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Aligning Supply Chain Logistics Costs Via ERP Coordination: Jmuscate@kent - Edu
Aligning Supply Chain Logistics Costs Via ERP Coordination: Jmuscate@kent - Edu
Diane H. Parente
Breene Professor of Management
Penn State Erie, Behrend College
4701 Behrend College Dr
Erie, PA 16563
Phone: 814 898-6436
Email: dhp3@psu.edu
Matthew Swinarski
Associate Professor, MIS
Penn State Erie, Behrend College
4701 Behrend College Dr
Erie, PA 16563
Phone: 814 898-6439
Email: mes35@psu.edu
*Corresponding Author
ACKNOWLEDGEMENT
The authors would like to thank the reviewers and editors for their efforts
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Biographical Notes
Matthew Swinarski, is an associate professor in the Sam and Irene Black School of Business at
Penn State University, The Behrend College. He received his Ph.D. from the State University of
New York at Buffalo. His research interests include IS outsourcing, IS capabilities and IS
education. Dr. Swinarski’s papers have been published in the European Journal of Information
Systems, IEEE Transactions on Engineering Management, Communications of the
ACM, Decision Support Systems, and Advances in Management Information Systems, among
others. His industry experience includes installation, configuration, and service contact
management of enterprise systems for medium-size manufacturing companies.
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1. Introduction
There is growing interest from industry and academic disciplines regarding coordination
optimization within supply chains (Fugate, Sahin & Mentzer, 2011). Enterprise wide software
solutions address the problems of disparate information in business organizations and the
2008; Themistocleous, Zahir, & Love, 2004). ERP is the starting point for information capture
and dissemination via a variety of qualitative and quantitative models that continue to grow as
technology innovation grows. These systems matured and serve as the platform of choice for
manufacturing and service firms. ERP has shown a level of maturity where simple issues related
to implementations are known by vendors and businesses, and we are now looking at the sub-
optimization within the system (Muscatello and Chen, 2012; Han, Swanner and Yan., 2010;
Capaldo and Rippa, 2009; Jacobs & Weston Jr., 2007). ERP implementations frequently come
with new software and hardware systems and business processes that may substantially alter
workflow and jobs ( Monk and Wagner, 2013; Boudreau & Robey, 2005; Soh & Sia, 2005).
When implementing a new ERP system or simply upgrading your current one, questions arise as
to what approach best meets your organization’s business requirements. While solutions and
factors vary greatly from one scenario to the next, three common themes in the industry have
been identified as high-level strategies for ERP system implementations: vanilla, customized,
and configured (Tholen, 2014). Whichever is chosen requires alterations, change processes, job
responsibilities and often lead to major training and other organizational initiatives. Significantly
higher value is achieved if the most appropriate types of information sharing are used (Jonsson
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and Mattsson, 2013). Enterprise resource planning (ERP) systems have been used in integrating
information and accelerating its distribution across functions and departments with the aim to
processes, report positive benefits including greater efficiency and effectiveness at the individual
employee and organizational levels (Muscatello & Chen, 2008; Olson et al., 2005; Venkatesh,
2008). Research also shows that a firm’s profitability increases after full implementation of an
ERP implementations challenge the status quo and require major changes and extensive
management commitment (Amid and Kohansal, 2014;Muscatello & Chen, 2008). It is a very
challenging endeavor that causes major change and disruption for an extended period of time in
the implementing firm (Boudreau & Robey, 2005;Soh & Sia, 2005). More than half of all ERP
systems fail, despit billions of dollars of investment (Han, swanner and Yang, 2010) and such
failures have been observed even in highly successful organizations, such as Hershey and Nike
(Koch, 2002, 2004). ERP systems have the reputation of being notoriously over-sold and under-
delivered (Millman, 2004). Major Operational disruptions at Dell, Hewlett Packard, Whirlpool,
FoxMeyer Drugs and Hershey Foods have been caused by poor ERP implementations (Becerra-
Fernandez et al., 2004). Therefore, a firm must be diligent and prudent in their implementation of
an ERP system.
Supply chain improvement is the goal of ERP (Amid and Kohansal, 2014; Shaul and
Tauber, 2013). Successful implementations will clearly affect all areas of logistics within the
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("CSCMP Supply Chain Management," 2013), is the process of planning, implementing, and
controlling procedures for the efficient and effective transportation and storage of goods
including services, and related information from the point of origin to the point of consumption
for the purpose of conforming to customer requirements. Christopher, (2011), said: Logistics
management is the process of strategically managing the procurement, movement and storage of
materials, parts and finished inventory (and the related information flows) through the
organization and its marketing channels in such as way that current and future profitability are
maximized through the cost-effective fulfillment of orders. The growth of the supply chain
concept has required logistics organizations to improve the flow of information both internally
logistics information systems (LIS) and supply chain information systems in many companies.
The increasing use of electronic commerce and enterprise resource planning and other LIS tools
and techniques will shape the business process for the foreseeable future (Rutner , et al. 2003).
$1 Trillion of the goods and services in the GDP basket to serve their transportation needs
(2014). An effective logistics operation can provide a competitive advantage for a firm and
increase market share ( Monk and Wagner, 2013; Daugherty, Autry, & Ellinger, 2001; Mentzer,
Keebler, Min, Nix and Smith, 2001). There is no wonder that businesses are diligently working
The movement from physical distribution management through logistics to the current
models of supply chains has taken place over a considerable period of time but it is only in recent
decades that this has gained momentum and the models of supply chains have become
increasingly sophisticated (Sindi & Roe, 2017). Logistics research has focused on the ability to
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reduce costs and provide delivery solutions according to customer need ( Randall, Nowicki,
Whitman and Pollen, 2014; Grawe, 2009). The literature also addresses logistics technologies
(e.g. EDI, RFID) (Barratt & Oke 2007), logistics programs (e.g. vendor managed inventory,
cross-docking) (Chapman, Soosay, & Kandampully, 2003), supply chain management (SCM)
( Monk and Wagner, 2013;Barratt & Oke 2007; Håkansson & Persson, 2004) and other types of
innovations and their roles in logistics operations and relationships ( Monk and Wagner, 2013;
Grawe, 2009; Wagner & Bode, 2008). Research does show that ERP implementations support
some SCM activities such as sourcing and the physical distribution system (Soh & Sia, 2005),
however, they also show that ERP may not meet the SCM needs including supply and demand
planning functionality which are critical to effective and efficient logistics practices (Amid and
Kohansal, 2014; Bovet & Martha, 2003). The biggest challenge concerning the usage of an ERP
is not technological, but relates more to issues of trust, collaboration, integration, lack of agility,
poor user adoption, implementation timelines, and lack of customer focus. Consequently,
understanding how an ERP influences each one of them, will highlight the importance and
strategic value of ERP in terms of the logistics system efficiency (Folinas and Daniel, 2012).
There is little research on the effect of ERP implementations on logistics costs and many firms,
especially light manufacturers and value added warehouses, whose logistics costs may be very
high compared to the total product cost, view ERP as unnecessary unless they can show logistic
cost reduction.
Given the proportion of logistics costs in the GDP, it is critical to understand the effect of
ERP implementation on logistics costs. In this research, we use work system theory to analyze
the Critical Success Factors (CRF) of an ERP implementation, against logistics costs, to
determine if there is a link between successful ERP implementation and reduced logistics costs.
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Therefore, our research question: Is there a difference in the importance of CRF’s between
successful and unsuccessful ERP implementation where success is defined by logistics costs?
components of work systems rather than as systems on their own. Bostrom and Heinen (2003;
Bostrom & Heinen, 1977a, 1977b) built the initial concepts and models for the work systems
theory (WST) and are cited as the innovators (Alter, 1999). A more formal definition is “a
system in which human participants and/or machines perform work using information,
technology, and other resources to produce products and/or services for internal or external
customers.” (Alter, 2003). It was further developed in a framework to help managers identify,
implement, and evaluate Information technology projects and implementations (Alter, 2008).
The theory presents both a static view of work systems, representing the current or proposed
operations of a system, and a dynamic view of work systems, representing how a system evolves
WST emerged gradually during an extended effort to develop systems analysis methods
that would help business professionals think more effectively about systems in organizations and
collaborate more effectively with IT professionals (Alter, 2003). WST identifies concepts and
relationships that need to be understood about the form, function, and context of work systems in
organizations. By focusing attention on the work system, not just the information system or IT
artefact that is being constructed, WST can help business professionals, IT specialists, and
researchers focus on the overall goal of improving the performance of work systems. Work
theory consists of three components: the definition of work system, the work system framework
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(WSF) and the work system life cycle model (WSLC). The WSF identifies and organizes nine
elements of even a rudimentary understanding a work system’s form, function, and environment
during a period when it is relatively stable. A work system’s identity remains unchanged during
such periods of stability even though incremental changes such as minor personnel substitutions
or technology upgrades may occur within what is still considered the same version of the same
work system. The WSLC model represents the iterative process by which work systems evolve
over time through a combination of planned change (formal projects) and unplanned (emergent)
perform processes and activities using information, technology, and other resources to produce
product/services for internal or external customers. Information systems, projects, and supply
· An information system is a work system all of whose processes and activities are
devoted to processing information, which occurs through six types of activities, capturing,
· A project is a work system designed to produce a set of product/services and then go
out of existence.
· The use of an ecommerce web site can be viewed as a work system in which a
customer uses a vendor’s web site to obtain product information and perform purchase
transactions.
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· Service systems are work systems because they perform processes and activities with
the intention of producing benefits for others. Almost all work systems are service systems. The
exceptions are work systems whose only beneficiary is the person who performs the work, as in
· A totally automated work system such as the operation of a search engine is a work
system in which all of the work is done by a machine. The machine (e.g., the search engine) is
The relationship between work systems in general and the special cases implies that the
same basic concepts apply to all of the special cases, which also have their own specialized
vocabulary. In turn, this implies that much of the body of knowledge for the current information
systems discipline can be organized around a work system core, rather than around special cases
The work system framework (diagram below) was originally developed to help business
elements that are part of even a rudimentary understanding of a work system. Processes and
activities, participants, information, and technologies are completely within the work system.
Customers and product/services may be partially inside and partially outside because customers
often participate in the processes and activities within work systems and because
product/services take shape within work systems. Environment, infrastructure, and strategies are
largely outside the work system even though they often have direct effects within work systems
The work system life cycle model (WSLC) represents a dynamic view of how work
systems change over time. The WSLC is an iterative model based on the assumption that a work
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system evolves through a combination of planned and unplanned changes. Planned changes
occur through formal projects with initiation, development, and implementation phases.
Unplanned changes are ongoing adaptations, workarounds, and experimentation that change
aspects of the work system without performing formal projects. The WSLC is fundamentally
different from the system development life cycle (SDLC), which is basically a project model
rather than a work system life cycle. (Even iterative development models are basically about
iterations within a project.) The system in the SDLC is a basically a configuration of hardware
and software that is being created. In contrast, the system in the WSLC is a work system that
evolves over time through multiple iterations. This evolution occurs through a combination of
defined projects and incremental changes resulting from small adaptations, workarounds, and
experimentation. The WSLC treats unplanned changes as part of a work system’s natural
evolution.
A number of extensions of WST have been developed. These are ideas that build on
- a work system metametal that reinterprets and expands upon all of the concepts in the
work system framework in order to support more detailed modeling that gets closer to the topics
- a set of work system axioms that are designed to apply to all work systems and
- a set of normative design principles that apply to most sociotechnical work systems
- a bilateral model call the service value chain framework, which can be used in
conjunction with the work system framework when product/services are co-produced by
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- a theory of workarounds that describes what happens in the inward looping arrow above
a theory of system interactions that describes interactions that may occur between two
work systems and work systems that create/maintain the automated work systems. (Alter, 2008)
The context of this research, the static view, is depicted in , comprised of nine elements:
technology, information, participants, processes and activities, products and services, customers,
infrastructure, environment, and strategy. The first four elements (technology, information,
participants, processes and activities) are viewed as being internal to the work system while the
last three elements (infrastructure, environment, and strategy) are viewed as being external to the
work system. The remaining two elements (products and services and customers) may be solely
external to the work system or they may be partially internal to the work system if they interact
with the processes and activities of the work system. In addition, each of nine elements can be
(Alter, 2006). For example, sub-elements under information may include income statements,
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purchase orders, invoices, and production schedules; while sub-elements under technology may
By its basic system nature, components of a work system must interact and must be
properly aligned to achieve its business goals. The arrows within the work system framework
depict the interaction and the needed alignment of paired elements and the possible causality. It
is also possible to have multiple work systems, producing their own work products, all working
together as component of a larger system to achieve various business goals (Alter, 2003). With
respect to the Work System Framework as depicted in , it is important to point out that
connection from each internal work system elements of participants, information, and technology
to the work system elements of products and service and customers is mediated by the processes
and activities element. The processes and activities element also serves as the conduit for
interaction between the three internal work system elements of participants, information, and
technology (Alter, 2013). Therefore is it not surprising that at least one processes and activities
element must be presents in the system and that these elements are central to a work system.
A key observation regarding Work System Theory, as compared to other system theories,
is the emphasis on work performed and its evaluation in the context of the of business or
organizational related outcomes such as revenue, efficiency, quality, and cost rather than
information technology-related outcomes such as information quality, data accuracy, and system
and creating financial reports. In the context of work systems, enterprise resource planning
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(ERP) systems have several interconnected modules with each module performing its own
business activities. The modules are used by individuals to conduct work and share information
and can also be considered as a set of interconnected work systems (Alter, 2013). Taking this
perspective, one can make the theoretical argument that these systems have a direct relationship
ERP was as “simple” as configuring and installing the modules, major operational disruptions by
poor ERP implementations would have never occurred at Hewlett Packard, Whirlpool,
FoxMeyer Drugs and Hershey Foods (Becerra-Fernandez, Gonzalez, & Sabherwal, 2004). It has
been noted in that the benefits of ERP cannot be realized without the proper alignment of the
technical, personnel, informational and process aspects using principles of process orientation
(Al-Mashari, Al-Mudimigh, & Zairi, 2003; Dezdar & Ainin, 2011). The Baldridge Performance
Excellence Program has recognized the need for high performing work systems. They view
work systems as a major competitive challenge stating a work system is how the work of your
organization is accomplished. Work systems involve your workforce, your key suppliers and
partners, your contractors, your collaborators, and other components of the supply chain needed
to produce and deliver your products and services and your business and support processes. Your
work systems comprise the internal work processes and the external resources necessary for you
to develop, produce, and deliver your products and services to your customers and to succeed in
your marketplace (Hertz, 2012). Since ERP engages firms to minimize redundency, improve
efficiency and effectiveness, and deliver products and services succesfully to the marketplace,
one can deduce the importandce of measuring the performance of an ERP system with work
study theory.
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4. Critical Success Factors of ERP Systems and their Impact on
Organizational Outcomes
Critical success factors (CSF) have been investigated using performance measures in
various ERP implementation studies. Many researchers developed their own sets of CSF’s and
more recent literature has delineated the numerous CSFs into more manageable sets of
taxonomies, stages, factors and classifications as a means to better understand how select
grouping of the factors impact ERP success (Dezdar & Sulaiman, 2009; Ehie & Madsen, 2005;
Finney & Corbett, 2007; Ngai, Law, & Wat, 2008; Ram & Corkindale, 2014). Recently, there
has been a focus on separating the benefits associated with ERP systems into two categories such
as ‘implementation outcomes’ and ‘organizational outcomes’ (Law & Ngai, 2007; Ram &
Given the large number of different critical success factors, it was decided to focus this
and training and education ( Dezdar & Ainin, 2011; Dezdar & Sulaiman, 2009; Ngai et al., 2008;
Ram & Corkindale, 2014). These CSFs were selected since they all relate to the use of alignment
processes and activities among the four key internal work elements (technology, information,
participants, processes and activities) associated with work systems. The organizational outcome
measure of logistic cost was selected for four reasons (1) internal business measures are directly
impacted by various processes and activities (including alignment), (2) internal business
measures tend to be more reliable than perceived external customer measures, (3) internal cost
measures tend to be more reliable than internal quality and satisfaction measures, and (4) to date
there has been very little research investigating the impact of ERP systems on logistic costs. The
arguments for the impact of the selected CSFs and logistic cost are provided next.
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4.1. Alignment through Technical Support
Research suggests “aligned” firms are more likely to invest in IT and allocate resources
to projects tied to overall business objectives (Cumps et al. 2009). Because aligned firms
effectively use IT resources, research often finds that they leverage IT to respond to and exploit
opportunities in the market, increase profitability, and create a sustainable competitive advantage
( Cumps et al. 2009). According to Rivard et al. (2004) technology increases response and helps
coordinate actions, both major components to driving down logistic costs in ERP-enabled supply
chains; however, such benefits are not possible in the presence of poor system design,
implementation and maintenance. An upgrade of current software may include new file
structures, report writers, functional modules and other changes. Hardware upgrades may involve
operating system changes, new functionality and new modules. But regardless of the type or
level, managers must be proactive to insure that their technical employees can run the ERP
system effectively (Muscatello & Chen, 2008). Not having sufficient technical capabilities can
be catastrophic and lead to ERP system failure (Muscatello & Chen 2008). In our study,
alignment through technical support was measured in three ways: (1) internal IT members
understand custom ERP software programs, (2) the IT staff are able to efficiently implement
ERP system upgrades, and (3) the IT staff are able to analyze the technical impact of proposed
H1: Firms achieving lower logistics costs use technical support to properly align
and Champy in the 1990’s, there has been a lot of research on the need for process realignment
via a strong BPR project. Many researchers have shown a strong correlation between the
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successful implementation of ERP nad the use of BPR (Carton & Adam, 2003; Law & Ngai,
2007; Millman, 2004; Motwani, Mirchandani, Madan, & Gunasekaran, 2002; Muscatello et al.,
2003; Olson et al., 2005). Reengineering of processes focuses the firm on identifying and
operations, and on eliminating inefficient processes (Hammer & Champy, 1993). Since logistics
is a complex, costly and value added activity, it makes sense for BPR to be used to drive high
holistic approach to change which includes people, practice, responsibly, documents and
technology. In our study, alignment through process re-engineering was measured in four ways:
(1) business process redesign is performed before ERP implementation, (2) the operational
processes of the ERP entity are formally documented, (3) business process redesign teams are
cross functional, and (4) redesigned business processes are used to drive out inefficiency. Based
H2: Firms achieving lower logistics costs use process re-engineering to properly align
faced by leaders in the workplace when dealing with adaption to a dynamic business
environment. According to Terry, Carey and Callan, (2001) it is true that an organizational
change may create job insecurity to individual self-esteem. Thus, the adaptive leader’s first step
in dealing with change centers on understanding its affect on individuals. Managers have found
ERP implementation projects to be one of the most difficult systems development projects
(Kumar, Maheshwari, & Kumar, 2003). In part, this is due to the significant change that must
occur in the organization. Evidence suggests that change leadership is associated with
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organizational culture, primarily through the processes of articulating a vision, and to a lesser
extent through the setting of high performance expectations and providing individual support to
workers (Terry, et al). Top management leadership should be emphasized to minimize resistance
to change. Resistance to change is found in all organizations to some degree. Older, established
companies have a greater resistance than start ups, because of the nature of stable growth versus
dynamic growth. The necessity of informing employees as to how the system can help them do
their jobs better cannot be overstated (Olson et al., 2005). Effective communication and
continuous support throughout the implementation has been noted to be beneficial by several
researchers (eg. Motwani et al., 2002; Muscatello et al., 2003; Sarkis & Sundarraj, 2003). Recent
research has noted that organizational factors have a significant influence on supply chain
management tool usage, of specific importance is the education level of the organization
In our study, alignment through personnel communication was measured in four ways:
(1) employees understand how they fit into the new ERP entity, (2) management actively works
to alleviate employee concerns about ERP, (3) the roles of all employees under the ERP system
have been clearly communicated, and (4) an ERP support group is available to answer concerns
about ERP job changes. Based on this discussion we propose the following hypothesis:
H3: Firms achieving lower logistics costs use personnel communication to properly
training. Firms implementing ERP must provide fundamental ERP systems education if users
are expected to complete tasks correctly (Plant & Willcocks, 2007; Sarkis & Sundarraj, 2003;
Yusuf, Gunasekaran, & Abthorpe, 2004). Without proper training, employees take longer,
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produce errors, and have to redo work resulting in high logistic costs in the ERP-enabled supply
chain. In our study, alignment through training and education was measured in three ways: (1)
training materials have been customized for each specific job, (2) training materials target the
entire business task, not just the ERP screens/reports, and (3) employees are tracked to insure
they have received the appropriate ERP training. Based on this discussion we propose the
following hypothesis:
H4: Firms achieving lower logistics costs use training and education to properly align
5. Research Design
The literature review has created constructs well grounded in existing theory. (Muscatello
et al., 2003). A seven-point Likert scale, indicating the relative performance of each activity
with respect to the ERP system, was used to measure the constructs. (see Appendix for items).
A survey was conducted by mail in the North America, sampling members from the
Institute for Supply Management (ISM), The National Association of Accountants (NAA), The
American Productivity and Quality Center (APQC) and The Association for Operations
Management (APICS).
A modified version of Dillman’s total design method was followed in order to get an
appropriate response rate. (Dillman, 1978). Mailings were first class and included a cover letter,
survey, and postage paid return envelope. All potential respondents were sent follow up
reminder cards approximately three weeks after the initial mailing. The original mailing
consisted of 973 surveys with 28 being returned unopened, making the sample 945. A total of
203 surveys were received for a response rate of 21.5%. This response rate is statistically valid
and correlates well with other operations management (OM) empirical research. For example,
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Paulraj and Chen (2005) reported 23.2% and Krause et al (2001) reported 19.6%. The final
response total was 197 after the researchers discarded six responses as unusable making the
effective response rate 20.8% (197/945). The survey found that 156/197 respondents were
Responses Number
Distributed 978
Returned for incorrect address 28
Remaining 945
Received 203
Discarded 6
Total viable responses 197
Multiple ERP implementations 41
Final Sample 156
The respondent profile found that almost half the firms were end product manufacturers
(49.4%) and had been in business for over 30 years (47.4%). Most of the respondents described
themselves as middle managers (61.5%) followed by top executives (28.2%), and other others
(10.3%). Small and large firms were well represented and fairly evenly distributed amongst
respondents. The distribution is: Sales of over $20B (2.6%), $1B~$20B (25.0%), $500M~$1B
(34.6%), $100M~$500M (23.1%), $10M~$100M (7.1%) and under $10M (7.7%). There were
500 or more employees at most firms (78.2%). Table 2 and show the respondent and firm
profiles.
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Other
Buyers, Planners 16 10.3
Supervisors
Total 156 100.0
We used two statistical techniques to test for the possibility of common method bias
including Harman’s single-factor technique (Podsakoff & Organ, 1986) and Lindell and
Whitney’s (Lambert & Harrington, 1990) marker variable technique. Harman’s single-factor
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technique proposes that there is the potential for common methods bias if a factor analysis
reveals that the total amount of extracted variance is substantially dominated by a single factor.
A factor analysis using principal components analysis was conducted using all items in the
model included in the analysis. This analysis generated seven factors having an eigenvalue
higher than one with a total extracted variance of 69.4%. The first factor accounted for only
24.4% of the total extracted variance clearly indicating that there is no significant common
methods variance in this data set. The Lindell and Whitney’s (2001) marker variable technique
requires the measurement of a “marker” variable that is theoretically unrelated to one or more
variables in the research model. This technique proposes that statistically significant correlations
between the marker variable and one or more variables in the model signal possible common
methods variance (Malhotra & Kim, 2006). We used two markers; see Appendix for items. The
test revealed only two significant correlations at the p=0.05 level. Marker item 1 had a
significant (r=-0.149) correlation with the training item TR2 (training materials target the entire
business task, not just the ERP screens/reports) and marker item 2 had a significant (r=-0.145)
correlation with training item IT3 (The IT staff are able to analyze the technical impact of
proposed system changes). Given only two significant correlations, out of 48, further confirms
that there is not a substantial amount of common methods variance present in the current study.
6. Methodology
A confirmatory factor analysis (CFA) was used to assess the psychometric properties of
our measures and, second, conducting a sample t-test between two groups, one which
experienced decreased logistic costs and the second which experienced the same or increasing
logistic costs. The details regarding this two-step approach is provided next.
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The CFA was conducted following Jayaram (1997) two-step approach of (1) testing each
latent construct model in isolation, and (2) testing the models as a collection of correlated
constructs. However, before proceeding to the CFA tests we first verified three important CFA
assumptions: (1) ample sample size, (2) normality of each measure, and (3) identification of each
model (J. Hair, W. Black, B. Babin, R. Anderson, & R. Tatham, 2006; Kline, 1998). Adequacy
of sample size can be determined either in terms of (1) total sample size, or (2) number of cases
per variable; Anderson and Gerbing (1988) suggested a minimum sample size of 150; while
Bentler and Chou (1987) suggest a minimum of five cases per variable. Our sample size of 156 is
above the minimum level of both established criteria. Examining the moments around and the
means, and running tests on the kurtosis and skewness of the measures to check the normality of
each measure revealed that some measures were negatively skewed. As a corrective approach
and to keep all measure on the same relative scale we performed a log transfer of each measure
(1- Log10 (7-Xr +1)). After the transformation all measures passed the normality condition.
Finally, checking each model to ensure each was identified, in other words having a positive
number of degrees of freedom, only two models were identified models: Process Re-engineering
(PR) and Personnel Communication (PC). To create the identified models, paired construct
models were constructed which involved combining Technical Support (TS) and Training and
Education (TE) into one model; this resulted in three identified models for latent construct
The results for the three latent construct models are presented in Table 3. Analysis of the
individual structural mechanisms measurement model indicated that all parameter estimates have
the correct sign and are above the recommend 0.50 factor loadings value limit (Byrne, 1998).
Assessment of the uni-dimensionality of each constructs was done using various fit indices; these
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fit indices include the Goodness of Fit Index (GFI.), Adjusted Goodness of Fit Index (AGFI.),
Normed Fit Index (NFI), Relative Fit Index (RFI), Incremental Fit Index (IFI), Tucker Lewis
Index (TLI), and Comparative Index (CFI) in addition to the Root Mean Square Error of
Approximation (RMSEA). The analysis revealed all three latent construct models had model fit
indices at or above the recommended values (J. Hair et al., 2006; Kline, 1998). The RMSEA
values for all the four models was also at or below the recommended cutoff of 0.05 with p-values
Range of AGF
Measurement Std. Factor GFI I NFI RFI IFI TLI CFI c2 , d.f.,
Model Loadings ≥0.90 ≥0.80 ≥0.90 ≈1.00 ≈1.00 ≥0.90 ≥0.90 RMSEA p-value
PR 0.78 - 0.64 0.99 0.96 0.97 0.96 1.00 0.99 1.00 0.044 2.60, 2, 0.272
PC 0.77 - 0.59 0.99 0.97 0.99 0.96 1.00 100 1.00 0.023 2.17, 2, 0.339
TS & TE 0.92 - 0.59 0.97 0.94 0.94 0.91 0.99 0.98 0.98 0.050 18.47, 14, 0.186
Full Model 0.86 - 0.57 0.90 0.86 0.94 0.91 0.97 0.97 1.00 0.033 181.37, 155, 0.072
Goodness of Fit Index (GFI.); Adjusted Goodness of Fit Index (AGFI.); Normed Fit Index (NFI); Relative Fit Index (RFI); Incremental Fit
Index (IFI); Tucker Lewis Index (TLI); Comparative Index (CFI); Root Mean Square Error of Approximation (RMSEA).
To assess the discriminant validity of the constructs a full model was create containing
the correlated collection of all constructs. The results of the full model are presented in Table 4
and reveal all parameter estimates, fit indices and the RMSEA with acceptable levels (Anderson
& Gerbing, 1988; J. F. Hair, W. C. Black, B. J. Babin, R. E. Anderson, & R. L. Tatham, 2006).
Overall, these results provide strong evidence of psychometric properties of our scales.
7. Results
We conducted a t-test comparing the ERP group that experienced a decrease in logistic
costs and the ERP group which experienced no change or an increase in logistic costs across all
six dimensions. We found three significant differences and one weak significance. They are
shown in Table 5.
23
Hypothesis 1 refers to the anticipated cause of technical support on logistic costs; with
the results revealing that aligning various elements of the ERP system by technical support is
associated with lower logistics costs. The results with respect to Hypothesis 2 reveal that
properly aligning various elements of the ERP system through the use of re-engineered processes
results lower logistics costs for the organization. Hypothesis 3 which examines the importance
of personnel communication to employees with respect to role and job changes due to the ERP
system was only weakly supported in helping the organization achieve improvements in logistic
costs. Finally Hypothesis 4, which argues that the need to align ERP elements through training
and education programs for employees will result in an increased likelihood of ERP success in
Logistic
Cost Logistic Cost
Improvement Same or Worse
Hypothesis Constructs N=100 N=56 t-values
H1 Technical Support 0.6756 0.5680 3.812***
H2 Process Re-engineering 0.6991 0.6057 3.437***
H3 Personnel Communication 0.6873 0.6388 1.966^
H4 Training & Education 0.6742 0.5936 2.826**
^ p > 0.100, * p > 0.050, ** p > 0.010, *** p > 0.001
implementation, including logistics cost. By examining four critical success factors (CSF)
alignment associated with reduced logistics costs, this research effort has linked the importance
costs. . Our research showed that business process re-engineering (BPR), technical support and
24
training and education are significant; while personnel communication was only weakly
The significant results tell a clear story about the organizations that are successful in
achieving lower logistic costs; these organizations consider technical complexity, business
process change, and education as critical to ERP-enabled supply chain success as the results
clearly show the importance of high technical support, training and education, and the need to
There was also a relatively weak support for the impact of personnel communication;
however, this construct centers around providing support for changes in employee’s role solely
with respect to the ERP technology; we might see a stronger effect by examining specific types
of training and education to improve the learning outcomes. Recently, game theory has begun to
The complexity causes many failures and abandonments of ERP implementations This is in stark
contrast to early ERP studies that believed the software would automatically drive organizational
benefits such as lower logistic costs. The reality is that ERP systems require key alignment
Interestingly, organizations strongly believe that supplementing their internal staff with
outside consultants is a must. This is likely a result of analyzing the catastrophic failures
documented by firms who fail to understand the limitations of the current employees and
the firm, logistics costs, this research has provided insight into the areas of ERP implementation
25
9. Limitations and Future Research
Personnel Communication is known to be critical for any IT implementation project. The
constructs and questions used were of a technology-specific nature. The survey items for
other participants in future research. The research could also break down other functions like
purchasing, warehousing, planning and quality control. It could also break logistics costs into
26
27
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