Professional Documents
Culture Documents
14 Strategic Erp Extension and Use
14 Strategic Erp Extension and Use
14 Strategic Erp Extension and Use
Chief Editors
Dr. F. Robert Jacobs is the E-II Faculty Fellow and Professor of Operations
Management at the Kelley School of Business, Indiana University. He has
viii Contributors
Contributors
POMS, AIS, and DSI. She regularly makes presentations at national and
international conferences and to various other professional groups.
Dr. David L. Brock is Principal Research Scientist at the MIT Auto-ID Labs
and the founding director of Brock Rogers Surgical, a manufacturer of
microrobotic devices. He has worked with a number of organizations, in-
cluding MIT’s artificial intelligence lab, Massachusetts Eye and Ear Infir-
mary, DARPA, Celadon, Loral, BBN, and Draper Labs. Dr. Brock’s in-
terests include distributed systems control, Internet control, large system
simulation, robotics, and AI. He has several publications and four pat-
ents. He has received several awards, including the Wunsch Foundation
Award for outstanding mechanical design, Tau Beta Pi, and Pi Tau Sigma.
Dr. Brock holds bachelors’ degrees in theoretical mathematics and me-
chanical engineering, as well as master’s and Ph.D. degrees from MIT.
Susan Cantrell is a research fellow at the Accenture Institute for High Per-
formance Business. Her work is focused on business innovation, human
performance, and the intersection of organizational behavior and infor-
mation systems. Ms. Cantrell has a master’s degree in management infor-
mation systems and has prior experience in the investment and education
fields. Her work has been published in publications such as Industry Stan-
dard, Across the Board, Strategy and Leadership, and Outlook.
Dr. Thomas H. Davenport is a fellow with the Accenture Institute for High
Performance Business and holds the President’s Chair in Information Tech-
nology and Management at Babson College. He is a widely published au-
thor and acclaimed speaker on the topics of information and knowledge
management, reengineering, enterprise systems, and electronic business
and markets. He has a Ph.D. from Harvard University in organizational
behavior and has taught at the Harvard Business School, the University
of Chicago, Dartmouth’s Tuck School of Business, and the University of
Texas at Austin. He has also directed research centers at Ernst & Young,
McKinsey & Company, and CSC Index. Dr. Davenport’s latest book—
coauthored with Larry Prusak—is What’s the Big Idea? (Harvard Busi-
ness School Press), which describes how organizations modify and im-
plement new management ideas to improve their performance. Prior to
this, Dr. Davenport wrote, coauthored, or edited nine other books, in-
cluding the first books on business process reengineering, knowledge
management, attention in business, and enterprise systems management.
He has written more than 100 articles for publications such as Harvard
Business Review, Sloan Management Review, California Management
Contributors xi
Review, Financial Times, and many others. Dr. Davenport has also been
a columnist for CIO, InformationWeek, and Darwin magazines.
Loretta David, MBA, CPIM, CIRM, CDP, holds an MBA in business man-
agement with a BS in mathematics and is certified in data processing
(CDP). Ms. David is currently a business consultant with SSA Global, re-
sponsible for proposing and demonstrating solution sales to installed base
clients for BPCS and various partner products. She has been a member of
APICS (American Production and Inventory Control Society) for over
20 years and has held many board positions, including president of the
APICS Atlanta Chapter from 2002 to 2004 (with almost 1,000 members)
and president of APICS Shreveport, Louisiana.
Mark Dinning is the RFID Project Leader in the Supply Chain Engineer-
ing Group at Dell Inc. He coauthored Fighting Friction, an article about
the applied use of RFID technology, which appeared as the February
2003 cover story in APICS Magazine. Mr. Dinning has a master’s of en-
gineering in supply chain management from MIT and an undergraduate
degree in business economics from UCLA. Mr. Dinning wrote his thesis
in conjunction with the MIT Auto-ID Center, the group responsible for
the development and standardization of RFID technology. Prior to Dell
Inc. and MIT, he was one of the original employees at Tickets.com.
Mr. Dinning began his career at Deloitte & Touche and is a Certified Pub-
lic Accountant.
Dr. John E. Ettlie is the Malelon L. and Richard N. Rosett Professor of Busi-
ness Administration and Director of the Technology Management Center
at the Rochester Institute of Technology. He earned his Ph.D. at North-
western University in 1975 and has held appointments since then at the
University of Illinois Chicago, De Paul University, the Industrial Tech-
nology Institute, the University of Michigan Business School, the U.S.
Business School in Prague, and Catolica University in Lisbon, Portugal.
Professor Ettlie has been the consultant to numerous corporations and
government projects, including the Saturn Corporation, Allied-Signal
Corporation, Caterpillar Tractor, Inc., PACAR Reynolds Metals, Kodak,
Delphi Corporation, and many others. He is the associate editor of sev-
xii Contributors
Dr. Dale L. Goodhue is the C. Herman and Mary Virginia Terry Chair of
Business Administration and Head of the Department of MIS at the Uni-
versity of Georgia’s Terry College of Business. He has published in Man-
agement Science, MIS Quarterly, Decision Sciences, Sloan Management
Review, and other journals. His research interests include measuring the
impact of information systems, the impact of task-technology fit on indi-
vidual performance, and the management of data and other IS infra-
structures and resources. In particular, he is currently focusing on iden-
tifying the impacts and implementation success factors of enterprise
resource planning (ERP) systems and data warehousing.
Dr. Vincent A. Mabert is the John and Esther Reese Professor and Profes-
sor of Operations Management in the Department of Operations and De-
cision Technologies at the Kelley School of Business, Indiana University.
He conducts research and consults in the areas of workforce planning,
order scheduling, enterprise resource planning systems, new product de-
velopment, and manufacturing system design. His publications include
articles in Management Science, Decision Sciences, IIE Transactions,
Journal of Operations Management, The Accounting Review, and the
Academy of Management Journal. He routinely consults with the Rand
Corporation concerning supply chain management issues for the U.S. mil-
itary. He has been active and held officer positions in a number of profes-
Contributors xv
Transactional applicationsS
(B2B/B2C e-commerce)
SCM andS
collaborative logistics
Ta b l e 1 . 1
ERP product versus process benefits
Example “product” effects Example “process” effects
issues regarding the existing functional capabilities of ERP systems and the
underutilization of these existing capabilities by firms. We also hope to il-
luminate the potential for extensions of the capabilities of these systems to
support both intra-organizational and inter-organizational resource man-
agement decisions and strategies. If accomplished, these objectives begin
to fill the knowledge gap that has served as a barrier to many managers
in cost-justifying both their prior technology investments and future
strategically focused management decisions (a gap that is currently not
filled by the existing literature).
The only real way to ensure that value is gained through resource
planning system implementations is to ensure that the process changes
associated with the implementation are followed through and that other
forms of use enabled by the technology are leveraged. The development
and retention of new competitive advantages drawn from these systems
require a steady watch for appropriate and advantageous use and an
organizational diligence that encourages novel applications of the system
in problem solving, regulation, and innovation.
In the first section of this text (ERP Rebirth and Advanced View-
points), contributing authors discuss the new frontiers of use in the ERP
realm that accompany the growing sentiment that resource planning sys-
tems can, indeed, enable strategic gains. The first chapter in this section
(Abdinnour-Helm and Lengnick-Hall) describes a major study of user
perceptions concerning the strategic value of ERP system implementa-
tions. The study suggests that the role of ERP architecture as a significant
enabler of new capabilities can be expected to support strategic gains
only if used specifically to enhance the operational priorities and funda-
mental strategic orientation of the firm. If such vision and clarity describes
6 Introduction: Realizing the Epic Dream of ERP
with common pitfalls that have ensnared misguided firms and misaligned
implementations), we stress that an image of the strategic relevance of
ERP as an enabler of novelty and agility is critical in valuing this technol-
ogy not only from a business case perspective but also from the perspec-
tive of business landscape development. With emphasis on the fact that
the strategic opportunities posed by ERP implementations are far from
past and in fact continue to be revealed as technology and management
practice evolve, we describe options and considerations essential to gar-
nering strategic value from ERP in the future.
I ERP Rebirth and Advanced Viewpoints
2 Strategy as a Critical Factor in
Applied ERP Success
firm argues that strategy should be derived from the internal assets and
value-creating capabilities of an organization.
One extension of the resource-based view that is particularly
relevant to ERP adoption decisions is knowledge-based theories of the
firm (Grant, 1991, 1996; Kogut and Zander, 1993; Liebeskind, 1996;
Nonaka, 1994; Spender, 1996). The knowledge-based view suggests that
the main source of differences in firm performance lies in the heteroge-
neous knowledge bases and diverse capabilities for putting knowledge
into action that vary from firm to firm. Thus, knowledge and the social,
human, and intellectual capital needed to transform knowledge into com-
petitive action are the most significant resources and capabilities driving
a firm’s competitive performance. Unfortunately, this realization is often
neglected during the ERP adoption process.
ERP advocates argue that enterprise systems are substantial,
competitive assets on their own because of the benefits of seamless
functional integration, coupled with the ability to enable firms to more
effectively leverage their other key resources (Davenport, 1998). How-
ever, from a resource-based perspective, the competitive utility of ERP
systems contains an inherent paradox (Lengnick-Hall, Lengnick-Hall,
and Abdinnour-Helm, 2004). On the positive side, ERP systems are valu-
able because they enable firms to accurately assess and tightly coordinate
production capabilities and to develop responsive relationships with cus-
tomers based on reliable and precise information (Dillon, 1999). More-
over, through links between ERP systems, firms can coordinate with
suppliers to manage the entire supply chain more efficiently and smoothly
(Fisher, 1997; Bendoly, Soni, and Venkataramanan, 2004). In addition,
ERP systems as implementations are largely nonsubstitutable.
Of course, ERP systems in themselves and in concept are not rare.
Industry-wide ERP adoption promotes competitive parity among major
players, and it moves an industry away from opportunities for sustained
competitive advantage (Grant, 1991). In addition, ERP systems are not
entirely inimitable, although idiosyncratic implementations and instances
of these architectures can be as inimitable as the unique operational
processes they support. Third-party vendors create ERP technologies,
making basic standardized components easy to copy or acquire. Vendors
create modules designed to capture the most significant aspects of
common industry activities and relationships. Both by definition and
Strategy as a Critical Factor in Applied ERP Success 19
design, these systems are replicated and transferred from one firm to
another.
Still, exploitation of the latent benefits of ERP systems requires a
life-altering, culture-changing experience for individuals and organiza-
tions, encompassing radical shifts in organization design and interper-
sonal relationships (Brenner and Cheese, 1999). We argue that it is these
firm-specific exploitation differences that create the greatest potential for
strategic benefits from ERP; however, these firm-specific exploitation
differences are more dependent on the social capital and culture of the
enterprise than on the information system itself. ERP advocates agree that
strategic benefits are likely to accrue only to those firms that treat ERP
implementation as a business process rather than an IT project and, there-
fore, orchestrate a culture change to capitalize on the potential benefits
that integration provides (Davenport, 1998, 2000; Markus and Tanis,
2000; Somers and Nelson, 2003; Bendoly and Kaefer, 2004). ERP
systems can enable a firm to effectively leverage resources in new and
more complicated ways. However, this potential is realized only if the
firm is able to overcome the enormous pressures of inertia that an ERP
system simultaneously creates (Lengnick-Hall et al., 2004).
When ERP systems are examined through the lens of contemporary
strategic management theories, it becomes clear that even if ERP is neces-
sary to coordinate complicated, multifaceted operations, it is far from
sufficient to guarantee a strong competitive position in shifting competitive
markets. If an ERP only rearranges tasks and changes the procedures
people use to do their work, it is unlikely to provide long-term competitive
benefits because these changes are neither rare nor inimitable. A sustained
competitive advantage requires ERP to change the way people think about
their work and their organization, to alter the type of relationships they
develop within and across organizational boundaries, and to redesign the
ways they use the information that integrated information systems provide
(Lengnick-Hall et al., 2004). Fortunately, an ERP implementation has the
potential to promote deep changes in relationships, culture, and individ-
ual behaviors. Social capital and intellectual capital can be crucial sources
of advantage in a knowledge economy (Nahapiet and Ghoshal, 1998;
Adler and Kwon, 2002). An ERP can be a multidimensional platform for
developing both social capital and intellectual capital if complementary
capabilities and assets accompany ERP adoption.
20 ERP Rebirth and Advanced Viewpoints
The above metrics measure the recipe for success in the chartering
phase, as proposed by Markus and Tanis (2000). The authors write that
in this phase, success occurs when “the organization is well prepared to
accept and use the system and related infrastructure of sufficient quality
to meet business needs” (Markus and Tanis, 2000, p. 29). Metrics 1 and
2 refer to acceptance of the system, in terms of employee buy-in that a
switch to the ERP system was essential and worthwhile. Metric 3 refers
to usage of the system, which has been a common metric of success in
information system research (see Venkatesh et al. [2003] for a recent
review of the literature).
The subsections that follow describe each metric and the results by
position, tenure, and organizational affiliation at the company (metrics 1
and 2) and by highest and lowest expected usage (metric 3).
Pre-Go-Live Results
Pre–Go Live
200
Frequency 150
100
50
0
1 2 3 4 5 6 7
More trouble than worth Essential
Post–Go Live
200
150
Frequency
100
50
0
1 2 3 4 5 6 7
More trouble than worth Essential
Post-Go-Live Results
Pre-Go-Live Results
Pre–Go Live
250
Frequency 200
150
100
50
0
1 2 3 4 5 6 7
Low High
Post–Go Live
250
200
Frequency
150
100
50
0
1 2 3 4 5 6 7
Low High
44% felt that there was a low likelihood that the benefits
would exceed the costs.
• Of the respondents who had been employed by the company for
16 or more years, 22% felt that there was a high likelihood that
the benefits would exceed the costs, whereas 46% felt that there
was a low likelihood that the benefits would exceed the costs.
Post-Go-Live-Results
Pre-Go-Live Results
Post-Go-Live Results
0 10 20 30 40 50 60 70 80 90 100
Percent
0 10 20 30 40 50 60 70 80 90 100
Percent
support and thus engender strategic benefit indirectly. Second, the long-
term competitive value from ERP comes from its ability to generate
knowledge that a firm can act on to change its business practices, intro-
duce innovation, and build social and intellectual capital. Unless these
uses of ERP are highlighted and integrated into the selection of a system
and its implementation process at the adoption stage, they will most likely
be lost during subsequent stages of implementation. Third, without an
accompanying investment in behavioral and culture change, ERP tends to
augment the more rigid aspects of organizational activity (planning and
control) and inhibit the more flexible aspects of organizational activity
(learning and innovation). These trends are likely to create barriers to
competitive advantage in the fluid knowledge economy.
3 The “New” Users: SMEs and
the Mittelstand Experience
Ta b l e 3 . 1
Characteristics of the case study companies
Size Revenue
Company Industry type (# employees) (million €)
Ta b l e 3 . 2
Shop and product characteristics
Flow of materials Number
Products Number
Made-to-order 10/18
Made-to-stock 2/18
Mixed 6/18
The primary objective of the case studies was to obtain reliable and detailed
information on the current status of ERP practice and implementations in
the manufacturing SMEs.
medium enterprises. The two exceptions and the ones most relevant to the
current study are by Van Everdigen, Van Hillegersberg, and Warts (2000)
and Mabert, Soni, and Venkataramanan (2003). Van Everdigen et al.
surveyed 2,647 European companies to determine the adoption and
penetration of ERP by functionality. This study provides a reference point
on the status of enterprise systems in European SMEs in 1999, the year of
their survey. Mabert et al. looked at the ERP implementation practices
of manufacturing companies across a range of different-sized companies.
Thus, their results not only provide key insights into the implementation
and use of ERP systems in the manufacturing sector but also analyze
the impact of company size on ERP implementations. They found that
smaller companies differ significantly from large companies on a number
of dimensions. The Mabert et al. survey was undertaken in 2000 and pro-
vided the following observations:
1. Adoption of ERP systems by large companies is motivated
more by strategic needs, whereas tactical considerations carry
greater importance for smaller companies. Companies im-
plement ERP systems for many different reasons. These reasons
include gaining a strategic advantage, acquiring a simplified
information systems infrastructure, standardizing processes,
improving customer and supplier interactions, linking global
operations, and solving the Y2K problem. For larger compa-
nies, the top three reasons for adopting ERP systems were gain-
ing a strategic advantage, simplifying and standardizing pro-
cesses, and replacing legacy systems. Over 90% of the large
firms cited these three reasons for choosing ERP systems. For
smaller firms, the top three reasons were replacing legacy sys-
tems, simplifying and standardizing processes, and improving
interactions with suppliers and customers. There were clear
and distinct differences between the priorities of the large and
small firms.
2. Large companies use an incremental implementation
approach by phasing in the systems, while smaller companies
adopt more radical implementation approaches, such as
implementing the entire system or several major modules at
the same time. The strategies used for implementation are one
44 ERP Rebirth and Advanced Viewpoints
Ta b l e 3 . 3
Motivational factors
Motivational factor Number
Ta b l e 3 . 4
Enterprise systems characteristics by company
Single or Major ERP Standard system
multiple package or versus customized Implementation
Company systems niche provider system approach
Ta b l e 3 . 5
Configuration and implementation of systems
Configuration of ERP systems Number
SMEs, Van Everdigen et al. found that 30% of the ERP systems imple-
mented came from “smaller” or “niche” vendors, and over half of the
companies preferred their in-house developed, tailor-made information
systems to the package ERP systems. The case studies conducted for this
project seem to show that companies looking for a good fit with their
business practices in 2004 are more likely to adopt a large-scale ERP
system.
Another area that appears to have changed over the last few years
involves the strategies used for the implementation of enterprise systems.
These strategies are one of the most important factors in assessing the
impact of an ERP system on an organization. Strategies can range from a
single go-live date for all modules (big bang) or for a subset of modules
(mini big bang) to phasing in by module or site. While the big-bang
approach usually results in the shortest implementation time, it is also the
riskiest approach because it can threaten the entire stability of a company
in case of any problems. The decision of which strategy to deploy depends
on a range of issues, including complexities of geographical reach and
the complexity of processes and operations. Our work shows that 61% of
the Mittelstand SMEs implemented their ERP system using one of the
phased-in approaches, while 28% used a big-bang approach. This is
almost the reverse of the SMEs in the United States in 2000, whereas
Mabert et al. reported that over 72% of the SMEs used one of the two
big-bang approaches. Here again, the implementation strategies appear
to have changed over the period from 2000 to 2004.
SMEs also seem to have changed when it comes to customization
of the systems. Because of the integrative architecture of ERP systems,
customization can be prohibitively expensive. Mabert et al. determined
that the degree of customization varies significantly depending on the size
of the company. Larger companies customize more, with over 50% of
them making either significant or major modifications. On the other
hand, most small companies in the United States made only minor
modifications, but the case studies show that 28% of the Mittelstand
companies made major modifications to their system.
Another key difference among companies is the configuration of
the ERP systems implemented. In 2000, approximately 56% of small
companies in the United States used a single ERP package, while only
28% of the large companies used this approach. One clear distinction
The “New” Users: SMEs and the Mittelstand Experience 49
ERP Promise
O’Leary is not the only one to sing the praises of ERP. When one
talks to ERP software providers, reads various promotional brochures, or
visits either vendor or other commercial ERP Websites, one gains the
impression that ERP systems are the “Holy Grail” of information systems
for enterprises. Some of the claims include the abilities to link the entire
organization together seamlessly, improve productivity, provide instanta-
neous information, etc. However, there is another side to this story.
Improving Functionality
Transactional applicationsS
(B2B/B2C e-commerce)
ENTERPRISE.
DW DOMAIN DM
SEM APS
SCM andS
collaborative logistics
Third parties
Recent Experience
While ERP systems can vary from one vendor to another, they
tend to have the following basic features or modules:
– Finance. This module tracks financial information such as
revenue and cost data through various areas within the
company.
– Logistics. This module is often broken into several submodules
that cover different logistics functions, such as transportation,
inventory management, and warehouse management.
– Manufacturing. This module tracks the flow of products
through the manufacturing process, coordinating what is done
to what part at what time.
– Order fulfillment. This module monitors the entire order ful-
fillment cycle, keeping track of the progress the company
has made in satisfying demand.
– Human resources. This module handles all sorts of human
resources tasks, such as scheduling workers.
– Supplier management. This module monitors supplier per-
formance and tracks the delivery of suppliers’ products.
the 187 useful responses, a 9.3% return rate, are the basis for the
observations discussed below. Respondents were not asked to provide
company-identifying information, and postage-paid return envelopes
were provided to maintain confidentiality.
Ta b l e 4 . 1
Respondent information
Current position Percentage Employment Percentage
Ta b l e 4 . 2
ERP users versus nonusers
With ERP system Without ERP system
than those who had not implemented ERP. Also, 82% of the firms that
already used ERP have more than 1,000 employees. These firms are on
leading edge in building and employing best-of-breed systems because
they have the financial and technical resources necessary to attempt this
complex task.
Business pain Cost of quality Unreliable order Cost of customer Slow growth margin Nonpreferred supplier
fulfillment service erosion
Driving goal Quality and cost Customer service Profitable customer Profitable growth Market leadership
responsiveness
Metric Predictable cost On-time, complete Total delivered cost Share of customer New worth
and rates delivery
Key planning Spreadsheets Point tools Enterprise supply Point-of-sale supply Synchronized supply
tools chain planning chain planning chain planning
Key execution MRP and other MRP II ERP Customer management Network-centric
tools homegrown systems commerce
applications
Enterprise Applications: Building Best-of-Breed Systems 65
Ta b l e 4 . 4
Current bolt-on system usage ranked by percent of users
Percent of Product Sales
Current bolt-on software users improvement increase
emphasizing systems that optimize the use of their current resources. The
bottom six bolt-ons (in terms of the percentage of adopters) could all be
characterized as systems that tend to be more external than the ones
higher on the list. This suggests that firms want to have their internal
systems in order before expending extensive effort on external facing
systems.
To estimate the impact of bolt-on systems’ on performance, data
were collected on productivity improvements as a result of bolt-ons and
on change in revenue over the last two years. In terms of productivity
increases, the following five-point scale: 1 (decreased), 2 (no change),
3 (increased 1% to 5%), 4 (increased 6% to 10%), and 5 (increase more
than 10%). Using the provided responses, the average productivity for
the adopters of each bolt-on is shown in Table 4.3. This average gives an
indication of the amount of productivity improvement as a result of a
particular bolt-on. However, the results are also influenced by the fact
that these firms may be using other bolt-ons as well. If one ranks the bolt-
ons based on the average productivity improvement, only two have an
average of 4 or above: warehouse management systems and call center
management systems. These bolt-ons gave an average improvement of
6% or greater. The top three adopted bolt-ons in Table 4.4 are, at best,
ranked seventh in terms of productivity improvement. This indicates that
these bolt-ons are probably the most mature and have much wider use in
manufacturing firms. Given that there is a high percentage of adopters of
these applications, there are likely to be some firms in the group that are
not leading-edge users. These firms may have adopted the most popular
applications, but they have not gained the same amount of benefit as
leading competitors.
When looking at the change in revenue over that last two years,
again a five-point scale was used with the following descriptors: 1 (large
decrease), 2 (moderate decrease), 3 (little change), 4 (moderate increase),
and 5 (large increase). These results are shown in the fourth column of
Table 4.4. The top two bolt-ons for companies with the highest average
sales increases were call center management systems and supply network
planner systems. Both of these systems are clearly externally focused,
which explains their impact on increasing revenue. Customer relationship
management systems are third, based on the average sales increases.
These applications are also designed to improve customer information
Enterprise Applications: Building Best-of-Breed Systems 67
and should have a positive impact on sales. Therefore, these results indi-
cate that many of the bolt-ons with external focus are in fact providing
the impact they are intended to provide.
Looking at bolt-ons in the top half on each performance measure,
there are only three that appear in both lists: Call center management
systems, warehouse management systems, and demand forecasting and
planning systems. All of these bolt-ons involve some component of a
customer interface. Call centers take customer calls, answer questions, or
place orders. Promptly and accurately handling these issues ensures that
resource use is driven by customer desires, which helps improve produc-
tivity. These types of systems also mean the difference between a satis-
fied customer who generates repeat sales and a disgruntled customer who
takes his or her business elsewhere. The warehouse management system
performs a similar function in making sure that the right products are at
the right warehouse at the right time to satisfy customer requirements.
Knowing a product’s location in the distribution system improves pro-
ductivity by reducing wasted effort and the inventory required to main-
tain the same level of customer service. The last bolt-on that is in the top
half of both lists is demand forecasting and planning. These systems make
sure that the right items are in the demand plan for production and dis-
tribution. Accurate demand planning improves both customer service and
productivity. These systems also have an external component because
they frequently use direct input from the customer in terms of demand
information. Firms who are using these types of bolt-ons may already be
transitioning from an integrated enterprise in Stage III of the supply chain
compass to a Stage IV firm that has an extended supply chain. This tran-
sition raises the question of where firms will focus their future efforts in
building their best-of-breed systems.
When looking at these performance measures, one can surmise
that firms with the highest productivity or the highest sales growth be
firms that have created a best-of-breed system. Table 4.5 shows bolt-ons
that are being used by 50% or more of the firms with productivity
increases of 10% or above. The six bolt-ons that would comprise these
best-of-breed systems are all internally focused with the possible excep-
tions of two, demand forecasting and planning systems (discussed earlier)
and warehouse management systems that are tied to customers through the
distribution system. These firms appear to be clearly focused on Stage III of
68 ERP Rebirth and Advanced Viewpoints
Ta b l e 4 . 5
Best of breed based on productivity
Percent of most
Current bolt-on software productive
Ta b l e 4 . 6
Best of breed based on sales
Percent of best sales
Current bolt-on software increase
the supply chain compass, using all of these bolt-ons to create a tightly
integrated and successful enterprise. Thirty-one firms fell into the highest
category for productivity improvement, and all of these firms were using at
least one bolt-on, with 23 of those 31 firms using five or more bolt-ons to
their ERP system. We can conclude that those firms are selecting and ap-
plying multiple bolt-ons to build their best-of-breed system.
The set of bolt-ons being used by about 50% of the firms that
were in the top sales growth category are given in Table 4.6. The top
three are the same as those in the list based on productivity with one
important difference: demand forecasting and planning was the highest
on the list. This particular bolt-on is the most externally oriented of
the top three, heavily oriented to using customer input in determining
the demand plan. A fourth bolt-on that appears on both lists was the
warehouse management system. The other three in the top seven are
customer oriented: call center management systems and customer rela-
tionship management systems are clearly focused on the customer, and
quality systems that are designed correctly use information from custom-
Enterprise Applications: Building Best-of-Breed Systems 69
ers as part of the improvement process. It appears that firms may want
to use a different set of bolt-ons depending on whether they want to im-
prove productivity or improve sales. Firms with the highest sales increases
all use at least one bolt-on, and 8 out of the 11 use five or more bolt-ons.
This result shows that whether you are interested in increased sales or
increased productivity, selecting several bolt-ons to enhance your infor-
mation system is one path to success. The only bolt-on not used by one of
the firms with the highest sales increases was the e-procurement system.
Obviously, using the four bolt-ons that appear on both lists would be a
good starting point for building a best-of-breed system to enhance enter-
prise performance.
Where are enterprises heading? Table 4.7 shows the bolt-ons that
respondents say they are going to install in the future. When looking at
future best-of-breed system plans, one sees a general change from an
internal to an external focus. The top future bolt-on (factory planning
and scheduling systems) is one of the top three currently being used. It is
a critical foundation bolt-on that is still internally focused and that is
helping to fine-tune the production process by improving execution on
the shop floor. This package can be customer driven because it involves
Ta b l e 4 . 7
Future plans for bolt-on systems ranked by percent
Future bolt-on software Percent of users
making sure that individual orders are completed as promised. The con-
founding factor about whether this system has an external focus depends
on where the decoupling point for customer orders is located for firms
using these systems. If the decoupling point is at the finished goods stage,
then the firm is in a make-to-stock situation and the linkage to specific
customer orders is not as strong. However, a company that decouples the
orders further upstream in their process has a much tighter linkage with
customers and is focusing on a more responsive approach to customer
requirements.
The more intriguing result is the ranking of the next two bolt-ons
that are in these firms’ future plans: customer relationship management
(CRM) and e-procurement systems. The purpose of these two bolt-ons is
to provide better linkages to the extended supply chain. CRM improves
the linkages to customers and enhances communication on the down-
stream side of a firm’s supply chain. E-procurement systems provide
linkages to suppliers and strengthen communication on the upstream side
of the supply chain. It appears that these firms are attempting to create an
extended supply chain by obtaining better information on both the up-
stream and downstream supply chains. Based on the supply chain com-
pass, this is the next evolutionary step in moving from an integrated en-
terprise to an extended supply chain.
This chapter illustrates that firms that have already adopted ERP
systems are trying to get more functionality by adding bolt-ons to create
a best-of-breed system. The firms that are the top performers are the ones
that have selected the appropriate five or more bolt-ons to enhance their
productivity and sales. The data suggest that firms in the future will
implement best-of-breed systems that are more externally oriented. These
enterprise application systems will allow firms to have an extended supply
chain and eventually lead to value chain resource planning, as discussed
by Bendoly et al. (2004).
5 Getting More Results from Enterprise Systems
SUSAN C ANTRELL
Research Approach
Improved customerS
32
service and retentionS
Ease of expansion /S
growth and increased flexibilityS 32
Headcount reductionS 26
Improved inventoryS
and asset managementS 22
Increased revenue 12
0 10 20 30 40 50 60
Percent of organizations naming the benefitS
as a first, second, or third priority to be achieved
Ease of expansion /S
growth and increased flexibilityS 55
Improved customerS
47
service and retentionS
Headcount reductionS 40
Increased revenue 36
0 20 40 60 80
Percent
first there. These are certainly useful benefits, but they are also undeniably
difficult to translate into financial returns. The most difficult (and financially
rewarding) change objectives—such as headcount reduction and increased
revenues—were at the bottom of the list. Firms might have achieved more
value if they had worked harder on more measurable and financially
quantifiable targets. Again, however, a comparison of Figures 5.2 and 5.3
indicates that firms often received benefit in areas where they did not
target it.
All of these benefits took time to be achieved (Figure 5.3). As we
have noted, faster transactions and financial management benefits were
among the first to be delivered, with a majority of companies reporting
benefit in only one year. Only about 20% of the companies we surveyed,
however, were able to achieve increased revenues or lower headcounts
Getting More Results from Enterprise Systems 75
within a year. Over 60% of surveyed firms had achieved some benefit in
these categories four years after implementation.
As a result of this time lag, we have concluded that time itself is a
critical prerequisite for extracting value from enterprise systems. We and
other prognosticators argued that firms should attempt to change their
businesses and extract value as during implementation, but this appar-
ently proved too difficult. Instead, most organizations installed ES with
little change to their businesses and gradually found value as they became
familiar with their systems.
What exactly takes so long? Our interviews suggested that three
factors were implicated:
• Critical mass. Before an organization can use an ES to better
integrate across processes and units, it has to have a critical
mass of functionality installed. That takes a while for many
companies, who put in the systems one module or business unit
at a time. As one consumer goods CIO put it, “The biggest
factor that contributed to benefit realization was getting critical
mass, which leads to tight integration of business processes and
real-time access to information globally.”
• Infrastructure projects come first, and add less value. The
earliest aspects of an ES implementation are back-office and
transaction-oriented components, but they are necessary to
provide a foundation for later front-office functions such as
CRM and supply chain optimization. A chemical company
CIO (in the eighth year of ES implementation) noted, “The
emphasis this year will be on leveraging value from our appli-
cations. Benefits are greater in the follow-up projects than in
getting the core infrastructure in place. We’re just now starting
to figure out what they are.”
• Getting to know the data. A big part of value derives from using
ES data, and it apparently takes time to learn how to use it. As
another consumer products executive described, “One challenge
has been going from a lot of transactional data to good business
information. Slowly but surely, people are doing their jobs in
different ways. About six months after implementation, people
start to understand what they can do with the data.”
76 ERP Rebirth and Advanced Viewpoints
Integrate
as Dow Chemical and Eastman Chemical are also experimenting with the
use of emerging integration technologies like Web services.
Optimize
Informate
100
90
Percentage of organizations thatS
80
have achieved the benefit
70
60
50
40
30
20
10
0
Within 1 1–2 2– 4 More than 4
Time to achieve benefit (years)
80
70
60
50
Percent
40
30
20
10
0
Within 1 1–2 2– 4 More than 4
Time to benefit since implementation (years)
Actively track metrics for the majority or all of expected benefits, and S
processes and incentives have changed to supportS
Actively track metrics for a few key benefits post-implementationS
Do not actively seek to measure and capture benefits
70
60
50
Percent
40
30
20
10
0
Within 1 1–2 2– 4 More than 4 orS
never achieved
Time to benefit since implementation (years)
FIGURE 5.6 Firms That Put Someone in Charge of Benefits Achieve Them Faster
84 ERP Rebirth and Advanced Viewpoints
and processes should make it far easier to integrate knowledge across the
firm, which should allow organizations to better sense opportunities and
problems. Examples include discovering changes in customer demand
patterns, ascertaining worldwide purchase volumes, and so on.
On the other hand, it is less clear that enterprise computing
systems will facilitate response agility. The following quote from a case
study participant typifies the view of a significant number of managers:
“In a way, we are slaves to the system, and we have accepted the techno-
logical imperative that that implies. We cannot improvise on process
because such innovations will ripple through the company and cause
problems for someone else” (Ross and Vitale, 2000). Existing ERP
research suggests some means by which enterprise computing has this
type of effect. Response agility may entail changing the ERP configuration
(i.e., a change to a configuration table). Although built-in configuration
capabilities allow some changes to an organization’s processes, the vari-
ety of process configurations supported by any single enterprise package
is limited. Thus, firms sometimes find desired functionality lacking (Soh,
Kien, and Tay-Yap, 2000; Sommers and Nelson, 2003).
Second, because ERP processes and modules are tightly interlinked
with one another, any reconfiguration may be prohibitively resource
intensive (Akkermans et al., 2003), in part because each configuration
change runs the risk of unintended consequences that must be evaluated
in advance to the extent possible (Bingi, Sharma, and Godla, 1999;
Brown, 1998). Of course, any change that requires customization is still
riskier and probably costlier. More generally, the increasing complexity
of large-scale technologies, such as enterprise computing, creates knowl-
edge barriers to organizations trying to leverage potential technology-
driven benefits (Boudreau and Robey, 2001; Robey, Ross, and Boudreau,
2002). Finally, because ERP typically increases the standardization and
centralization of processes and data, it may diminish the options available
to local personnel for responding to local challenges and opportunities
(Gattiker and Goodhue, 2004; Jacobs and Whybark, 2000).
Based on these notions, we suggest the following ingoing propo-
sition:
– Enterprise systems should be excellent in support of sensing
agility but more problematic in support of responding agility.
90 Value Extensions Beyond the Enterprise
Enterprise Computing
Lead Management
Ta b l e 6 . 1
Mechanisms by which ERP supports agility
Built-in flexibility The extent to which information systems are designed
to allow companies to quickly and easily change
their business processes without having to rewrite
program code
agility (along with sensing agility) quite extensively. Lead passing among
sales channels and using data from the opportunity management system
in production scheduling are two excellent examples. Beyond this partic-
ular case, the findings from six additional companies we have studied
confirm this notion. To date we have observed a total of 28 instances of
ERP facilitated agility; of these, 19 were examples of responding agility.
In the beginning of this chapter, we also suggested that if enterprise
computing does affect agility, we would want to know the mechanisms by
which it has this impact. Based on interviews with the company described
in this case and on our other case studies, we see evidence of at least five
different mechanisms through which enterprise systems provided agility.
These are summarized in Table 6.1.
The first of these mechanisms, not too surprisingly, is the flexibility
built into the ERP system. Actions such as moving or reassigning employees
or restructuring organizations seem to have been well anticipated by the
designers of ERP systems, and there are simple processes designed to accom-
plish these changes by reconfiguring the system. Such changes have been the-
oretically suggested in recent ERP research (Bendoly and Kaefer, 2004).
Agility Through Standardization: A CRM/ERP Application 95
existing system, its architecture, and its processes quite well. This means
they can rapidly move to implementation, rather than spending months
coming to understand the existing nonstandard legacy systems.
Recognition of these five mechanisms has a number of implications
for managers and researchers. ERP systems are often seen as a homoge-
nizing force— diminishing a company’s ability to differentiate itself (via
its business processes) from its competitors. There are a number of well-
publicized examples of organizations’ eschewing broadly deployed pack-
ages, such as SAP, because these companies want to avoid using so-called
generic ERP-driven processes. Somewhat paradoxically, the fourth and
fifth mechanisms in Table 6.1 suggest that there are strategic benefits to
adopting the more widely deployed packages. The breadth of the con-
sultant knowledge base and variety of “bolt-on” software available both
increase with the market share of core ERP package. Thus the logic of net-
work externalities would apply: the more companies that have chosen a
particular solution, the more benefits accrue to each of them.
Summary
Whang (1997) label this phenomenon as the “bullwhip” effect and suggest
remedies such as sharing point-of-sales data with suppliers and the opera-
tional alignment of channel member activities. In the 1990s, the coemergence
of advanced information technologies and supply chain management
philosophies led to numerous industry successes based on the benefits of in-
formation sharing and collaboration among channel members. Well-known
examples include Wal-Mart’s retail link program, efficient consumer re-
sponse in the grocery industry, quick response systems in the apparel indus-
try, Dell’s direct sell and value chain models, and vendor-managed inventory
programs.
Sahin and Robinson (2002) surveyed the vast and growing litera-
ture on supply chain integration and proposed information sharing and
decision-making coordination (problem scope) as the two primary drivers
of supply chain cost performance. Their review of over 100 research stud-
ies found that operational improvements associated with enhanced infor-
mation sharing and coordination ranged from 0% to 35% of total rele-
vant costs, depending on the supply chain environment. While these
research efforts are encouraging, they only address make-to-stock supply
chains in which each channel member applies statistical inventory control
procedures to plan inventory that is held in anticipation of demand. In
spite of their importance in industry, not a single study investigates the ap-
plication of extended ERP systems to improve channel integration in
make-to-order systems, in which all supply chain activities are performed
in direct response to a customer’s order, utilizing requirements planning-
based procedures.
While the basic functionality for managing procurement and fulfill-
ment processes exists in current ERP software, our research findings indi-
cate that the prospective capabilities of ERP systems to integrate intra- and
inter-organizational replenishment activities, and thereby lower operating
costs, are underutilized in industry. We feel that this is in large part due to
an incomplete understanding of the alternative strategies for replenish-
ment integration, the potential economic benefit, and a clear implementa-
tion path. We draw conclusions about enhanced ERP replenishment sys-
tems from the authors’ research, addressing the value of information
sharing and coordination in make-to-order supply chains. The research,
based on the authors’ observations and experiences with several Fortune
500 companies in the construction equipment, building materials, and
ERP-Driven Replenishment Strategies in Make-to-Order Settings 99
Vendor’s LTS
Slack timeS S Tower fabricationS
18 days 2 days 10 days
Main frame
Final assemblyS
23 days
Power pack
Order time-fence 53
the order time-fence, its configuration, quantity, and due date are locked
into the production schedule and subject to change only in emergencies.
This provides a stable FAS schedule for planning. A master production
schedule (MPS) coordinates module fabrication with assembly operations
and drives material requirements planning (MRP).
Figure 7.1 shows the lead-time relationships among the order
time-fence, the longest cumulative lead time in the BOM, final assembly,
module production, and procurement operations for an illustrative drilling
rig from a construction equipment supply chain. The 53-day order time-
fence corresponds to the longest cumulative procurement and final assem-
bly lead-time path of a noninventoried component. The total lead time for
drilling tower fabrication and final assembly is 33 days, providing a 20-day
planning horizon from the time when the end item crosses the order time-
fence until the manufacturer must order and receive the components for
the tower fabrication.
Table 7.1 illustrates the manufacturer’s MRP record for one of the
many metal components that are used in the tower fabrication. Due to the
schedule stability provided by the order time-fence, all gross requirements
for the component are deterministic over the 20-day planning horizon.
However, the timing and quantity of the planned orders, particularly in the
later time periods, may oscillate during successive MRP record processing
cycles as new orders are entered into the FAS and the MRP schedule is re-
optimized. Standard practice for controlling this MRP nervousness and
Ta b l e 7 . 1
MRP tableau for a component with a 12-period frozen time-fence
Time 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Gross
requirements 2 6 16 22 4 4 12 8 16 4 6 16 4 4 10 12 8 10 6 16
Scheduled
receipt 6
Ending
inventory 0 0 0 8 4 0 8 0 10 6 0 8 4 0 12 0 16 6 0 0
Planned order
receipt 16 30 20 26 24 22 24 16
Planned order
release 16 30 20 26 24 22 24 16
Frozen orders Slushy orders
102 Value Extensions Beyond the Enterprise
Ta b l e 7 . 2
ERP enhanced replenishment strategies
decision maker’s planning problem
50
45
40
35
30
Percent
25
20
15
10
0
None AOC Full
Information sharing
Problem scope
Functional Intra-organizational Inter-organizational
Variations in Form
H
Technology intensity
H
ex S
pl am
ity
m gr
co Pro
L
L
L H
Collaborative intensity
VMI commonly uses EDI, but is not synonymous with EDI. EDI
stands for “electronic data interchange” and involves the use of standard-
ized electronic formats for B2B transactions such as order placement, order
confirmation, and invoicing. By the early 1990s, many Fortune 500 firms
had implemented custom software applications to transmit high volumes of
orders and other documents electronically using EDI standards developed
by industry groups or powerful buyers such as automobile manufacturers or
large retailers like Kmart and Wal-Mart. VMI programs, due to their high
level of transactions, also commonly use EDI standards for information
exchange. However, VMI transactions can be communicated via document
attachments to e-mail systems, Web-based forms (with or without XML),
112 Value Extensions Beyond the Enterprise
all the players in that supply chain. Multiparty collaboration based on this
data can lead to effective global decision making and optimization of the
extended supply chain rather than simple optimization of a given supplier-
customer partnership in the supply chain. CFPR clearly involves a more
complex set of players, but the individual supplier-customer partnership
dyads in VMI are often deeper and stronger than links between two part-
ners in a CFPR (multiparty) program.
The Company
PARTNER IDENTIFICATIONS
(via business model)
No
VIABLE PARTNER? EXITS
Yes
MARKETING PRESENTATION S
TO POTENTIAL CUSTOMER
No
PARTNER SHOWS INTEREST? EXITS
Yes
DATA COLLECTION, ANALYSIS S
AND DETAILED PROPOSAL
No
PARTNER APPROVES PROPOSAL? EXITS
Yes
PILOT PROJECT
Yes
FULL-SCALE VMI PROGRAM IMPLEMENTATIONS
‘‘GO-LIVE’’S
(regular daily transactions for all SKUs)
determine specific potential benefits for the customer. The customer’s last
24-month consumption history and sales activity data are analyzed in con-
junction with customer inventory data, growth forecasts, and seasonality
effects so that NIBCO can develop a VMI proposal. Based on the cus-
tomer’s own critical business metrics (e.g., inventory turns and gross mar-
gin return on inventory investment), improvement projections are made
and presented to the customer.
If there is customer buy-in, NIBCO and the customer then discuss
and finalize execution details, including which SKUs will be affected; in-
ventory maximums, minimums, and reorder point levels; the frequency of
the replenishment cycle (weekly, biweekly, or monthly); the number of
customer locations; and the improvement metrics to be tracked. These in-
ventory policy decisions can differ for each SKU. Although NIBCO may
sell thousands of SKUs to a given customer, its preference is to manage
only the high-volume items via VMI and to replenish low-volume items
through traditional means instead. Essentially, a Pareto analysis is con-
ducted to trade off transactional volume complexity with “bang for the
buck” in terms of which SKUs are best served by a VMI plan (often 300
to 600 SKUs).
The partners agree to a long-term, stable-rate pricing plan and a
single-source relationship for the SKUs of interest. Single sourcing is es-
sential to NIBCO to ensure data completeness and validity in terms of
product usage rates, on-hand levels, and inventory level projections. Cus-
tomers do typically identify a second source, but only as a contingency for
emergency situations.
NIBCO and its customers rigorously collect and assess VMI part-
nership performance data. For NIBCO and its customers, the actual bene-
fits in terms of the overall VMI program and individual partnerships have
been quite compelling. The proposed improvement levels for all VMI cus-
tomers have been realized or exceeded. Relative to pre-VMI benchmarks,
the customers have approximately doubled their inventory turns and re-
duced their inventory dollar value by one-third to one-half. These results
are in line with customer benefits reported for VMI programs by other
companies (IOMA Group, 2003). All in all, NIBCO’s VMI customers have
seen notable benefits.
NIBCO’s VMI team has honed its organizational processes and
information systems so that a new VMI partnership can be established
within a period as soon as two to three weeks after customer buy-in is
achieved. This relatively short time frame for fully implementing a VMI
partnership is due to NIBCO’s competency in VMI program management
and partnership execution.
NIBCO was the first company in its industry to leverage its ERP in-
frastructure to offer VMI. Four years later, some of NIBCO’s competitors
tried to implement a comprehensive VMI program but did not succeed. Al-
though VMI customers represent a small percentage of NIBCO’s total cus-
tomer base, they provide a large percentage of its sales. Overall, NIBCO is
a stronger company with closer relationships to key customers as a result
of its VMI program.
120 Value Extensions Beyond the Enterprise
Partnership-Level Measures
The customer benefits as well from effects similar to the first two
benefits listed in (1) and (2) above. From the customer’s perspective, it is
not volatility of demand that is reduced, but rather a reduction in supply
uncertainty. Inventory savings and inventory turns increases are likely to
be more pronounced for customers than for suppliers. The customer
gains administrative efficiencies by reducing procurement personnel,
overhead, and errors. In addition, the customer, through its own greater
product availability, provides increased service levels (higher fill rates)
and other differentiating aspects to its own customers, in turn leading to
some of the beneficial effects listed in the last bullet above.
Early benefits are, in part, dependent on the customer’s initial in-
ventory condition. The timing of benefits for some customers is slower as
excess inventories (typically hedging or “just-in-case” inventories) ac-
quired pre-VMI are worked off. There is a large, but one-time, inventory
level reduction. During this time, the supplier typically faces reduced sales
(similarly a one-time event).
A recent study found that VMI suppliers enjoyed an average in-
ventory reduction of 35% and an average inventory turns increase of
53%. Companies also reported faster replenishment lead times, increased
fill rates, and increased sales (Asgekar and Suleski, 2003).
122 Value Extensions Beyond the Enterprise
There are also benefits at the program level (that is, the supplier
firm’s overall portfolio of VMI partnerships). For example, the supplier
gains deeper insight into its customers’ actual needs, particularly through
visibility into actual customer consumption levels. This makes it possible
for the supplier to consider and prioritize the needs of all VMI partners.
The supplier can make priority allocation decisions rather than treating
all customer orders as equally important. This approach optimizes the
supplier’s asset utilization and increases customer service.
Admittedly, it is difficult to parse out benefits that accrue solely due
to the VMI aspects of the partnership (that is, vendor decision making re-
garding the timing and quantity of replenishment) because there are com-
mingled factors in many VMI programs. These factors would themselves
alone logically lead to some benefits. Such factors include electronic com-
munication methods (e.g., increased speed and decreased transaction costs
due to EDI and EFT), the “demand-pull” philosophy of inventory replen-
ishment (versus the traditional “forecast push” approach, which tends to
lead to higher inventory levels), and strategic partnership aspects (includ-
ing long-term, stable-price contracts and sole-sourcing relationships).
Other measures could be listed as well because different industry
contexts call for different objectives. For example, noncommodity and re-
tail VMI situations have some benefits that are distinct from those in com-
modity situations. In the case of noncommodity products, part innova-
tion by the supplier and joint product innovation between supplier and
customer are benefits that could arise from VMI partnerships. Both part-
ners benefit from less costly and simpler transitions (“changeovers”) when
established parts are replaced with new ones (due to upgrades, engineer-
ing changes, etc.). Other measures appropriate for some situations in-
clude part quality, return on (information) technology investment, and
the customer’s performance measures (that is, the second-tier customer’s
fill rates, inventory turns, and overall satisfaction).
As noted earlier, all this is not a simple matter, and there are
significant installation costs. Still, those who enter into VMI activity ear-
lier than others can go down the learning curve to be ahead of competi-
tors in obtaining the skills for VMI partnership engagement, setup, pilot,
and execution.
The third strategic implication is that an ability to effectively con-
duct a VMI program is, in a sense, a baby step down the path toward more
sophisticated interactions with supply chain partners both upstream and
downstream and at multiple tiers in the chain. A successful VMI experience
confirms the supplier’s ability to effectively interface with one customer in
a given partnership. That is, there is confidence in the technological infra-
structure, the management processes, and the ability to foster trust with a
partner. Recall that VMI is more than information sharing: it requires col-
laboration. This essential ability to interface with another firm is a collab-
orative competence that can be leveraged in other arenas. For example, if
ERP as a Platform for Vendor Managed Inventory 125
the supplier firm is the focal firm of interest, then the VMI experience can
serve to establish interfaces with the supplier’s suppliers. VMI involves non-
trivial interaction, but that interaction is only on the outer edges of the
boundaries of the two firms. VMI experience can serve as a basis for richer
and deeper interactions in established partnerships, ranging from two-
company integrated inventory-planning systems to collaborative develop-
ment of new products. And it may help the firm contribute to, and operate
in, a multi-tier CFPR-like environment more successfully.
Systems Integration
Ta b l e 8 . 1
Factors associated with VMI partnership implementation and effectiveness
Characteristics
• Customer has established electronic capabilities (EDI in place)
• Customer employs centralized inventory planning (even if customer has many
branches)
• VMI partner represents a significant percentage of supplier’s sales
Product characteristics
• High-volume, fast-moving items
• High “bang for the buck” items (these SKUs represent a large percentage of the
supplier’s sales)
• High product unit accountability (discrete, unitized, countable pieces)
• Highly defined part reference and communication standards for the industry
Partnership characteristics
• Customer willing to collect and share proprietary information with supplier
• Customer has sufficient personnel and management resources for implementation
• Customer and supplier trust each other
• Potential employee resistance is managed (especially among customer’s purchasing/
procurement personnel and supplier’s sales representatives/agents)
Inter-firm communication
barriers. Conversely, partners with the same ERP platform or VMI system
will have the potential advantage of deeper inter-firm integration of planning
and execution systems (the supplier’s and customer’s MRP systems, for
example). Today, extranets commonly provide visibility into a partner’s
data, but truly integrated, multiparty systems have the potential to provide
simultaneous visibility to multiple tiers in the supply chain.
ERP as a Platform for Vendor Managed Inventory 127
Technological Progress
Conclusions
set of hammers, nails, and planks doesn’t mean that he can erect a quality
house at reasonable cost” (Feld and Stoddard, 2004, p. 74). In other words,
it does not matter how powerful the hardware or how elegant the software
if strategy and structures for execution are inappropriate.
Feld and Stoddard suggest that management teams who wish to cap-
italize on IT investments should observe three principles in their approach
to IT management: (1) develop a long-term IT renewal plan aligned to cor-
porate strategy; (2) replace vertically oriented data silos with clean, hori-
zontally oriented architectures designed to serve the company as a whole;
and (3) strive to develop a highly functional, performance-oriented IT or-
ganization. Unfortunately, the authors place the blame in much too general
terms (poor IT management) to be really useful. This is the equivalent to say-
ing that all the world’s problems would be solved by better communication.
not of the US, but of the vast, underdeveloped Asian region. [sic] Informa-
tion technology is making it possible to move jobs from the US to China
and India; to where those jobs are beyond the reach of the productivity
statistics.
Perhaps the best place to look for the answer to this question is to
look at how the Japanese view the relationship between quality and tech-
nology and apply this lesson generally. For example, Ettlie (1997) studied
600 durable goods firms in 20 countries and found that technology
significantly moderated the association of R&D intensity and total quality
management (TQM) with market share, controlling for industry category.
In high-technology firms, R&D intensity was significantly associated with
market share; in low-technology firms, TQM was significantly associated
with market share. R&D intensity and TQM were significantly and in-
versely related, while R&D intensity and computer-aided manufacturing
(CAM) were significantly and directly related. Given such spurious results,
it is, therefore, not surprising that many scholars have raised the questions
of “how much” and, more important, “what type and application of” IT
is enough to support real strategic gains for a company. Clearly, the
uniqueness of innovations developed through the support of IT should rep-
resent a necessary objective qualifying the purchase of such systems by in-
novative firms, yet standards-based architectures required as a medium for
such creative development cannot be discounted.
and (4) have recently introduced a major new product characterized as new
to the world, new to the industry, or new to the company.
Overall, these preliminary results suggest that in order to fully un-
derstand the adoption of collaborative engineering hardware and software
systems, one can take cues from the innovation and new product develop-
ment processes in these firms. Based on such data, not only were our mod-
els able to replicate the new product success rate (60% after launch) in both
samples, we also found that the impact of the adoption of collaborative en-
gineering systems on performance outcomes (i.e., new product profitabil-
ity) was significantly moderated by the adoption of tailored hardware and
software systems. Given the collaborative bolt-on options available to firms
with integrative IS architectures such as ERP, the focus should, therefore,
remain not on distinguishing the specific designs of ERP architectures per se
but rather on the tailored selection and use of such bolt-ons.
and allowed to pursue their own processes and procedures in carrying out
their work. In addition, it suggests that members of project teams prefer to
be involved in the development of the operational controls for the projects
on which they work and that they perceive management intervention in
project activities as onerous (Bonner, Ruekert, and Walker, 2002).
Creativity is not a 9 –5 job. Nor is it something that can be turned
on and off. It comes and goes somewhat serendipitously, and it requires a
strong discipline and, most often, intense synergistic interaction with oth-
ers. More to the point, it requires the kind of seamless access to informa-
tion across business units, functions, and corporate boundaries that only
integrated systems such as ERP can provide. At one time, it may have been
possible for one individual to design a motor vehicle, but not today.
Today there are so many aspects to designing a motor vehicle that such a
proposition is unreasonable as an effective and timely mechanism for in-
novation. Some require embedded programs on electronics boards, some
require the design of aerodynamic exteriors, and other R&D activities
may require anything from packaging science to color science.
New developments in software that take ERP beyond the mono-
lithic suites it was in the 1990s and into an entirely new realm where pro-
cess architectures dominate will allow for the necessary control to be
maintained while providing flexibility in processes. Presently this is ac-
complished through bolt-ons and middleware: software designed to sup-
port a set of process architecture standard interfaces so that any vendor’s
application can interact with the middleware, provided that it abides by
the interface standard. Process architectures are normally depicted as ac-
tivity maps in which each activity connects with other steps in a process.
Someday soon, a “plug-and-play” process architecture could be devel-
oped for the automobile manufacturing industry. Such a product would
be shared throughout the industry and would permit an entirely new level
of flexibility. New processes could be developed and then redesigned
quickly as needs change by using plug-and-play product components.
As an example, a process architecture map for designing a car
would define all basic activities that could be involved in the car design
process, along with common variations on the activities and key inter-
faces between the activities. It would also include many levels of detail so
that different audiences involved in the process (e.g., top managers,
middle managers, operations managers, operations staff, and operators)
136 Value Extensions Beyond the Enterprise
could view their activity and see how it fits into the entire process. This
will make it possible for the person in one step to see who gets the output
from his or her activity so that, in the event that this person’s step
changes, he or she will be able to discuss the change with the recipient of
the output before the change is made. This will provide greater freedom
to the people doing work activity over how they accomplish their work,
and it will allow them to tailor their activities to the situation at hand. As
an added benefit, when appropriate, these maps include tools for finding
appropriate people or services to perform each of the various activities or
to whom the activities might be outsourced (Malone, 2004).
Ta b l e 9 . 1
Potential information systems integration barriers
Respondent’s perception of major Integrating RFID into ERP
issues for ERP over next five years Outsourcing coordination
Net-based business, SCM
Upgrades and enhancements
Sarbanes-Oxley compliance
Adapting to advances in technology
Keeping up with a changing business model
Maintenance costs and issues
Major challenges in implementing 3 —Users did not know what they wanted
business intelligence module 1— Technology issue interfacing with
IBM I-Series Computer
1— Training and expertise
1—Developing standards for deployment
Percentage of total business intelligence 1%; 1%; 3%; 5%; <10%; 10%
project budget that went for training
to this question suggest that the people who use ERP systems today may not
be aware of future directions in the business environments of their firms; if
this is true, it does not bode well for American business. There was no men-
tion of process architecture maps, Web services architectures, systems or ap-
plication architectures, the integration of R&D with ERP systems, improved
information requirements gathering models, and, perhaps most important,
the evaluation of new technologies for competitive advantage.
Six of the seven firms represented in the survey were at some stage in
the installation of the business intelligence component of the SAP software
138 Value Extensions Beyond the Enterprise
suite. This module is focused on the evaluation of a firm’s data for strategic
and tactical use. Its importance is evident in the number of implementa-
tion projects under way in our sample. In every case, the finance depart-
ment was involved in the business intelligence project. Marketing and
production were the only other areas where interest was found. For us,
the interesting finding in this area was that despite the fact that six of the
seven firms were pursuing installation of the business intelligence appli-
cation, respondents from half of the firms surveyed indicated that their
users were unable to adequately define their information requirements.
Moreover, there appeared to be no knowledge among the respondents re-
garding what, if any, metrics were being used to measure the project’s suc-
cess. All of these issues, including the comments regarding the problem
with scoping and with understanding the information in the SAP data-
base, we think might suggest that the users of ERP systems do not neces-
sarily understand the systems well enough to use them to full advantage.
If this is so, this situation can be resolved quickly with additional train-
ing. Unfortunately, training is often ignored in these sorts of projects. The
Gartner group estimates that 17% of a typical ERP project budget should
be spent on training (Kelly and O’Donnell, 2001), but the data clearly
indicates that this level of expenditure was missing from these projects.
In areas such as R&D, it is more likely that much autonomy will
be permitted in the design of work processes. Our work on collaborative
engineering suggests that economic models which include intermediate
appropriation conditions are very much a part of the future of most firms.
However, in other areas, such as production, it would probably be better
to allow less autonomy and more standardization.
What does all of this mean? Our world is more complex than even
a decade ago. First, it is not a matter of make or buy but make and buy with
partnership assistance. Second, the new economy requires a constant tend-
ing of the new dual-core model of the firm: the rearranging, upgrading, and
continuous and simultaneous improvement of both information technol-
ogy and core technology in any enterprise. Third and finally, the future
workplace will resemble in part what we see today but in great measure will
be more mobile, more challenging, more global, and, of course, more virtual.
IT-Supported Productivity: Paradoxes and Resolution in R&D 139
Firms will need to face these challenges head-on, not by myopically opting
for fads directed solely by the whims of potentially agenda-biased IT man-
agers but by shoring up extensions to existing architectures that align with
operational and strategic goals. For firms that distinguish themselves
through innovation, this means developing idiosyncratic patterns of use for
collaborative technologies that draw on existing ERP architectures and
augmenting such strategic idiosyncrasies by ensuring that such use is bol-
stered on both sides of the corporate boundary (i.e., among its collaborators).
In turn, this may necessitate greater levels of commitment among partners,
yet it opens the door for repeated shifts in project and partner focus (i.e.,
technology-facilitated flexibility) as such bolt-ons gain greater diffusion in the
marketplace.
10 ERP as a Resource for Inter-Organizational
Value Creation
THOMAS E. VOLLMANN
The lean supply chain embraces one major shift in thinking from
that seen in the progression from MRP to ERP and related systems.
Rather than a monolithic approach to systems design— one that focuses
on integration of all activities—the approach becomes one of imple-
menting the processes and systems that uniquely address the needs of par-
ticular customers. It is critical that we not see this as a technical problem
or one in which more integrated information systems will lead the way.
The lean supply chain requires critical strategic decision making directed
by pairs of key supplier-customer decision makers and followed up by a
very different implementation approach. The approach, as well as the
processes and IT support, are fundamentally different.
EvaluateS
(confirm)S ProposeS
replenishmentS PlanS
replenishmentS manufacturing
(X)
(X)
CreateS
consignmentS Pick ship
stock orderS
(VMI)
ReceiveS
goods
ReconcileS ReconcileS
inventory inventory
Pay invoice
As is often the case, the customer in Figure 10.1 wants the supplier
to provide materials on consignment (vendor managed inventory, or
VMI). Starting with the upper-hand portion of Figure 10.1, we see the
customer planning manufacturing (with ERP-based systems), which leads
to an expected outflow of stock from their inventory. This information is
passed to the sales organization of the supplier, who evaluates the fore-
casted outflow and proposes a replenishment shipment to the purchasing
function of the customer. That group evaluates the replenishment and
confirms or modifies the result. The authorized replenishment quantity is
then passed back to the supplier’s sales function and subsequently to its
manufacturing unit, which plans manufacturing based on the supplier’s
finished goods inventory (and other criteria and constraints). When the
order is ready, the sales organization creates the consignment order,
which is then picked and shipped.
When the order arrives at the customer, it is put into inventory.
Then, when the customer needs these materials for its planned manufac-
turing, they are issued to the manufacturing function. At that time, the
purchasing group creates a purchase order for the amount issued to man-
ufacturing and sends this to the sales function of the supplier. This is the
point where title for the goods passes from the supplier to the customer.
The supplier now creates a sales order for the amount used by the cus-
tomer and passes the sales order to its finance group to create an invoice.
The invoice is sent to the customer for payment. Finally, as shown in
the figure, there is a periodic reconciliation of inventory between the
firms. All of these activities take place in typical supply relationships.
Figure 10.1 improves them by replacing classic transactions with e-based
systems and processes.
lean enterprise is that one still has to design and implement new business
processes, and best practices can also be fostered or copied.
What is perhaps more important is that lean supply chain does not
need to wait until lean enterprise is completed. This is not an either/or
decision. One can work on achieving the benefits of lean enterprise
through rationalization, standardization, and best practices, while simul-
taneously working with selected supplier and customer partners to achieve
the payoffs from excellence in supply chain management.
The following is a set of ‘‘stages’’ of dyad transaction complexity that can be approached
through e-based B2B systems. Implementing the successive stages will require a series of
transformations, supported by cross-firm education programs and new IT systems support:
systems shown in Figure 10.1 (with none of the X’s removed) is clearly
suboptimal.
Figure 10.2 appears to be the way firms are achieving early success
and subsequent improvements. What one can observe here is companies
evolving dyad by dyad in stage 1: from step (a), ordering and invoicing,
to step (b), order acknowledgement and logistics documents, to step (c),
request for quotation (RFQ). Best practice involves making the improve-
ments with the best dyad partners (suppliers and customers) and there-
after cascading the learning to other dyad partners. There is an important
lesson here; the progress is within specific dyads, rather than trying to
push all suppliers (or customers) through step (a) before step (b), etc. The
progress tends to match thinking as to market segments as far as working
with customers, and supplier evaluation with suppliers. In both cases, the
fundamental questions is: who is smart, trustworthy, and interested in
working with us?
There are clearly choices to be made as to which dyad partners to
work with at any given point in time. Practice indicates that most firms
start with key suppliers, before customers. This is probably because they
150 Value Extensions Beyond the Enterprise
believe that they have more leverage with suppliers. However, it is often
one of their customers who initiates the process, as was the case for
Heineken. It also is true that although each dyad tends to be unique, there
are always lessons to be learned; moreover, most leading-edge firms try to
develop modular approaches to the systems and processes. Those who
move first, proactively, can often define the ways of working, rather
than being put into the position of adopting multiple, incompatible
approaches.
Stage 2 requires new interactions and systems operating between
dyad partners. More important, it assumes that “partnership” does in fact
exist. Stage 2 implies a much greater degree of trust and mutual working
relationships than stage 1. Thus, planning visibility requires transfer of
knowledge from customer to supplier. “VMI uphill skier” involves
even greater transfer of knowledge and responsibility. In this case, the ex-
act needs of the customer are passed to the supplier, who can satisfy them
as it wishes—with payments made as the customer uses the supplied
goods; this is similar to skiing, in which it is the uphill skier who is re-
sponsible for not colliding with the downhill skier. These changes in prac-
tice can be achieved only when the dyads have been working together
for extended time periods. A good current example is Hewlett-Packard
working jointly with Flextronics in the manufacture of tape drives. In
the end, the key to success was the development of shared values from
top to bottom in both organizations. With this overall level of trust, it
has been possible to develop quick response times to market dynam-
ics, visibility across the supply chain, fast time-to-market and time-to-
volume, and high-quality products. All of the features of stage 2 have been
achieved.
Stage 3 may look like nirvana, but all of the activities depicted
there are in fact possible. It is important to compare step (a) with step (b).
The specific activities depicted in step (b) are more related to extensions
of classic lean manufacturing concepts, but step (a) is where the really big
payoffs are achieved. Concentrating on the systems and transactions
associated with coordinating the flows of material is necessary—but not
sufficient! The improvements depicted in step (a) of stage 3 involve some
key strategic choices, such as when the customer should direct dyad
“orchestration” and when the supplier should do it. It is critical that these
decisions not be based exclusively on power or politics.
ERP as a Resource for Inter-Organizational Value Creation 151
ManageS
behavioralS
change
SoftwareS
Effort
development
Concluding Remarks
tagging of cases and pallets. At some time in the future, the price might
be low enough to tag individual consumer goods on a large scale.
With these new manufacturing methods, production of the silicon
chips needed for Auto-ID becomes a continuous manufacturing opera-
tion, in contrast to the current batch method for producing the integrated
circuits that make up silicone chips. This development opens the possi-
bility of tag application to a large number of objects, such as individual
units, cases, and pallets of merchandise within the consumer goods sup-
ply chain. Given that the scale of retail supply chains includes billions of
items, industry consortiums recognized very early the need for a compre-
hensive information technology infrastructure to manage the large
amount of data potentially available from linking objects to the Internet.
With such an infrastructure, the practical possibility exists of ERP sys-
tems that have continuous, two-way communication with objects located
anywhere within a supply chain. This Internet of things will create un-
precedented interconnectivity and have an important impact on the ERP
systems of the future.
The infrastructure needed to manage the Internet of things is
Auto-ID technology, an intricate yet robust system that utilizes RFID. An
important feature of Auto-ID technology includes open standards and
protocols for both tags and readers. This means that a tag produced by
one manufacturer can be read using equipment produced by a different
manufacturer. This type of interoperability between tags and readers is
essential for wide-scale application within supply chains.
Beyond the sophisticated information technology, Auto-ID lays
the groundwork for the intelligent value chain of the future (Brock,
2000). Creating “smart products” that sense and respond with the phys-
ical world requires unique identification, which is an element of Auto-ID
technology. With this capability, distributed control systems can interact
and give instructions to a specific object. For example, some time in
the future smart objects within the consumer goods supply chain might
dynamically change price based on sensing demand and communicate
this information to ERP systems without human intervention. Because it
offers much more than merely identifying objects using radio communi-
cation, Auto-ID technology holds the potential to drive rapid advances in
commerce by providing the infrastructure for true automation across
supply chains.
158 Future Visibility and Accountability
Ta b l e 1 1 . 1
Comparison of different tags
Tag Active Passive Semipassive
PML
ONS Savant
Reader
Antenna Antenna
Serial number
the tag, and in turn, a signal is generated and transmitted to the reader.
Through this process, readers capture the EPC and interact with Savant
to look up the information on the product using the ONS.
The position of the reader receiving the EPC signal provides
important information on location and environmental conditions such as
temperature, vibration, and humidity, which is then linked through data-
bases to the EPC. All this information is housed and written to corporate
databases using the PML format (see Figure 11.1).
Few other inventions developed during the 20th century have had as
wide an impact on everyday life as the bar code (Haberman, 2001). First
implemented in 1974, the bar code has drastically reduced the amount of
labor needed to operate retail stores, improved pricing accuracy, and short-
ened countless checkout lines, saving great amounts of time.
162 Future Visibility and Accountability
Beyond retail stores, bar codes have been applied in many other
situations to provide important information, such as the coordination of
production within manufacturing plants or tracking data for overnight
packages in transit. Bar codes transmit a small amount of information
that identifies the manufacturer and links to a description of the object.
Nonprofit standards groups such as GS1 administer the numbering
system used for the bar codes, ensuring unique identification without
duplication by other firms. New research efforts have led to the develop-
ment of a two-dimensional bar code that is able to carry more data about
an object. This opens the possibility of attaching important information
such as billing details directly to the object as it passes through the
supply chain.
A basic characteristic of bar codes is that all information travels
with the object. In the case of a two-dimensional bar code, more infor-
mation travels with the object as compared to a regular bar code. This is
a common attribute shared with active RFID tags, although in most cases,
active tags contain much more information than two-dimensional bar
codes. Furthermore, although two-dimensional bar codes do provide
much more information beyond product identification, all bar codes have
limitations, including:
• The need for a direct line of sight from the scanner to the bar
code
• The ability to read only one code at time
• The need for human intervention to capture data or to orient
packages in the case of overhead bar code readers
technology, the nature of ERP and the infrastructure needed to support the
system will change dramatically, opening new possibilities to do things
that were previously thought to be impossible to achieve in practice.
Ta b l e 1 1 . 2
Auto-ID poll (spring 2004)
What is your main goal in implementing an Auto-ID solution?
constant flux, data accuracy is not just a function of having the correct
value, but of having the correct value at the correct time to reflect the
proper state of the system. Accurate data that is old is useless in a dynamic
system.
Thinking beyond the utilization of real-time data, Auto-ID offers
other opportunities to capture detailed data about objects within a supply
chain on a scale never before experienced in commerce. However, orga-
nizing EPCs represents a challenge that requires significant changes to
ERP systems.
Aggregate plan
facility adds to this complexity. MRP has been singled out by managers
and academics alike for the lack of consideration of capacity constraints
when planning lots sizes. As Billington, McClain, and Thomas (1983,
p. 1130) write, “MRP systems in their basic form assume that there are
no capacity constraints. That is, they perform ‘infinite loading’ in that any
amount of production is presumed possible. . . .”
For some types of industries, such as heavy manufacturing, this
limitation is an annoying inconvenience. With finished items requiring
high labor inputs, the primary capacity constraint is often the availability
of skilled workers to do the job. If high production levels press the
capacity of available trained labor, more workers can be hired or existing
workers can be retrained. In other situations, such as process industries,
lack of capacitated planning and scheduling is a much more serious
matter.
The process industries are asset intensive, with huge investments
in long lead-time equipment. In this case, adding additional capacity is
not a short-term managerial prerogative, so it becomes imperative to get
the greatest amount of capacity utilization possible through scheduling
methods that find the optimal solution and consider dynamic capacity
constraints. The lack of capacitated MRP is such a serious issue that some
leading companies have declined to use MRP for planning and schedul-
ing (Taylor and Bolander, 1994). While the algorithms to do aspects of
capacitated MRP (CMRP) are available, the drawback to implementation
is partially dependent on lack of real-time data needed for a meaningful
solution. To deal with dynamic demand for end items, manufacturers
must account for capacity constraints at all levels of the supply chain.
This ambitious goal remains elusive for most firms.
Auto-ID technology overcomes one barrier to the implementation
of advanced algorithms for capacitated MRP by providing a continuous
stream of data for mathematical programming models to achieve CMRP
in practice. Although there are a number of complicating factors that
limit the widespread use of advanced models, a major drawback appears
to be schedule stability (Unahabhokha et al., 2003). Because of a lack of
continuous data, replanning often occurs less frequently than needed. In
addition, small changes in inventory and production values caused by
inaccurate counts or poor execution to plan (for production and the sales
forecast) also contribute to the schedule stability problem. The combination
Enabling ERP Through Auto-ID Technology 169
of these two factors can create large changes in out-front schedules and a
great amount of instability within CMRP. Having a continuous stream of
data allows quick adjustment to variances and frequent updates. If the
proper buffers exist, a stable schedule results, with only minor changes
occurring over the time horizon with each new planning run.
There are several documented examples of the application of
CMRP in industry (Schuster and Allen, 1998; Schuster, Allen, and D’Itri,
2000). Most notable is the work of Leachman et al. (1996). This article
provides a comprehensive report on the successful application of CMRP
for a semiconductor company. The approach uses large-scale linear pro-
gramming (LP) to accomplish CMRP with the goal of improving on-time
delivery. The authors note that before implementing the LP approach,
sector-wide planning took place only once per month because of the poor
quality and availability of data on demand, work in process, and inven-
tory. Essentially, planners always had incomplete information. A large
part of the project included the design of databases to feed the LP plan-
ning model and the development of standard ways to represent data. In
the end, the authors state that data accuracy, availability, and timeliness
were significant factors in the overall success of their efforts to implement
CMRP as a management tool.
These are just a few examples of how Auto-ID technology will
change the nature of ERP systems in practice. However, the concepts of
Auto-ID do not apply just to supply chains. The final section of this chap-
ter explores the application of Auto-ID concepts beyond the Internet of
things. In many ways, this is Auto-ID part II. This effort will have a long-
term impact on ERP system design.
Semantic Modeling
name a couple of reasons. Yet, PIA and evaluation is one of the least
attractive areas for practice and investigation.
As part of determining the value of an ERP system and strategy to
an organization, it is necessary to consider a more holistic picture than
dollars and cents. There are many factors that come into play. What these
factors may be and how they may be evaluated (before and after imple-
mentation) are two core issues that are addressed in a more complete
value evaluation of implemented ERP systems. Such a discussion, with
particular attention to PIA concerns, can prove extremely valuable within
the scope of a larger management of technology framework.
Strategy=
formulation and=
integration CorporateS
strategic planning
FunctionalS
strategic planningS
and integration
Process andS
systemsS
engineering ReconcileS
factors,S
performance,S
expectations,S
Configuration designS and strategy
and functionalityS
requirements
Systems evaluationS
and justification
SystemsS
implementation
Post-S
implementationS
audits
System Implementation
Post-Implementation Auditing
Among these stages, there should always be some form of feedback. That
is why consistent and common factors and their measures are necessary.
This consistency is needed for effective design, evaluation, implementation,
auditing, and overall management of technology. These iterative feedback
mechanisms among and between the stages are illustrated in Figure 12.1.
Besides ensuring structured feedback mechanisms, another issue that
arises for managers is the specific timing of PIAs. When to start typically de-
pends on the type of system or application that is deployed, the amount of
time it will take before the application begins generating some results or
data, and the amount of time it takes staffers to get acclimated to the new
system and new processes. It has been recommended that audits take place
6 –18 months after implementation of the system or module. As additional
modules or bolt-ons are implemented, subsequent PIAs must be administered
with sufficient time for valid data collection on sustainable use to take place.
Ta b l e 1 2 . 1
Project cost categories
Direct project costs Indirect human costs
Environmental operating costs Management /staff resources
Initial hardware costs Management time
Initial software costs Cost of ownership; system support
Installation and configuration costs Management effort and dedication
System development costs Employee time
Project management costs Employee training
Training costs Employee motivation
Maintenance costs Changes in salaries
Unexpected hardware costs Staff turnover
Unexpected software costs
Security costs Indirect organizational costs
Consumables Losses in organizational productivity
Strains on organizational resources
Business process reengineering
Organizational restructuring
s o u r c e : Adapted from Irani et al. (1997).
Cost Factors
Davis et al. (1989) and Adams et al. (1992) have considered the
importance of perceived value from the individual’s perspective,
while Brynjolfsson and Hitt (1996) and Kohli and Devaraj
(2003) have studied firm-level value of an IT.
Ta b l e 1 2 . 2
Strategic, tactical, and operational performance metrics within an
organizational supply chain or value chain
Level Performance metrics
StrategicS
MonolithicS performanceS SeniorS
ERPS metrics/factorsS managementS
ComponentS MiddleS
Supply chainS
ERP management
factors
LocalS OperationalS
system IT factors managers
Evaluation Methodologies
AHP M M L L M L H A, B, C
DEA M M L M L H M D, E
Expert systems H H L H M H H F, G
Goal program M M M H L H L C, H, I
MAUT H H M M M M H J, K
Outranking M M L M L M M L
Simulation H H H H H H M M, N
Scoring models L L L L H L H O, P
*A Albayrakoglu (1996), B Kleindorfer and Partovi (1990), C Suresh and Kaparthi (1992), D Khouja (1995), E Sarkis (1997), F Borenstein
(1998), G Padmanabhan (1989), H Stam and Kuula (1991), I Suresh (1991), J Chandler (1982), K Pandey and Kengpol (1995), L Parsaei,
Wilhelm, and Kolli (1993), M Suresh and Meredith (1985), N Primrose (1991), O Nelson (1986), P Semich (1994).
Auditing the System in Use: Value Beyond the Baseline 187
Bottom Line
Recommendations
Bottom line: If it’s broken, fix it; if it’s failing, shore it; if it’s work-
ing, advance it! If the system is not supporting current operations, or on
the road to that state, then either modify the system or modify opera-
tional procedures for conformity. Firms that simply ignore misalignment
set themselves up for a myriad of unorganized local decisions. A sustained
policy of usage accountability must be engaged as an extension of the im-
plementation process to ensure that ERP systems continue to complement
operational processes and are advantageously leveraged through time
The Path of the Enlightened Manager: Prescriptions for ERP Evolution 195
(e.g., Sarkis, Chapter 12). We outline some of the tasks required in such
an ongoing accountability below:
• Broadly review current processes and procedures. Current op-
erational procedures may have changed to meet changing mar-
ket requirements since initial implementation. Evaluate the
changes against existing processes and ERP functionality. Ad-
ditional core ERP products may have been bundled with the
original purchase or could be added for a minimum invest-
ment. The real advantage here is that all of the new processes
will build on the existing database and the new functionality
may be fully integrated throughout the system. This is a good
way to leverage the knowledge of your business, customers,
and markets to gain competitive advantage.
• Perform a formal gap analysis. Analyze how the solution or
system is being used. Assess how the firm is currently using the
ERP architecture. Get consulting help if needed to maximize
the use of the software to support operations. Consider using
consulting like you would laser surgery—very focused for a
short duration. Make sure internal managers have an under-
standing of the global picture to guide this focus.
• Consider the physical resources that drive ERP effectiveness.
Determine whether a hardware upgrade would improve system
operation. The technology race has reaped fast, more efficient,
economical hardware, but do not limit resource considerations
to the technology. If slow response time or problem-resolution
accuracy is a problem, look for efficiency improvements in
the workforce. Training and greater exposure of users to
enterprise-wide functional linkages can create a culture of
extended use—and can yield much greater results than many
technical options.
• Consider rolling out the solution to a wider user base. Expand
to field personnel via intranet and Internet access, share infor-
mation, and link customers and vendors. There are several
software solutions that can Web enable the software, even if
the current vendor does not offer it at the current ERP release
that is running.
196 Future Visibility and Accountability
ImitableS TechnologyS
technologyS adoption
resources
Inter-org.S
Inter-org.S Inter-org.S tech ambiguity
externalities external cues
StrategicS FuzzyS StrategicS
process andS knowledgeS value-S
relationalS resources clarifyingS
resources knowledge
Higher-levelS
knowledgeS
Composite techS resources
assessments
FIGURE 13.1 Supply Chain Enablement Through ERP Development and Use
Source: Adapted from generic model by Bendoly (2005)
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214 References
Italic page numbers indicate material in tables or figures. Page numbers followed
by “n” indicate notes.
ABC inventory analysis logic, 125 agility, 87–96; case study, 90 –93;
Accenture, Institute for Strategic defined, 87– 88; mechanisms of ERP
Change, 72n support, 93 –96, 94; summary, 96
accountability of usage of ERP sys- AHP (analytical hierarchy process),
tems, 194 –97 185, 186, 188, 190
Ace Hardware, 113 aircraft manufacturer, 21
acquisitions, 77 Albert Heijn, 142 – 43
active RFID tags, 162 American Production and Inventory
active tags, Auto-ID, 158, 159 Control Society (APICS), 61, 65,
adaptability, 180 163, 163
add-ons, 49 Americas SAP Users Group (ASUG),
ad hoc reporting functions, 79 136
adoption phase, 14, 18, 21, 46. See analytical hierarchy process (AHP),
also chartering phase 185, 186, 188, 190
Advanced Planner and Optimizer analytical network process (ANP),
(APO), 53, 57 185
advanced planning and scheduling analyzers as strategy factor, 15
(APS) systems, 37, 56 –57 anchoring bias, 188 – 89
advance order commitments (AOC), ANP (analytical network process), 185
102 –3, 104, 105 AOC (advance order commitments),
advance ship notice (EDI 856), 118 102 –3, 104, 105
216 Index
lean enterprise, 140, 147– 48, 152 managers: ERP evolution prescrip-
lean manufacturing, 36, 39, 46, 140, tions, 191–99; and performance
150, 152 metrics, 183; in R&D organiza-
lean organization, 140 – 41, 142, 152 tions, 134 –35, 135 –36. See also
lean supply chain, 141, 142, 147– 48, personnel
152 manufacturing: automated, 165 – 66;
learning curve to VMI program, 123, capacity management, 167– 69. See
124, 128 also small and medium enterprises
learning to use the system, 75, 78 (SMEs)
legacy systems: as agility inhibitors, manufacturing execution systems,
95, 96; compared to ERP systems, 60. See also factory planning and
55; integrating ES solutions, 77; scheduling system
switch from ERP, perceptions sur- manufacturing module, 59
vey, 22 –26, 23, 33 manufacturing resource planning
linear programming, 169 (MRP II), 37, 47, 155
local systems, 184 Manugistics, 53, 77
Lockheed Martin, Advanced Develop- marketplace differentiation of VMI
ment Projects Unit, 134 partnership, 123
logistics entity in inventory distribu- market share, R&D intensity and
tion, 127 TQM, 132
logistics module, 59 Markus, M. L., 14, 22
loose hierarchies, 134 master production schedule (MPS),
lot control, 164 100
Lynds, J., 131 master scheduling software/models,
167, 171
Mabert, Vincent A., 43 material requirements planning
maintenance support, 196 (MRP), 37, 47, 100, 100, 167– 69
make-to-order (MTO) systems: Ger- mathematical models, semantic mod-
man Mittelstand companies, 40; eling, 170
production planning and schedul- mathematical programming, 190
ing, 99 –102; replenishment strate- MAUT (multiattribute utility theory),
gies, 97–99 185, 186
make-to-stock (MTS) systems: cus- mergers, 77
tomer linkage, 70; German Mittel- Microsoft, 77
stand companies, 40; and supply milling machines, computer numeric
chain management, 97, 98 control (CNC), 166
Malaysia, 72n mini big bang implementation strat-
management bias in PIA, 188 egy, 48
management of version numbers, Mittelstand: defined, 36; field studies,
165 40 – 42; German SMEs, 38 – 40;
managerial hierarchy, 184 summary, 49 –51
224 Index