 .063 11.872 SCR3 .749 .080 13.178

EBPM4 .850 .067 15.556 SCR4 .783 .080 14.020

EBPM5 .751 .072 13.722 SCR5 .806 .080 14.405

EBPM6 .776 SCR6 .810 .073 14.496

Strategic IT planning benefits of ERP

ESIP1 .905 .082 13.821 Planning and control process integration of SCM SPC1 .741

ESIP2 .627 .083 10.278 SPC2 .676 .090 10.432

ESIP3 .922 .081 14.020 SPC3 .639 .089 9.973

ESIP4 .828 .077 13.294 SPC4 .727 .090 11.220

ESIP5 .784 .085 12.722 SPC5 .738 .096 11.362

ERP benefit rationalized processes, standardization, rework and er-ror reduction and cost reduction. Through those ERP benefits, firms can strip redundancy and duplication of materials from supply chain operations. The business process and management benefits of ERP include capabilities of customization and improved resource management, forecasting, and quality management improvement, which are the most important impact factors (path coefficient is .39) in improving operational process integration. ERP facilitates creating the capabilities of order fulfillment and replenishment across the supply chain. Furthermore, strategic IT planning has especially significant ERP benefits for firms with the ability to sup-port business growth, reduce the cost of maintaining legacy sys-tems, and capture the benefits derived from facilitation business learning, and for those firms’ ability to make important integration decisions, because they now know how many material and service suppliers to include in synchronized operations.

6.2. ERP benefits contribute to firm competences of SCM in customer and relationship

Our analysis strongly supports hypotheses Ha2, Hb2, and Hc2 (0.27, 0.25, 0.46, p < 0.001), implying that three constructs of ERP benefits are important antecedents of developing firm

competenc-es of SCM in customer and relationship integration. Customer and relationship integration is a competence that enables firms to build lasting distinctiveness with customers of choice. It requires that firms assess their own strengths and weaknesses in service capabil-ity in terms of the needs and desires of top customers. The number of customers requiring services or service performance in which the firm is not strong increases the number of special requests out-sourced to third-party providers. An ERP system can potentially improve transparency across the supply chain by removing infor-mation distortions and increasing the speed of inforinfor-mation by reducing information delays (Akkermans et al., 2003). Hence, through the business process and management benefits of ERP, a firm has the ability to access correct and consistent data in a timely manner. Managers can easily get the integrated information to make decisions, and have efficient resource management and pro-duction control to meet customer needs. That is, out of ERP benefits firms create the competences of supply chain management in bet-ter resource management, betbet-ter investment spending and higher quality decision making. Another area that has impacted customer satisfaction is quality control. Our visits to businesses and plants brought out the fact that in the old, legacy-based system, employ-ees had to complete a multi-page form which was then sent to data processing, where it was subsequently subcontracted for data

SMC=0.468

ERP Benefits Firm Competency of SCM

0.27*** (Ha2) 0.19** (Ha3) 0.39*** (Hb1) 0.25***(Hb2) 0.19***(Hb3) 0.30**(Hc1) 0.46*** (Hc2) 0.25** (Hc3) SMC=0.398 SMC=0.695

SMC: Squared Multiple Correlation ***p < .001 **p < .01 *P < .05 Operational Benefits Business Process & Management Benefits Strategic IT Planning Benefits Operational Process Integration Customer & Relationship Integration Plannin &Control Process Integrationg 0.23 *** (Ha1)

Fig. 2. Structural model results.

Table 9

Summary of the structural model.

Hypotheses Path coefficient Results

Ha1. The operational benefits of ERP positively affect firm competences of SCM in operational process integration. .23 Supported Hb1. The business process and management benefits of ERP positively affect firm competences of SCM in operational process

integration.

.39 Supported

Hc1. The strategic IT planning benefits of ERP positively affect firm competences of SCM in operational process integration. .30 Supported Ha2. The operational benefits of ERP positively affect firm competences of SCM in customer and relationship integration. .27 Supported Hb2. The business process and management benefits of ERP positively affect firm competences of SCM in customer and relationship

integration.

.25 Supported

Hc2. The strategic IT planning benefits of ERP positively affect firm competences of SCM in customer and relationship integration. .46 Supported Ha3. The operational benefits of ERP positively affect firm competences of SCM in planning and control process integration. .19 Supported Hb3. The business process and management benefits positively affect firm competences of SCM in planning and control process

integration.

.19 Supported

entry. It would take four to five weeks to get the necessary reports and to conduct the root cause analyses. Today, quality control activities and related analyses are performed daily, so that cus-tomer’s quality demands are better met. Furthermore, a segmental focus reflects the belief that all customers do not have the same service expectations, and do not necessarily want or deserve the same overall level of service. Firms need to have the competence of efficient and effective accommodation of unique customer re-quests. Customization means tailoring a product to meet the spe-cific needs of an individual customer, and involves the delivery of a wide variety of customer-specific goods or services quickly, efficiently, and at low cost. Such integration competence provided by the ERP system would insure that the unique product ordered by the customer is properly translated into the appropriate produc-tion orders. Moreover, the sophisticaproduc-tion of ERP systems makes it possible to construct catalogues containing a large number of standard end products. In short, the research results illustrate that the operational benefits of ERP can improve the response time, change the management process and meet customer needs proactively to improve customer satisfaction. The strategic IT plan-ning benefits of ERP are the most important impact factors (path coefficient is .46) in improving firm competence of SCM in cus-tomer and relationship integration. Firms also have the ability to share information, such as key technical, financial, operational and strategic information, with others in the supply chain. Those ERP benefits can inspire firms to achieve the vision and create the measurement structures that will enable supply chain partners to share and reward risk and responsibility and to support business alliances.

6.3. ERP benefits contribute to firm competences of SCM in planning and control process

The hypotheses Ha3, Hb3 and Hc3 are supported (0.19, 0.19, 0.25, p < 0.01), demonstrating that firm competences of SCM in planning and control process integration are positively impacted by operational, business process and management, and strategic IT planning benefits of ERP. This result can be interpreted as indi-cating that those items of constructs enhanced firm competences of SCM in planning and control process integration. Firm compe-tences of SCM in planning and control process integration require information systems capability to support the wide variety of oper-ational configurations needed to serve diverse market segments. Supply chain effectiveness depends on the exchange of timely and accurate information across customers, material and service suppliers, and internal functional areas. The case company indi-cated that ERP systems have benefits of error reduction and effi-ciency in the order processing and order fulfilment processes that touch the customer. ERP systems improved decisions in inven-tory management, and manpower planning in these processes con-tributed to cost reduction, and proactive and timely service to customers increased customer satisfaction. The cost reduction con-tributed to increased profits, increased customer satisfaction, and increased sales and market share. Those ERP benefits show the contributions of other streamlined processes to the achievement of strategic goals of SCM. The company also indicated that the cost of doing business was dramatically reduced once the ERP system was installed and functionally stable. The reduction of work stop-pages and better data controls have improved corporate perfor-mance and promoted labor efficiencies. Simultaneously, the ability to make accurate commitments to trading partners and im-prove turn-around time has increased the after market business, thereby resulting in increased revenues. Furthermore, firm compe-tences of SCM in activity-based and total cost methodology and comprehensive metrics are supported by operational benefits of ERP. Although firms are frequently frustrated by the inability of

traditional measurement systems to monitor logistical processes that extend across functional and firm boundaries, through the ERP system firms can more easily have activity-based costing, bud-geting, and measurement to obtain a comprehensive picture of the cost/revenue contribution of a specific customer or product. Thus, there are important operational benefits and business process and management benefits of ERP for establishing enterprises as well as for overall supply chain performance standards and measures.

Our discussions with experts indicated that for most Taiwanese IT companies, the initial decision to replace all of the legacy sys-tems with an ERP system may be caused by competition in the markets, or requests from customers on the supply chain, or just the need to replace the legacy systems. One of the primarily rea-sons was based on a cost-benefit analysis for automation. In other words, the implementation objective of the ERP system was to automate the business, which was expected to lead to a lowered IT budget, increased efficiency of workers, reduced error rate and more timely availability of accurate and reliable information. Once managers and other users learned more about the new ERP sys-tem’s capabilities, however, they recognized that improved infor-mation accessibility and visibility across the enterprise allowed them to make more effective operational, tactical and, in some cases, strategic decisions. This resulted in better manpower plan-ning, enhanced inventory control, and radical improvement of on-time delivery of parts. Eventually, the consequential increase in customer satisfaction led to an unexpected change in business strategy, which was to increase the company’s market share in the after market. The above discussion reveals the potential contri-butions of ERP benefits to the firm competences of SCM.

7. Conclusion and limitations

This paper provides empirical justification for a model that identifies three key constructs of ERP benefits and three key con-structs of SCM competences. It confirms that all concon-structs of ERP benefits enhance firm competences of SCM. More specifically, there are 18 main items of ERP benefits that impact on 17 items of SCM competences. In view of this result, we can conclude that the confirmation of the overall proposed model was important because it provided empirical evidence that ERP benefits do really impact firm competences of SCM.

In considering the results of this study, although the validation of the variables that measure the ERP benefits and SCM compe-tences came from the data of Taiwanese IT companies, the nature of the factors appeared to be universal, because Taiwanese IT companies have achieved outstanding results over the past two decades, and have the capabilities to cooperate with all of the members on the supply chain closely so as to be able to react to any unexpected changes. The validity and reliability of this mea-sure were acceptable. The meamea-sure also took into account many different facets of the supply chain, from relationships with sup-pliers to relationships with customers and the activities in between.

The study developed measures for ERP benefits’ impact on the SCM competences model. Although validity and reliability checks were performed on the measures, there is still room for improve-ment. If we can use more measures for firm competences drawn from the software or consultant companies in stead of self-report-ing by the firms, the results will be more convincself-report-ing. The limitation is that it seems most of the consultant companies did not keep re-cords or did not trace back or evaluate the firm’s performance after the project was finished. Furthermore, while the sample consisted of Taiwanese IT industry companies, it might be better to collect data from IT industry companies of other countries, such as Korea, Singapore, and China.