SMES IMPLEMENTING AN INDUSTRY SPECIFIC ERP
MODEL USING A CASE STUDY APPROACH
Wen-Hsiung Wu
Department of Information Management
National Kaohsiung University of Applied Sciences
Chin-Fu Ho
Department of Information Management
National Sun Yat-sen University
Hsin-Pin Fu
∗Department of Marketing and Distribution Management
National Kaohsiung First University of Science and Technology
No. 2, Jhuoyue Rd., Nanzih District, Kaohsiung 811, Taiwan, R.O.C.
Tien-Hsiang Chang
Department of Information Management
National Kaohsiung University of Applied Sciences
ABSTRACT
Small and medium enterprises (SMEs) frequently cannot smoothly implement ERP projects because of limited resources, such as lack of funding and human resources. Given tailor made industry specific ERP systems and a reference model for implementing an information system (IS), the success rates of SEMs implementing IS could be significantly increased. Therefore, this study focused on four local SMEs that had implemented an industry specific ERP system, and discussed their implementation model and the performance of individual cases. For SMEs, the results indicated that the industry specific ERP system is more suitable than the common ERP system and is easier to implement, has a smaller impact on organization adaptability, and also involves a smaller total investment. Finally, an IS implementation model was proposed after studying the four cases and conducting a literature review. This implementation model can provide a reference for other SMEs planning to implement an ERP system.
Keywords: ERP, specific ERP, information system, SMEs
*Corresponding author: [email protected]
1. INTRODUCTION
In the face of globalization, company business strategy must effectively control all of its domestic and offshore resources, link upstream and downstream enterprises into a supply chain system, provide useful up-to-date information for decision making, and constantly monitor market status (SME, 2001). Therefore, companies recently have increased their investment in implementing Enterprise Resource Planning (ERP) to integrate enterprise resources to increase competitiveness. Additionally, through the introduction of this information system (IS), companies hope to introduce a new type of management model and improving company operational efficiency.
ERP implementation includes issues such as
changing company culture, making organizational changes, business process reengineering, and so on (Hammer and Champy, 1993). Hence, if only the management, organizational and technological aspects are emphasized without fully considering the practical characteristics of the industry domain, then the success rate of implementing ERP will be relatively low.
2. MOTIVATIONS
Recently, the use of management information systems by companies is popular. Among the numerous studies focused on ERP, most have focused on the implementation and application of ERP systems by large enterprises. However, for most small and medium enterprises (SMEs), the
implementation of common ERP systems is either too costly or difficult to maintain. In fact, the common ERP systems have not taken industry domain know-how into consideration. Although current common ERP systems provide enough parameters and can be adjusted according to industry characteristics, they is still too complicated to use only effective under certain conditions (Scott and Kaindl, 2000).
SMEs frequently cannot smoothly launch the implementation of ERP projects, and have low success rates because of limited resources, such as insufficient funding, and lack of talent (SME, 2001). Therefore, given tailor made industry specific ERP systems and a reference model for implementing an information system (IS), then implementation success rates can be significantly increased. Using four case studies of SMEs implementing industry specific ERP systems, this study examines the implementation models in-depth in the hope of designing successful ERP implementation models to provide SMEs with strategic and implemented references.
3. RELATED WORKS
The core of the ERP system circulates within the company as well as the management information and control needs of the entire production process, including reducing inventory, labor, and operation costs, improving business processes to enhance operation efficiency and improving customer response (Robinson and Wilson, 2001). As the information system (IS) for managing organization mission and critical business data, the ERP system has evolved to become the backbone of electronic business (e-business) implementation (Yen et al., 2002). Common ERP systems such as SAP R/3 provide close to one thousand predefinable optimal business processes; however, the implementation of such systems is very complicated and the associated consulting services are expensive. Most clients find that the package software fails to provide over 20% of the functions they require (Scott and Kaindl, 2000). However, Markus and Robey (1988) pointed out that although industry specific ERP has already focused on industry characteristics and includes the optimal business operation management model, the promotion of ERP is still significantly related to interaction with the organization. Hong and Kim (2002) surveyed 34 organizations that had implemented ERP to show that success in ERP implementation depends significantly on the organizational fit of ERP and certain implementation contingencies.
The literature indicates that during the implementation of ERP, only major directions such as business processes, implementation methods, information system functionality, etc. are discussed.
However, few previous studies have examined industry specific ERP systems.
4. METHODOLOGY
When the problem being researched involves too many variables to observe and the important issues being researched are existing problems, then case studies offer a better approach. Gable (1994) compared the advantages and disadvantages of case study research, investigative research, and experimental research and found that case study research has a higher exploratory capability. Moreover, Benbasat (1987) concluded three advantages to using case study research in the information management field: 1. the current situation can be understood in a natural and un-manipulated environment, and theories can be derived from actual observations; 2. it is easier to understand the essence and complexity of the process; and 3. faced rapid changes in information management, it is easier to obtain new insights on the research topic using this method. Therefore, this study uses exploratory case studies as its research method. The remainder of this study is organized as follows: first, the related literature is summarized, then in-depth research is conducted using the case study approach, and finally a reference model is proposed for implementing information systems for SMEs.
5. CASE STUDIES
This study selected two textile companies and two printed circuit board (PCB) companies as case studies owing to their very different characteristics in terms of employee quality, technical skills, and management background. These four cases all implemented systems from the same software provider (Fast technologies). Systems were developed especially for the textile industry (Product T) and the PCB industry (Product P). This study examined the implementation model through the motivation of SME for implementing the new information technology or management change, and key factors of implementing industry specific ERP system. Given that overall decision making within SMEs is mostly concentrated among the senior managers or project managers, this study conducted interviews only with project related personnel of the selected case companies.
5.1 Case 1- Company A
5.1.1 Company Overview
weaving and polyester processing plant with capital of about NT$0.86 billion during 2004. Company A has approximately 300 employees. Currently, the head office is in Taipei, and the company has two manufacturing plants, the Taoyuan Lu Chu Factory and the Hsinchu Hsinfong Factory. Company A is publicly listed on the Taiwan stock market. Its main products include high quality woven fabric for men’s and women’s clothes, knitted fabric for men’s and women’s clothes, PE yarn, and so on.
5.1.2 Implementation Motivations
Due to Company A’s integration of its sales units coupled with its good cost control, it is the leader in production volume and profitability for long thread fabrics. To maintain enterprise competitiveness, the existing outdated MIS system needs to be replaced with a new system to improve the original operation habits; to effectively integrate internal operations processes and production process; to enhance internal management efficiency by applying information technology; and to quickly respond to market demand. Therefore, the company decided to implement the ERP system.
5.1.3 Implementation Process
When Company A was assessing the ERP system, no existing systems suited the industrial characteristics of the textile industry. While Company A selecting solution providers, the project manager of Fast Technologies understood the characteristics of the textile industry. Additionally, the solution (Product T) fully matched the needs of Company A. Therefore, the industry specific core business operations for example sales management including quotations, invoice, shipping and production scheduling, on-site management, and so on were jointly discussed and developed by both parties (the teams of both Company A and Fast technologies). Other systems with high commonality for example financial systems such as account receivables, accounts payable, bills and cash, general ledger, fixed assets and material management system used slight modifications of the existing package systems of Fast Technologies.
Due to the lack of new talent, Company A wanted to improve its internal operating processes by implementing information system. Since the habits of the original managers were already deeply rooted, collaboration between departments when they needed to integrate their operating processes initially was poor. The project ran smoothly only after senior managers personally stepped in and the project. The implementation process involved four phases. Phase one was sales system implementation (subsystems included customer management system, proof
management, order placement system, delivery system, product inventory system, invoice management system, account receivable system, and so on). Phase two was material management system implementation (subsystems included procurement system, raw material inventory system, account payable system, and so on. Phase three was production system implementation (subsystems included production scheduling system, production order management system, WIP management system, outsourcing management system, WIP inventory system, fabric analysis system, fabric quality assurance system, and so on. The fourth phase was financial system implementation (subsystems included bills and cash system, funds management system, budget management system, accounting interface system, general ledger system, fixed asset system, cost management system, and so on. The implementation process is described as follows: (1) Implementation Period:
In terms of sales systems, the project team of Fast Technologies first improved the original operation processes of Company A. After several consultations involving both parties, the team of Fast Technologies conducted system modifications and testing based on the negotiation results between both parties then gradually implemented the systems online over an eight month period. The reason for the slightly longer implementation period was that the implementation of the ERP system significantly impacted the original operation processes. Company A expected that the new information system would be even higher operational efficiency. Both parties verified the new system, but testing was not smooth. The system stabilized after several modifications. In terms of material systems, because of the high match up of the ERP system to the industrial characteristics, the implementation period lasted only three months. In terms of the production systems implementation, although more departments and users were involved, implementation period also lasted just three months. (2) Process Reengineering:
Communication and coordination between departments relied on a mutual trust by the senior staff of Company A based on familiarity with their work, which led to many inefficient operations and long validation problems. Therefore, senior management of Company A hoped to rely on process reengineering by ERP to improve management efficiency. Due to the expected significant benefits from the improvements, the senior management of Company A requested that everyone follow the industry specific ERP process to revamp audit and internal control processes. Production systems also used the same model, following an industry specific software information process. The processing of forms by the system was modified based on the production equipment and production process.
main objectives of system implementation and the role they should play. Otherwise, due to conflicts of interest, these departments or employees will take a resistant attitude during system implementation to sustain their existing interests. e. Process reengineering: Process reengineering has the benefits of shortening operation time, enhancing company computerization, changing the behavior of the related employees, and improving the management skills of those running and managing the company. Most older processes were designed before the application of computers. Many process designs even suffer limitations of time and space. However, integration through the Internet has now changed how companies operate. Operation processes should be designed according to the principle of simplicity. Simultaneously, to achieve rapid response time, data transmission and conversion has to be fast and accurate, avoiding human input or conversion. Therefore, programming should include as much automation as possible.
f. System operation mode: Before implementing the ERP system, the information department is only responsible for supporting the information systems of individual units. However, once the ERP system is implemented, firm operations become cross-departmental. Therefore, system operation requires not only the existing IT staff, but also an increase in the number of employees in other departments, such as production, financing, and so on. Additionally, companies should reposition their IT departments or transform them into systems operation departments. Companies should also establish a system for controlling the normal management of the systems operation department to ensure system efficiency.
7. CONCLUSION
Through reviewing related literatures and gathering of case information, this study discussed the process and model of SMEs implementing industry specific ERP systems. The results of this study show that since industry specific ERP systems already include the best processes of the company and are also simple, implementation period is shorter, there is less impact on organizational adaptation, and the investment cost is lower. Despite this, the characteristics of SMEs lack of manpower, lack of funding, low employee quality, and so on, the obstacles aforementioned had been overcome during the implementation process. In the four case studies, although there was a certain degree of resistance during system implementation for example a lack of cooperation by the users, this challenge was finally resolved with senior management support. Therefore,
these procedures of system implementation, the way to resolve the obstacles of implementation, and the implementation experience are highly valuable for proposing an implementation model of information system. The model can be provided to SMEs as a strategic and executable reference to implement ERP systems.
ACKNOWLEDGMENT
The authors would like to thank the President of Fast Technologies, Mao-Lin Sung for his data collection.
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ABOUT THE AUTHORS
Wen-Hsiung Wu is an associate professor of
department of information management at National Kaohsiung University of Applied Sciences. He holds a B.S. in electronic engineering from National Taiwan University of Science and Technology and an M.S. in computer engineering from University of Massachusetts-Lowell, and a Ph.D. in information management from National Sun Yat-Sen University. His primary research interests focus on electronic commerce, knowledge management and behavior of information system usage. He has published in Industrial Management and Data Systems, Production Planning and Control, Journal of Information Management.
Chin-Fu Ho is a professor at Department of
Information Management at National Sun Yat-sen University. He holds a B.S. from National Taiwan
University in Economic Management, M.S. from Department of Economic and Ph. D. from Department of Industrial Engineering and Operations Research, Virginia Polytechnic Institute and State University, USA. His current research interests are in operation research, information management. Dr. Ho has published articles in International Journal of Operations and production management and Industrial Management & Data Systems.
Hsin-Pin Fu is a professor of Department of
Marketing and Distribution Management at National Kaohsiung First University of Science and Technology. He holds a M.S. from University of Missouri-Columbia, USA and Ph. D. from Department of Industrial Engineering and Management, National Chiao Tung University, Taiwan. His current research interests are in electronic business and operation management in industrial applications.
Tien-Hsiang Chang is an associate professor at
Department of Information Management at National Kaohsiung University of Applied Sciences. She holds a B.S. from National Chiao Tung University (Taiwan) in Transportation and Engineering Management, M.S. from University of Missouri-Columbia, USA, in Industrial Engineering and Ph. D. from Department of Industrial Management, National Taiwan University of Science and Technology. Her current research interests are in operation research, stochastic and information management. Dr. Chang has published articles in International Journal of System Science, Production Planning and Control and Industrial Management.
