Production, Manufacturing and Logistics
Why are enterprise resource planning systems indispensable to supply
chain management?
Yi-fen Su
a,c, Chyan Yang
a,b,*aInstitute 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
Article history:
Received 18 February 2008 Accepted 1 July 2009 Available online 9 July 2009 Keywords:
Enterprise resource planning (ERP) Supply chain management (SCM) Enterprise system (ES) Structural equation model (SEM)
a b s t r a c t
Supply chain design is becoming a core competency, and the enterprise resource planning (ERP) system is expected to be an integral component of supply chain management (SCM). Installing an ERP system is, however, expensive and risky. IT managers must decide how to use their limited resources and invest in the right product. Can an ERP system directly improve SCM competency? This study proposes a con-ceptual framework featuring the ERP benefits and SCM competencies, and examines the impacts of the former on the latter. The results confirm the operational, managerial, and strategic benefits of ERP for the SCM competencies, but not the IT infrastructure and organizational benefits as significant predictors of them. Moreover, more than 80% of respondents think it necessary to first adopt an ERP system as the backbone of company operations before deploying other enterprise systems (ES), such as the SCM system. Ó 2009 Elsevier B.V. All rights reserved.
1. Introduction
The globalization of competition means that apart from ensur-ing their own successful operation, firms that hope to survive must establish highly responsive supply chains, with up-, mid-, and downstream partners. How to best improve corporate SCM capa-bilities in order to improve overall supply chain performance has therefore become an important issue in corporate management (Park et al., 2005; Whit et al., 2005). AsKuei et al. (2002) have pointed out, SCM is a network of autonomous or semi-autonomous business entities collectively responsible for procurement, manu-facturing and distribution activities associated with one or more families of related products. Enterprises in the supply chain are likely to increase control over their suppliers and enhance their SCM competencies by gaining power from information. To meet these new challenges and the need for a competent supply chain, companies around the world have invested heavily in Information Technology (IT), and take advantage of IT systems to radically alter the conduct of business in both domestic and global markets. In particular, many firms have implemented company-wide systems called ERP systems, which are designed to integrate and optimize various business processes, such as order entry and production planning, across the entire firm (Mabert et al., 2001). This
invest-ment has also made possible the sharing of large amounts of infor-mation along the supply chain, and has enabled real-time collaboration between supply chain partners, providing organiza-tions with forward visibility, thus improving inventory manage-ment and distribution. ERP, which allows for the transmission and processing of information necessary for synchronous decision making, can be viewed as an essential enabler of SCM competen-cies (Akkermans et al., 2003; Hsu et al., 2009; Sanders, 2007). Furthermore, many firms deploying ERP systems considered extending system scope mainly to integrate their suppliers, cus-tomers or both to the system, to provide additional e-commerce or e-business operations and to increase supply chain functional-ities (Olhanger and Selldin, 2003).
When ERP systems are fully realized in a business organization, they can be expected to yield many benefits, such as reduction of cycle time, faster transactions, better financial management, the laying of the groundwork for e-commerce, linking the entire orga-nization together seamlessly, providing instantaneous information, and making tacit knowledge explicit (Mabert et al., 2001; Daven-port and Brooks, 2004; Shang and Seddon, 2000; Murphy and Simon, 2002; Al-Mashari et al., 2003). ERP can provide the digital nervous system and the backbone in an organization to respond swiftly to customers and suppliers (Cox et al., 2000; Mabert et al., 2001). As reported inAkkermans et al. (2003), ERP systems are widely believed to contribute to SCM in technical areas such as standardization, transparency and globalization. ERP systems are a leading tool for this purpose, and are always expected to be an integral component of SCM (Nah et al., 2001; Themistocleous
0377-2217/$ - see front matter Ó 2009 Elsevier B.V. All rights reserved. doi:10.1016/j.ejor.2009.07.003
* 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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et al., 2004). The potential benefits of an integrated ERP system are such that many organizations are willing to undertake the difficult process of conversion.
Adopting an integrated ERP system, however, has mixed results in terms of a firm’s performance, and some academic research is much more suspicious of its benefits. First of all, implementing an ERP system is costly and risky; it requires a large amount of cap-ital, and its inflexibility makes it often difficult to implement across all departments within a large corporation (Mabert et al., 2001). Some businesses have invested enormous sums of money in ERP or IT without positive results (Gupta and Kohli, 2006; Ehie and Madsen, 2005; Strassman, 1990).
Hitt et al. (2002), on the other hand, produced multiyear, multi-firm ERP implementation and financial data that shows evidence of short-run gain during implementation, but a lack of post-imple-mentation data at the time they conducted their study meant they were unable to estimate the long-run impact.Gattiker and Good-hue (2004) argued that high interdependence among organiza-tional sub-units contributes to positive ERP-related effects because of ERPs facilitate coordination and information flows. When differentiation among sub-units is high, however, organiza-tions may incur ERP-related compromise or design costs. A survey byMabert et al. (2003a)found some improvements in managers’ perceptions of performance, but that few firms had reduced direct operational costs. In addition, Hendricks et al. (2007) observed improvements only in profitability, not in stock returns. Data for improvements in profitability is also stronger in the case of early adopters of ERP systems. Although their results are not uniformly positive across the different enterprise systems (ES, including ERP, SCM, and CRM systems), they are encouraging in the sense that despite the high implementation costs, they do not find persis-tent evidence of negative performance associated with ES investments.
More recent evidence has, on the contrary, demonstrated large benefits and uncovered significant productivity gains from IT investments: for example, as reported in McAfee (2002), an in-depth case study of an ERP implementation and its effects on per-formance at a single firm. This longitudinal research presents ini-tial evidence of a causal link between IT adoption and subsequent improvement in operational performance measures, as well as evidence of the timescale for these benefits. Hunton et al. (2002)experimentally tested the relationship between ERP and performance by presenting 63 certified analysts at a financial services firm with the hypothetical case of a company, and com-paring these analysts’ initial earning forecasts with their forecasts after they are told that the hypothetical firm has committed to investing in an ERP system. The results show that the revision in earnings is positive, thereby providing supports for the hypothesis that implementation of ERP systems has a positive effect on perfor-mance. Huang et al. (2007) proposed an integrated theoretical model that demonstrated that the company’s implementation of ERP has a positive effect on the process capital of its Intellectual Capital (IC); the process capital then affects the customer capital, which ultimately translates into business performance.
Many academic researchers have contributed by confirming the relationship between SCM and firm performance (Du, 2007; Closs and Mollenkopf, 2004; Byrd and Davidson, 2003; Gunasekaran et al., 2004) or by confirming the relationship between ERP imple-mentation and firm performance (Hendricks et al., 2007; Mabert et al., 2001, 2003a; McAfee, 2002; Hitt et al., 2002; Gupta and Kohli, 2006; Ehie and Madsen, 2005; Kalling, 2003). Moreover, determining how to integrate various ERP modules into SCM, for planning, control and execution of materials, resources and operations has recently become important (Koh et al., 2006; Samaranayake and Toncich, 2007; Ho, 2007). Research focusing on the relationship between ERP benefits and SCM competencies
is limited and inconclusive (Hsu et al., 2009). Accordingly, the cur-rent research addresses this gap in the literature by analyzing the ERP benefits and SCM competencies. The evidence that the Taiwan-ese IT industry has had a highly successful growth experience with SCM competencies shows that it can be documented, and lessons can be learned.
This article focuses 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 SCM competencies. A conceptual research model is proposed. Third, the reasons for collecting data from Taiwanese IT firms through a survey and interviewing of experts are presented. And fourth, the overall proposed model is validated.
2. Literature review
2.1. Supply chain management
The term ‘‘supply chain” is used in the present research in the spirit of the value chain concept. A supply chain is a dynamic pro-cess and involves the constant flow of information, materials, and funds across multiple functional areas both within and between chain members (Jain et al., 2009). ‘‘Supply chain management” as the integration of key business processes among a network of interdependent suppliers, manufacturers, distribution centers, and retailers in order to improve the flow of goods, services, and information from original suppliers to final customers, with the objectives of reducing system-wide costs while maintaining re-quired service levels (Simchi-Levi et al., 2000). Such a holistic ap-proach is consistent with the integrated way today’s global business managers are planning and controlling the flow of goods and services to the marketplace.
2.2. Competencies of SCM
The literature on SCM is quite vast and dispersed across many areas. In recent years, supply chain design and its competencies and performance have received much attention from researchers and practitioners. From the RBV viewpoint, all firms have capabil-ities; however, a firm will usually focus on certain capabilities con-sistent with its strategy, and the firm’s most important capabilities are called competencies (Barney, 1991). Accordingly, competencies emphasize technological and production expertise at a specific point along the value chain (Vickery et al., 1993).Closs and Mol-lenkopf (2004)proposed a framework that identifies six firm com-petencies critical for SCM and is based on the work ofBowersox et al. (1999). Each competency is composed of multiple underlying capabilities, which guide philosophies and processes to complete specific logistics and supply chain activities and to overcome obstacles that undermine both internal and external integration of value-added supply chain operations.
2.3. Enterprise resource planning
Different researchers have suggested different ways of defining ERP. One significant feature of an ERP system is that core corporate activities, such as manufacturing, human resources, finance, and supply chain management, are automated, and are improved con-siderably by incorporating best practices, so as to facilitate greater managerial control, speedy decision making and huge reduction of business operational cost. The definition of ERP used in the present research is as stated byWallace and Kremzar (2001):
‘‘An enterprise-wide set of management tools that balances demand and supply, containing the ability to link customers
and suppliers into a complete supply chain, employing proven business processes for decision making, and providing high degrees of cross-functional integration among sales, marketing, manufacturing, operations, logistics, purchasing, finance, new product development, and human resources, thereby enabling people to run their business with high levels of customer ser-vice and productivity, and simultaneously lower costs and inventories; and providing the foundation for effective e-commerce.”
2.4. ERP benefits
For years organizations have striven to realize the benefits of ERP, ES and IT investments. Integrated ERP systems affect all as-pects of a business (Kalling, 2003; Hong and Kim, 2002).Dhillon (2005)claimed that real benefits reside not within the IT domain but, rather, in the changes in the organizational activities that the IT system has enabled.
Several researchers have classified the types of ERP benefits, and have indicated that some approaches may be appropriate tech-niques for evaluating the performance or benefits of ERP systems.
Irani and Love (2001)proposed a framework for meeting the chal-lenges associated with categorizing benefits that is based on the work ofHarris (1996). Mabert et al. (2000)surveyed about 500 business executives, and revealed the following performance out-comes of ERP: quickened response time, increased interaction across the enterprise, improved order management, improved cus-tomer interaction, improved on-time delivery, improved supplier interaction, lowered inventory levels, improved cash management, and reduced direct operating costs.Stratman and Rothe (2002) de-fined eight theoretical ERP competency constructs. They argued that a firm’s ERP competency must be used effectively in order to truly harness the capabilities of an ERP system for competitive advantage.Vemuri and Shailendra (2006)developed a set of initial measurement items for each ERP competency.Shang and Seddon (2000)classified the different types of ERP benefits into five groups as follows: IT infrastructure, operational, managerial, strategic and organizational benefits. Those studies have addressed the classifi-cation and content of ERP benefits. On the basis of the literature re-view presented above, we finally developed a framework consisting of five constructs and 32 measures. It is mainly based on the model ofShang and Seddon (2000), and merges the benefits and measures we have proposed (Table 1).
2.5. The impact of ERP on SCM
In the past decade, nearly all literature on ERP has focused on reasons for implementation and on the challenges of the imple-mentation project itself. Several distinct research streams on ERP are observed in the recent literature. Although the initial focus of ERP was ‘‘within the organization,” many organizations have ad-dressed supply chain challenges with their ERP systems ( Daven-port and Brooks, 2004). Several studies have demonstrated a relationship between ERP benefits and SCM.
Although there is no analytical framework for measuring the impacts of ERP systems on SCM competencies,Byrd and Davidson (2003)have examined how the antecedents, IT department techni-cal quality, IT plan utilization, and top management 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 covers all of the information systems, including ERP systems.Akkermans et al. (2003) studied the future impact of ERP systems on SCM. Their 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. Moreover, they identified key limitations of current ERP systems in providing effective SCM support. On the basis of the literature review presented above, we believe that the relationship between ERP and SCM suggested by the above-men-tioned authors may be useful in the development of our research model and hypotheses.
3. The research model and hypotheses
Our research model is shown inFig. 1. The definitions of various constructs in it are summarized in Table 1. In this study, the authors base the research model on selected literature on ERP and on SCM. The goal of our research is to examine in more detail ERP benefits’ impact on SCM competency. Thus, our research mod-el encompasses and rmod-elies on two areas: ERP benefits as referred to in the classification of ERP benefits, inShang and Seddon (2000), and SCM competencies, based on the 21st Century Logistics frame-work as extended byBowersox et al. (1999). The model includes five constructs for ERP benefits, namely: operational, managerial, strategic, IT infrastructure, and organizational benefits, and three constructs for SCM competencies, namely: operational, planning and control, and behavioral processes. Based onShang and Seddon (2000) classification of ERP benefits, Stratman and Rothe (2002)
competencies of ERP, andVemuri and Shailendra (2006) measure-ment items, we conclude and hypothesize that ERP benefits are antecedents to improving SCM competencies after an ERP system is operational and functionally stable. Therefore, this model inves-tigates the relationships between the benefits of ERP adoption and SCM competencies. A more detailed description of SCM competen-cies follows.
3.1. ERP benefits and the operational process of SCM
AsCloss and Mollenkopf (2004)defined the operational process involves the processes that facilitate order fulfillment and replen-ishment across the supply chain. Effective order fulfillment re-quires coordination both within a firm and among supply chain partners. Within the operational process, firm competencies in-clude customer integration, internal integration, and supplier integration.
Today’s ERP solutions offer even more benefits. Many vendors have begun to enhance their offerings with extended supply chain applications in an effort to create a seamless, integrated informa-tion flow, from suppliers through manufacturing and distribuinforma-tion.
Hsu et al. (2009)provide empirical support for the impact of oper-ations capabilities on SCM practices. That result is consistent with resource-based and competency-based views of the firm. ERP is a suite of application modules that can link back-office to front-of-fice operations, as well as internal and external supply chains. Since ERP systems can automate business processes and enable process changes, one would expect them to improve the SCM com-petencies in operational process and improve customer respon-siveness and satisfaction (Venkatesh, 2006). Bowersox et al. (1999) and Vemuri and Shailendra (2006)have developed a set of scales to directly measure the SCM competencies and ERP ben-efits, and these form the basis of our measurement items and our hypothesis. Hence, in our model, the SCM competencies in opera-tional process are driven by ERP benefits. In order to examine what categories of ERP benefits can predict SCM competency, the follow-ing research model and hypotheses are given:
Ha1: The operational benefits of ERP positively affect the operational process of SCM.
Hb1: The managerial benefits of ERP positively affect the operational process of SCM.
Table 1
The constructs of SCM competencies and ERP benefits.
Constructs Items and definitions
Operational process Firm has the competences to support customer requirements, and supplier integration links externally performed work into a seamless congruency with internal work processes
SOP1 Relevancy Maintenance and modification of customer focus to continuously match changing expectations
SOP2 Responsiveness Accommodation of unique and/or unplanned customer requirements
SOP3 Cross-functional unification Operations of potentially synergistic activities into manageable operational processes
SOP4 Standardization Establishment of cross-functional policies and procedures to facilitate synchronous operations
SOP5 Operational fusion Linkage of systems and operational interfaces to reduce duplication, redundancy, and dwell while maintaining
operational synchronization
SOP6 Supplier management Extended management to include hierarchical structure of suppliers’ suppliers
Planning and control process
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
SPCP1 Information management Commitment and capability to facilitate supply chain resource allocation through seamless transactions across the
total order-to-delivery cycle
SPCP2 Internal communication Capability to exchange information across internal functional boundaries in a timely, responsive, and usable format
SPCP3 Connectivity Capability to exchange information with external supply chain partners in a timely, responsive, and usable format
SPCP4 Collaborative forecasting and
planning
Customer collaboration to develop shared visions and mutual commitment to jointly generated action plans
SPCP5 Functional assessment The development of comprehensive functional performance measurement capability
SPCP6 Activity-based and total cost
methodology
Adoption and commitment to activity-based costing, budgeting, and measurement of comprehensive identification of cost/revenue contribution of a specific entity such as a product
Behavioral process 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
SBP1 Role specificity Clarity concerning leadership process and establishment of shared versus individual enterprise responsibility
SBP2 Guidelines Rules, policies, and procedures to facilitate inter-enterprise collaboration, leverage, and conflict resolution
SBP3 Information sharing Willingness to exchange key technical , financial, operational, and strategic information
SBP4 Gain/risk sharing Framework and willingness to apportion fair share reward and penalty
SBP5 Strategic alignment Development of a common vision of the total value creation process and planning clarity concerning shared
responsibility 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
EOP1 Cost reduction For better control of business operating expenses, decreased operations cost
EOP2 Cycle time reduction Complex assortments, shorter cycle times, less inventory
EOP3 Productivity improvement Power user involvement in user training for operational tasks
EOP4 Quality improvement Improved quality management and control
EOP5 Customer service
improvement
Meet customer needs proactively and more efficiently
EOP6 Error reduction Less time and fewer errors in order process
Managerial benefits Managerial 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
EMNG1 Resource management Tailoring products to meet specific needs of customer, and improving resource management to support customization
EMNG2 Decision making and
planning
More effective decision making by workers
EMNG3 Performance improvement Reduce cost, increase revenues, and improve market value
EMNG4 Partnership with customer
and vendor
Management within and outside the firm’s boundaries between groups
EMNG5 Scheduling Allows users to generate supply chain schedules addressing customer needs
EMNG6 Quality management Improved quality management and quality control
Strategic 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
ESTG1 Worldwide expansion Support for business growth
ESTG2 Business alliance Support for business alliance
ESTG3 Business innovations Building business innovations and absorb radical change routinely
ESTG4 Cost leadership Building cost leadership by reduce inventory-carrying cost and lower labor cost
ESTG5 Product differentiation Generate product differentiation including customization
ESTG6 External linkages Building external linkages to have better connectivity with customer and supplier
IT infrastructure benefits
Involving building business flexibility, IT cost reduction, and increased IT infrastructure capability
EIT1 Flexibility Building business flexibility for current and future changes
EIT2 IT cost reduction Reduction in cost of maintaining legacy systems
EIT3 Enabling e-commerce Increased IT infrastructure capability
EIT4 Information management Integrated and real time to effectively support information
EIT5 Improve IT architecture Standardize procedures across different locations
EIT6 Single interface Present a single interface to customer and consolidate multiple different systems of the same type
Organizational benefits
Relating to support organizational changes, facilitate business learning, empowering, and build common visions
EOG1 Changing work patterns Change management processes; breadth and broader horizon
EOG2 Organizational learning Facilitating organizational learning and training for access of enterprise information
EOG3 Empowerment Training for decision making skills and worker empowerment for taking actions
EOG4 Common vision Building common vision
EOG5 employee morale Better employee morale and satisfaction
Hc1: The strategic benefits of ERP positively affect the operational process of SCM.
Hd1: The IT infrastructure benefits of ERP positively affect the opera-tional process of SCM.
He1: The organizational benefits of ERP positively affect the opera-tional process of SCM.
3.2. ERP benefits and the planning and control process of SCM The term ‘‘planning and control process” refers to the design, application, and coordination of information to enhance purchasing, manufacturing, customer order fulfillment, and resource planning. This competency includes access to databases that enable sharing of appropriate information among supply chain participants.
ERP systems are created by centralizing the database and build-ing-in data analysis capabilities. These actions provide information benefits to process and resources management. When an ERP sys-tem is implemented, the advantage of business control process skills is demonstrated through an understanding of how the busi-ness operates and by the ability to predict the impact of a particu-lar decision or action on the rest of the enterprise. At the same time, those benefits, such as production orders, capability plan-ning, resource allocation, production tracking and reporting, inven-tory management, and waste or reject tracking, also meet the competencies needs of supply chains (Latamore, 1999). As re-ported inBendoly and Jacobs (2005), that ERP software can be used to help firms create value, such as by eliminating information asymmetries, allowing simultaneous access to same data for plan-ning and control, and providing on-time and real time information to jointly generated action plans.
Hence, the research contained in the above-mentioned litera-ture and the classification of the ERP benefits ofShang and Seddon (2000)form the basis of our scale items and hypotheses. In our model, SCM competencies in the planning and control process are driven by ERP benefits. Therefore, the following research model and hypotheses are given:
Ha2: The operational benefits of ERP positively affect the Planning and Control Process of SCM.
Hb2: The managerial benefits of ERP positively affect the Planning and Control Process of SCM.
Hc2: The strategic benefits of ERP positively affect the Planning and Control Process of SCM.
Hd2: The IT infrastructure benefits of ERP positively affect the Plan-ning and Control Process of SCM.
He2: The organizational benefits of ERP positively affect the Planning and Control Process of SCM.
3.3. ERP benefits and the behavioral process of SCM
The term ‘‘behavioral process” refers to the behavior that fosters supply chain coordination. It includes relationship integration. Relationship integration is a competency that enables firms to share a mentality with customers and suppliers regarding interde-pendence and principles of collaboration.
Bendoly and Jacobs (2005) argued that ERP can be used to facilitate inter- and intra-organization communication and col-laboration needs, laying the foundation for external integration.
Stock et al. (2000)asserted that higher levels of external integra-tion are characterized by activities in collaboraintegra-tion with those of its suppliers and customers, and by a greater blurring of organi-zational distinctions between the logistics activities of the firm and those of its suppliers and customers. Adopting ERP systems can mean capturing the benefits derived from facilitating busi-ness learning, and may support these goals.Segars et al. (1998)
have developed a set of scales to capture the domain of ERP ben-efits, and these form the basis of our items and related hypoth-eses about the benefits of ERP. In our model, the SCM competencies in the behavioral process are driven by ERP bene-fits. Therefore, the following research model and hypotheses are given:
Ha3: The operational benefits of ERP positively affect the Behavioral Process of SCM.
Hb3: The managerial benefits of ERP positively affect the Behavioral Process of SCM.
Hc3: The strategic benefits of ERP positively affect the Behavioral Process of SCM.
Hd3: The IT infrastructure benefits of ERP positively affect the Behav-ioral Process of SCM.
He3: The organizational benefits of ERP positively affect the Behav-ioral Process of SCM. Ha1 Ha2 Ha3 Hb1 Hb2 Hb3 Hc1 Hc2 Hc3 Operational Process Behavioral Process Planning and Control Process SCM Competences Operational ERP Benefits IT Infrastructure Organizational Managerial Strategic Hd3 He1 He2 He3 Hd2 Hd1
4. Research design
4.1. Instrument design and refinement
To develop the research instrument, where possible measure-ment items are adapted from the literature. We identify the con-structs of ERP benefits and SCM competencies that are hypothesized to be important antecedents of successfully creating SCM competencies. Our point of departure for construct definition and measurement item selection is a literature review encompass-ing the areas of ERP and SCM in strategic management, operations management, organizational behavior, and information technol-ogy. This is followed by site visits, interviews, and further literature reviews. In total, we visit three IT firms with operational ERP sys-tems, where we gather first-hand knowledge about ERP systems at multiple levels in the organization, including users, IT technicians, engineers, production planners, supervisors, managers, and consul-tants. Visits are supplemented by structured and unstructured interviews with executives knowledgeable about ERP systems adoption practices and SCM practices. This process results in our research model, which identifies the constructs of ERP benefits, SCM competencies, and a set of initial measurement items. New measures are developed following standard psychometric scale development procedures (Boudreau et al., 2001). The domain of the relevant construct is initially specified, and the items are sub-sequently developed based on the conceptual definition. Based on the constructs, we develop a questionnaire draft. The backward translation method (with the material translated from English into Chinese, and back into English; versions compared; discrepancies resolved) is used to ensure consistency between the Chinese and the original English versions of the instrument (Mullen, 1995). The preliminary instrument is pilot tested and reviewed by IT man-agers from eight Taiwanese IT firms, doctoral students and EMBA students. The items are modified following a pre-test of the survey instrument with a sample of 15 experts, using the same data col-lection methods, following procedures recommended byChurchill (1979). The pre-tests indicate that the questionnaire is deemed appropriate to examine the relationship 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) is used to collect most responses, while some questions involve absolute numbers, percentages or binary vari-ables. The final questionnaire consists of 47 items (after dropping five that were suggested by experts) for eight constructs, and 10 questions pertaining to industry, number of employees, estimated revenue, type of ERP and SCM related software used, and the num-ber of months and years since the ERP and SCM system initiatives. 4.2. Data collection
The present study is based on the Taiwanese IT industry, and mainly consists of electronics manufacturers and semiconductor-related manufacturers (seeTable 2), for two reasons.
4.2.1. Taiwan is a major player in and contributor to the world IT industry
Taiwan has achieved outstanding results in IT over the past two decades (Chang and Yu, 2001). Taiwan-made IT products dominate the world market in many categories. The world market share ex-ceeds 50%. The semiconductor manufacturing and electronics man-ufacturing industry (IT industry) especially have evolved to prominence in Taiwan’s recent economic development. The coun-try currently ranks third in computer manufacturing and fourth in the semiconductor industry (Foundry ranked No. 1; IC design ranked No. 2) in the world (ITISProject, MOEA, 2008). Keeping pace with thaw in the political relations between Taiwan and China, Tai-wan’s IT industries have been playing a key role in that country — which, of course, has earned a reputation as ‘‘the world’s work-shop.” For instance, Taiwan’s leading notebook computer manufac-turers — who have, at times, enjoyed a world market share in excess of 70% — began moving their production sites to China in 2001. All of Taiwan’s notebook production lines have now been relocated to China. Most of China’s share of the global notebook market can thus actually be attributed to the contributions by Tai-wanese firms. In addition, the 2008 global IT industry competitive-ness report issued by Britain’s Economist Intelligence Unit (EIU)
Table 2
Demographic characteristics of the respondents.
Percentage Percentage
Type of industry Total assets (USD)
Computer manufacturers <30,000,000 39.7 PC systems 35.5 30,000,000–100,000,000 37.9 Peripherals 8.4 100,000,001–200,000,000 8.1 Communications 3.5 200,000,001–300,000,000 2.8 Consumer electronics 7.0 >300,000,000 11.5 Computer components 7.0
Semiconductors Annual turnover (USD)
Foundry 4.9 <30,000,000 8.5
IC design 9.8 30,000,000–150,000,000 62.9
Packaging and testing 5.9 150,000,001–300,000,000 13.9
Mask 1.0 300,000,001–900,000,000 7.7
Equipment/material 10.9 >900,000,000 7.0
Others 4.2
IT strategy consultants 1.8
ERP system implementation (month)
Job classification <6 7.2
Top IT/ERP/SCM 27.1 7–12 42.2
Middle IT/ERP/SCM 55.4 13–24 29.9
Others 17.9 >24 20.7
Number of employee ERP system on line (year)
<100 12.3 <0.5 8.3
101–500 44.0 0.5–1 25.0
501–1000 18.5 1–2 23.2
1001–2000 14.7 >2 43.5
ranked Taiwan sixth out of the 64 countries rated in terms of IT industry competitiveness, behind only the US, Japan, South Korea, Britain, and Australia. As for IT industry labor productivity, Taiwan leads the world, with output value of US$386,413 per IT industry employee. The industry’s structure is the predominant reason for this high productivity (EIU, 2008).
4.2.2. Taiwan has delivered the best practices of SCM
In the IT industry, product life cycle is extremely short. Compa-nies need to deliver new products before they have any market va-lue. In the Taiwanese IT industry, the main type of business is original equipment manufacturing (OEM) and original design man-ufacturing (ODM). An OEM/ODM business is different from an own brand manufacturing (OBM) business in many respects. 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 activities. Companies iso-lated from the end-customer base still need to satisfy customer needs and react to new ones immediately. They are compelled to closely cooperate with all of the members in the supply chain so as to be able to react to unexpected changes. To cope with the rapid changes in customer needs and the extremely short product life cycles, the cross-functional cooperation of information systems in the IT industry may be more important than in those industries with a longer product life cycle. In today’s fast-changing business environment, the Taiwanese IT industry depends heavily on its highly-effective SCM to achieve superb performance. It is important to understand the supply chain network in Taiwan, since that sup-ply chain network may influence organizational effectiveness. For instance, Foxconn, which is a contractor for such world-famous products as the iPod and iPhone, relies on the support of its ERP sys-tem (SAP) to perform varied, high-quality, low-cost production tasks. Foxconn is also the major supplier to leading brand name companies such as Cisco, Dell, HP, Nokia, Sony, etc. (Foxconn, 2008). Many scholars have conducted research into the SCM of firms in some developed countries (Benton and Maloni, 2005; Mabert et al., 2001; Lim and Palvia, 2001). These studies cover many types of industries, 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, Chi-na, and Korea, has not, however, been comprehensively studied. The present study therefore presents the results of an empirical study of the impact of implementation of ERP on SCM competen-cies by IT manufacturers in Taiwan. Survey data is collected from a sample of Taiwanese IT companies listed in the Taiwan Stock Exchanges (TSE), mainly on electronics manufacturers (including: PC systems, peripherals, communications, consumer electronics, and computer components) and semiconductors-related manufac-turers (including: foundry, IC design, packaging and testing, mask, and equipment/material provider), and screened according to whether they have operational ERP systems (seeTable 2). Refined scales employing items drawn from constructs and measurement items referred to in the relevant literature are used to conduct empirical, confirmatory analyses. Each item’s scale has measure-ment properties that fit into the commonly accepted guidelines for reliability and validity. The authors screen the candidates by accessing the database of the TSE and the companies’ websites. Finally, 334 firms are included in the sample. For the respondents’ convenience, the questionnaire is delivered to the presidents of the 334 firms in one of two forms: e-mail or regular mail. Along with the questionnaire, a personalized letter is sent to the president. It asks that he/she select the proper strategic business units (SBU) in his/her company and forward the questionnaire to the selected chief information officers, IT personnel, or operating managers who have implemented ERP systems. To encourage participation, all the informants are assured that their response will be kept confidential
and will be shown only in an aggregated form. The authors also promise to give a copy of the results to all respondents. After several follow-up e-mails and phone calls, in all, 298 completed questionnaires were returned, of which 13 were invalid; 285 usable responses were received from 76 IT or ERP/SCM related managers, 158 lower-middle IT or ERP/SCM related managers and 51 others (who gave their job titles as ‘‘Director” or ‘‘Vice-Pres-ident”) employed by 138 companies. The valid responses include companies with a range of annual revenues from USD$10 millions to $800 millions, and workforces of 90 to 25000 employees. The total process of data collection started from Q1 2006 and ended in Q2 2007.Table 2presents a summary of the demographic char-acteristics of the respondents.
5. Analysis and results
5.1. The measurement model
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 inTable 3.
Second, multiple regression was conducted to verify the im-pacts of ERP benefits on SCM competencies. The measurement model was estimated using SPSS 14.0. The properties of the mea-surement model are summarized inTable 4.
Third, confirmatory factor analysis (CFA) was conducted to assess the measurement model; then, the structural relationships were examined. 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 AMOS 7.0. 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. Various reliability test re-sults are shown inTable 4, which summarizes the item-to-total cor-relations and principal component scores for the sample. Item-to-total correlations exceed 0.30 (Dunn et al., 1994) in all cases. The principal component scores meet minimal levels of 0.30 and above in all cases (Hair et al., 1998). Thus, all of the scales reflect unidi-mensional characteristics. The Cronbach alpha ranges from .831 to .966 for the eight constructs, and are thus also satisfactory, as coefficient alphas meet or exceed 0.70 in all instances (Nunnally, 1978), indicating a high internal consistency. Except for one item in the behavioral process integration construct of SCM competen-cies, all the items were retained. The construct validity is also tested for convergent and discriminant validity. We assessed convergent validity by reviewing the t tests for the factor loadings and by exam-ining composite reliability and average variance extracted from the measures (Hair et al., 1998). Although many studies have used 0.5 as the threshold reliability of the measures, 0.7 is a recommended value for a reliable construct (Chin, 1998). As shown inTable 4, our composite reliability values range from 0.925 to 0.992. For the average variance extracted by a measure, a score of 0.5 indicates acceptability (Fornell and Larcker, 1981). The average variances ex-tracted by our measures range from 0.500 to 0.822, which are above or equal to the acceptability value. In addition,Table 5exhibits 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 instrument by comparing the average variance extracted (AVE) (Fornell and Larcker, 1981) from each latent construct to the square of the cor-relation between this construct and every other construct, which has been used by some IS studies (Segars et al., 1998). The result, inTable 6, 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 inter-construct correlations also show that each construct shares larger variance with its own measures than with other measures. 5.3. Results of the structural model analysis
The structural model tested in the present study is shown in
Fig. 1. This model was estimated using AMOS 7.0. The statistic of
2.073 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 (Browne and Cudeck, 1992). The parsimony-adjusted NFI of the revised model is 0.848, which is significantly above the suggested value of .60.Williams and Hazer (1986)indicate highly acceptable levels of parsimony and fit of the overall model. All of these fit indices 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 similar to in regression analysis, show that this model accounts for 50% of the variance in the operational process, 70% of the
Table 3
Exploratory factor analysis loading.
Construct Items 1 2 3 4 5 6 7 8
Organizational benefits of ERP EOG1 .907
EOG2 .910
EOG3 .912
EOG4 .866
EOG5 .811
EOG6 .779
Strategic benefits of ERP ESTG1 .780
ESTG2 .595
ESTG3 .804
ESTG4 .805
ESTG5 .767
ESTG6 .720
IT infrastructure benefits of ERP EIT1 .796
EIT2 .815
EIT3 .826
EIT4 .816
EIT5 .791
EIT6 .758
Operational benefits of ERP EOP1 .675
EOP2 .746
EOP3 .776
EOP4 .784
EOP5 .758
EOP6 .780
Operational process of SCM SOP1 .754
SOP2 .690
SOP3 .649
SOP4 .761
SOP5 .804
SOP6 .746
Managerial benefits of ERP EMNG1 .774
EMNG2 .756
EMNG3 .631
EMNG4 .716
EMNG5 .677
EMNG6 .691
Planning and control process of SCM SPCP1 .529
SPCP2 .568 SPCP3 .575 SPCP4 .675 SPCP5 .718 SPCP6 .726 Behavioral process of SCM SBP1 .688 SBP2 .684 SBP3 .643 SBP4 .758 SBP5 .700 Eigenvalues 18.244 5.649 2.543 2.486 1.684 1.676 1.440 1.130 % of Variance 38.817 12.018 5.412 5.290 3.584 3.567 3.063 2.404 Cumulative % 38.817 50.835 56.246 61.537 65.121 68.687 71.750 74.154
variance in the planning and control process, and 41% of the var-iance in the behavioral process. Most of the paths are significant and positive, supporting the corresponding hypotheses, except for the organizational process and IT infrastructure.Fig. 2show the results, and illustrate that the SCM competencies in the opera-tional process, the planning and control process and the behav-ioral process were positively influenced by ERP benefits. These results basically support all of our hypotheses. Table 7 also re-ports the results of all regression models (see supplementary material file— Results of Multiple Regression Analysis, Tables 7 and 9).
6. Analysis of results
The main objective of this study is to investigate the relation-ship between ERP benefits and SCM competencies. The findings show how ERP benefits impact on SCM competencies.
6.1. The impact on the operational process
There are six items in the operational process of the SCM con-struct (Table 1). The regression results strongly support the hypotheses Ha1, Hb1, Hc1 ð:20,1:32; :21
Þ, and the SEM results (Fig. 2) — the hypotheses Ha1, Hb1, Hc1 — are also supported ð:12,2
:34; :21Þ, demonstrating that SCM competencies in the opera-tional process are positively impacted by operaopera-tional, managerial, and strategic benefits of ERP (Table 7). Especially, the high beta coef-ficients of some items, such as relevance (SOP1, .30), responsiveness (SOP2, .33), and supplier management (SOP6, .34), mean that the construct of managerial ERP benefits is the dominant predictor for SCM competencies in the operational process. Besides, both regres-sion and SEM results show that the impact of IT infrastructure and
Table 4
Summary of the measurement model.
Construct Indicator Mean Std.
dev. Principal components scores Item-to total correlation Standard loading Cronbach alpha Composite reliability
Average variance extracted estimates Operational EOP1 5.45 .607 .682 .762 .761 .954 .936 .775 EOP2 5.69 .602 .824 .858 .903 EOP3 5.73 .638 .873 .895 .944 EOP4 5.71 .679 .903 .925 .964 EOP5 5.53 .653 .806 .848 .845 EOP6 5.53 .647 .812 .854 .848 Management EMNG1 5.63 .594 .820 .823 .893 .918 .925 .653 EMNG2 5.62 .578 .802 .807 .881 EMNG3 5.21 .537 .579 .665 .669 EMNG4 5.63 .583 .756 .785 .849 EMNG5 5.36 .633 .692 .755 .754 EMNG6 5.32 .615 .720 .773 .778 Strategic ESTG1 5.27 .607 .777 .796 .906 .915 .992 .642 ESTG2 5.49 .659 .544 .636 .628 ESTG3 5.22 .592 .801 .820 .922 ESTG4 5.22 .598 .772 .797 .826 ESTG5 5.21 .661 .736 .778 .783 ESTG6 5.37 .688 .641 .727 .700 Organizational EOG1 5.34 .627 .938 .944 .984 .966 .965 .822 EOG2 5.35 .631 .934 .942 .988 EOG3 5.36 .632 .942 .948 .983 EOG4 5.35 .614 .847 .876 .893 EOG5 5.44 .661 .784 .839 .801 EOG6 5.52 .648 .745 .804 .763 IT infrastructure EIT1 5.66 .622 .742 .780 .867 .925 .928 .685 EIT2 5.61 .660 .795 .824 .902 EIT3 5.35 .659 .778 .819 .813 EIT4 5.26 .683 .763 .809 .797 EIT5 5.01 .870 .694 .712 .702 EIT6 5.49 .715 .769 .808 .870 Behavioral process SBP1 4.79 .596 .635 .645 .740 .831 .958 .500 SBP2 4.95 .612 .589 .607 .678 SBP3 4.85 .614 .533 .577 .639 SBP4 4.86 .616 .637 .654 .729 SBP5 4.76 .649 .680 .662 .734
Operational process SOP1 5.22 .552 .742 .790 .816 .924 .989 .672
SOP2 5.19 .579 .696 .759 .807
SOP3 5.17 .633 .643 .721 .761
SOP4 5.22 .552 .728 .760 .797
SOP5 5.16 .585 .807 .834 .872
SOP6 5.18 .591 .779 .816 .860
Control and planning process SPCP1 5.20 .649 .642 .715 .777 .902 .984 .607 SPCP2 5.16 .622 .639 .701 .748 SPCP3 5.29 .714 .619 .697 .749 SPCP4 5.29 .725 .695 .747 .782 SPCP5 5.33 .720 .764 .762 .807 SPCP6 5.42 .660 .753 .770 .810 1
: beta coefficient is significant at p < :001; : p < :01; : p < :05. 2
organizational benefits (Hd1, He1) are not significant. Both results can be interpreted to mean that operational, managerial, and strate-gic benefits of ERP enhance SCM competencies in the operational process.
6.2. The impact on the planning and control process
There are six items in the planning and control process of the SCM construct (Table 1). From the regression results (Table 7) it can be concluded that the hypotheses Ha2, Hb2, Hc2 are strongly supported ð:24; :24; :45Þ, and from the SEM results (Fig. 2),
that the hypotheses Ha2, Hb2, Hc2 are also supported ð:25; :28; :48
Þ, demonstrating that SCM competencies in the planning and control process are positively impacted by the oper-ational, managerial, and strategic benefits of ERP. Especially, the strategic benefit of ERP is the most dominant predictor for SCM competencies in the planning and control process, because the beta coefficients of some items are high, such as information manage-ment (SPCP1, .41), internal communication (SPCP2, .50), connectiv-ity (SPCP3, .38), collaborative forecasting and planning (SPCP4, .37), and functional assessment (SPCP5, .31). Just as with the con-struct of the operational process, both regression and SEM results show that the impact of IT infrastructure and organizational bene-fits (Hd2, He2) are not significant. Both results can be interpreted as indicating the operational, managerial, and strategic benefits of ERP enhanced SCM competencies in the planning and control process.
6.3. The impact on the behavioral process
There are five items in the behavioral process of the SCM con-struct (Table 1). The regression results (Table 7) support the hypotheses Hb3, Hc3 ð:26; :30
Þ, and in the SEM results (Fig. 2), the hypotheses Hb3, Hc3 are also supported ð:19; :26Þ, demonstrating that the managerial and strategic benefits of ERP have the most impact on SCM competencies in
Table 6
Comparison of AVE and squared roots correlations.
Var. EOP EMNG ESTG EIT EOG SOP SPCP SBP
EOP .801 EMNG .215 .901 ESTG .604 .390 .808 EIT .524 .457 .610 .880 EOG .153 .520 .355 .546 .828 SOP .532 .235 .565 .503 .324 .705 SPCP .750 .266 .692 .662 .314 .526 .779 SBP .547 .381 .647 .565 .367 .442 .561 .820
The shaded numbers in the diagonal row are square roots of the average variance extracted. Table 5
Loadings of the measures.
Construct Items Standard loading Standard error t-value Construct Items Standard loading Standard error t-value
Operational EOP1 .761 .054 15.695 Organizational EOG1 .984 .064 19.386
EOP2 .903 .047 21.048 EOG2 .988 .065 19.483
EOP3 .944 .048 23.065 EOG3 .983 .065 19.353
EOP4 .964 .049 24.123 EOG4 .893 .065 17.027
EOP5 .845 .054 18.636 EOG5 .801 .072 14.848
EOP6 .848 EOG6 .763
Management EMNG1 .893 .065 16.937 Operational process SOP1 .816
EMNG2 .881 .064 16.631 SOP2 .807 .066 15.795
EMNG3 .669 .063 11.831 SOP3 .761 .074 14.533
EMNG4 .849 .065 15.856 SOP4 .797 .063 15.508
EMNG5 .754 .073 13.663 SOP5 .872 .064 17.680
EMNG6 .778 SOP6 .860 .065 17.317
Strategic ESTG1 .906 Planning and control process SPCP1 .777
ESTG2 .628 .085 14.477 SPCP2 .748 .069 13.291
ESTG3 .922 .077 10.172 SPCP3 .749 .080 13.312
ESTG4 .826 .077 14.702 SPCP4 .782 .080 14.034
ESTG5 .783 .084 13.266 SPCP5 .807 .079 14.572
ESTG6 .700 .079 12.609 SPCP6 .810 .072 14.633
IT infrastructure EIT1 .867 Behavioral process SBP1 .740
EIT2 .902 .052 21.371 SBP2 .678 .089 10.563 EIT3 .813 .056 17.578 SBP3 .639 .089 9.973 EIT4 .797 .059 17.002 SBP4 .729 .090 11.331 EIT5 .702 .081 13.922 SBP5 .734 .095 11.407 EIT6 .870 .058 19.902 Table 8
Fit indices of structural model.
X2 2091
df 1009
X2=df 2.073
Normed fit index (NFI) .848
Tucker–Lewis index .909
Comparative fit index (CFI) .915
GFI .756
RMR .024
RMSEA .061
Lower bound .058
the behavioral process. Both regression and SEM results, however, indicate that the organizational benefit of ERP (He3) is not a signif-icant predictor of the behavioral process.
7. Discussion and implications
The purpose of this paper was to propose and test a model of the relationship between the benefits to Taiwanese IT industries of their adoption of ERP systems and their impacts on SCM compe-tencies. A number of important findings emerge that have both theoretical and managerial implications.
7.1. The operational, managerial, and strategic benefits are significant predictors for the SCM
A significant contribution of this study is the empirical test of theoretical assumptions in the extant literature of the influence of ERP benefits on SCM competencies. It confirms that of the five constructs of ERP benefits, the three that positively impact on SCM competencies are operational, managerial, and strategic benefits. This finding underscores the important role an ERP sys-tem plays in the functioning of supply chain organizations. The unequivocally positive results are not surprising, yet differ from those of most other studies, such as Hitt et al. (2002), Akker-mans et al. (2003), Hendricks et al. (2007) and McAfee (2002). Three possible explanations for the remarkable finding are as follows.
7.1.1. Manpower and knowledge background of the Taiwanese IT industry
Much of Taiwanese IT firms’ technology, and a considerable proportion of their knowledge, were transferred from the US (Chow et al., 2008). As we know, the United States and European countries have always been leaders in applying information sys-tems. Moreover, a considerable number of Taiwanese IT firms’ managers have been educated and worked in the US or Europe, and have obtained first-hand experience of using ERP systems or observed the adoption of these systems in the West. Accordingly, the experience and knowledge background of those managers may contribute to the adoption of ERP systems.
7.1.2. The center-to-satellite network structure of the Taiwanese IT industry
In terms of size, many of Taiwan’s semiconductor manufactur-ers or electronics firms are large enterprises. TSMC, UMC, Foxconn, Acer, and ASUS are typical examples. Nevertheless, some Taiwan-ese IT firms are small and medium-size enterprises (SMEs). The scale of manufacturing SMEs in Taiwan is smaller than of those in the United States (US manufacturing SMEs typically have up to 1000 employees). No matter the size of those IT firms, their cus-tomers include such well-known large European and American companies as Intel, IBM, Apple, Dell, HP, Compaq, and Nokia. In contrast, the vast majority of the suppliers of those Taiwanese IT companies are SMEs. The manufacturing SMEs in Taiwan, however, have strong networks, and play an important role for much larger organizations within their multiple supply chains. Consequently, those SMEs operate in a satellite-type network structure around the larger Taiwanese IT companies. The success of the center-to-sa-tellite network structure has greatly enhanced the competitiveness of Taiwanese IT manufacturers (Chen et al., 2008).
For large Taiwanese IT firms, ERP systems have been success-fully used as the internal integration tool to centralize IS, which are often at multiple locations. In addition to internal process inte-gration, the scope of systems integration has extended to collabo-rative supply chains partnerships, where suppliers are typically represented by SMEs. In order to facilitate information transmis-sion and communication with partners, those SMEs (IT firms or up-stream/downstream parts suppliers and satellite factories) have also adopted ERP systems or information systems. The systems thus satisfy the needs of large foreign customers to stay in close touch with their parts and components suppliers, and enhance overall supply chain performance. Furthermore, the government of Taiwan has systematically commissioned international firms to assist domestic manufacturers to adopt ERP systems. The MOEA’s (Ministry of Economic Affairs, ROC) Project A is one such example. Satisfying the needs of customers and responding to the requirements of globalization and SCM thus inevitably be-comes part of system specifications during the assessment, selec-tion, and adoption stages. As a result, the enterprises in the supply chain not only have effective integrated processes within a business, but also have synchronization of the operations of all
0.12 ** (Ha1) 0.25*** (Ha2) 0.11 (Ha3) 0.34*** (Hb1) 0.28***(Hb2) 0.19***(Hb3) 0.21***(Hc1) 0.48*** (Hc2) 0.26*** (Hc3) SMC=0.500 Operational Process Behavioral Process Planning and Control Process SCM Competences SMC=0.410 SMC=0.699
SMC: Squared Multiple Correlation ***p < .001 **p < .01 *P < .05 Operational ERP Benefits IT Infrastructure Organizational Managerial Strategic 0.12 (Hd3) 0.08 (He1) -0.09 (He2) -0.07 (He3) 0.04 (Hd2) 0.07 (Hd1)
partners in the supply chain. That is, ERP implementations in these Taiwanese companies have a significant impact on other compa-nies, both large and small, within the global supply chain. 7.1.3. Effectiveness of system adoption
The informatization of Taiwanese large and medium-size IT firms makes them a model for the country’s other firms and indus-tries. Although the adoption of ERP systems at big firms is a rela-tively large and complex undertaking, the adequate budgeting and relatively good consulting, talent, and technical support re-sources at such firms work to good effect (Chen et al., 2008). On the other hand, the experts consulted for this study mentioned that since many small firms previously were poorly informatized, they have little historical burden during the adoption process, making system adoption much simpler than at large firms. These small firms invariably embark on a full-scale upgrading campaign when they decide to deploy a new system, and can often rely on consult-ing and assistance from their larger customers. In other words, the less well established a firm is in IS/ES/ERP, the less it will be locked in into its existing information infrastructure, and the more bene-ficial will be its use of ERP. Another possible issue is that while early adopters may have received some competitive advantages, late ones generally have benefited from upgraded systems and a better implementation knowledge base (Mabert et al., 2003b). As
Tarantilis et al. (2008)have pointed out, ERP systems may com-prise from parts independent from each other, which will plug and operate like Lego bricks into enterprise systems in contrast to previous closed non-modular architecture. As a result, an enter-prise will not have to acquire the whole enterenter-prise software suite, but will be able to choose each module even from different vendors and create a unique, cost-efficient and tailor-made solution. For these reasons, small firms can also be affordable and achieve excel-lent IS/ES/ERP system effectiveness, which enables them to signif-icantly enhance their SCM capabilities. As reported inMabert et al. (2003b), companies of different sizes approach ERP implementa-tions differently across a range of issues. The benefits differ by company size. Larger companies report improvements in financial measures, whereas smaller companies report better performance in manufacturing and logistics.
To sum up, the comments from the follow-up interviews and the analysis of data brought out the fact that the operational cost was reduced for those Taiwanese IT firms that adopted an ERP sys-tem, probably because of the process improvement, which in turn is a result of better information flow among all of the entities in the supply chain. Better information flow leads to cycle time reduction, since, apart from the internal functions improvements, the supply chain will be better equipped to answer customers’ real-time de-mands. Answering real-time demands in turn leads to an overall increase of productivity, and of product and delivery quality. Fur-thermore, such firms strip redundancy and duplication of materials from supply chain operations. The managerial benefits of ERP, which include better resource management and improved decision making and planning, performance improvement, partnership management, scheduling, and quality management, are (with a path coefficient of .34) the most important factors impacting the operational process of SCM. For example, they now know how many material and service suppliers to include in synchronized operations. Moreover, strategic benefits of ERP, which include building external linkages and extending the value chain, improve those firms’ ability to make important integration decisions.
7.2. The IT infrastructural and organizational benefits are not significant predictors of SCM
Another important finding is that IT infrastructural and organi-zational benefits of ERP do not directly impact SCM competencies.
The comments from the follow-up interviews suggest two possible explanations for this finding.
7.2.1. The need for flexible management and further system modifications
According to a prominent consulting company that responded to this study, Taiwanese IT firms’ internal operations were some-times excessively flexible during that time when their level of informatization was still low. While flexible management may have led to administrative complexity, it may also have enabled these firms to satisfy their customers’ varied needs. For instance, Taiwan’s Notebook PC manufacturers have had to flexibly adjust or even eliminate many relevant time-consuming management steps in order to fulfill such nearly-impossible customer de-mands as Dell’s 973 and 982 shipment policies (973 requires shipment of 97% of orders within three days; the current 982 policy requires shipment of 98% of orders within two days). It has often been necessary to flexibly schedule employee overtime in order to fill orders on time. While this flexible approach to management has certainly resolved many short-term problems in the face of growing competition and increasingly exacting de-mands, it is gradually cracking under the burden it must withstand.
As reported inBennett and Smith (2004), although over 95% of SMEs use external advice, some owners strongly believe they know their business very well. This makes them very skeptical about new advice from external sources. Because the integrative design of ERP systems increases the complexity involved in source code modifi-cations, however, most companies significantly underestimate the effort required for modifications. Modifications not only lead to increased costs and implementation times; they also make fur-ther upgrades of the system difficult (Mabert et al., 2003a,b).
This study’s analysis of IT infrastructure and organizational per-formance makes it clear that these two benefits of ERP do not have positive impacts on corporate SCM competencies, and some items may even have a negative effect on SCM. While this finding is somewhat at odds with the results presented in the literature re-view, it is not surprising. As some studies in the literature have noted, organizational collaboration and information sharing, in turn, are expected to improve organizational performance. The complexity of organizational collaboration and investing in infor-mation technologies may facilitate it (Sanders, 2007). Insufficient managerial capabilities, strategic change and complexity, and excessively flexible operating control procedures may, however, cause management complexity and wasted time at SMEs (Bennett and Smith, 2004; Riemenschneider et al., 2003). In addition, the initial confusion that ensues after a new system’s adoption may temporarily obscure many of the system’s benefits. The literature includes suggestions that the time factor be taken into consider-ation when assessing the effect of ERP system adoption on corpo-rate performance (Hendricks et al., 2007; Hitt et al., 2002; McAfee, 2002; Mabert et al., 2003a).
7.2.2. The impact of the Chinese market
It deserves to be mentioned that as SMEs globalize, Taiwanese SMEs unite against foreign competitors, and have made aggres-sive outbound investments in Southeast Asia and China. As the roles of Asian nations in the world economy grow, especially those of China and the other BRIC countries (Brazil, Russia and In-dia), the substantial impact of Taiwan’s SMEs on the Pacific region is increasing (Chen et al., 2008). Taiwanese IT firms also have moved most if not all of their production sites to China. Neverthe-less, as many multinational firms have noted, many systems in the newly-opened China market are either ineffective or at vari-ance with international practice. The best-known examples in-volve China’s tax procedures. Firms with plants in China that
