Erp Systems In Supply Chain Management - Ijoar

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INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-91271International Journal of Advance Research, IJOAR .orgVolume 2, Issue 3, March 2014, Online: ISSN 2320-9127ERP SYSTEMS IN SUPPLY CHAIN MANAGEMENTDr. Mohamed BaymoutDr. Mohamed Baymout is a professor at Telfer School of Management, University of Ottawa, Ontario, Canada.KeywordsERP: Enterprise Resource Planning, SCM: Supply Chain Management, E-SCM: Electronic Supply ChainManagement, CRM: Customer Relationship Management, SOA: Service Oriented Architecture, ICT:Information and Communication Technologies.ABSTRACTSupply Chain Management and Enterprise Resource Planning Systems are two of the mostpopular components of enterprise solutions for today. SCM ensures that upstream and downstreammembers of the chain are able to deliver according to the standards required in order to deliver aproduct or service that satisfies the customers’ needs. ERP systems on the other hand ensure thatoperations and transactions of a business are integrated into a centralized repository to facilitate ininformation sharing and decision making within the organization. Most ERP vendor solutions of todaylike SAP and Oracle are providing SCM as an extension module to the ERP core. These addedfunctionalities allow organizations to collaborate and interact with other supply chain members. Inaddition, technologies like middleware and frameworks like Service-Oriented Architecture are rapidlygaining mainstream adoption according to recent technological trends studies by Gartner. Thus, thevision of having enterprises with a pool of integrated enterprise solutions consisting of ERP, SCM, BI,DSS, CRM, etc. is now feasible and highly possible.In this article, we examine how ERP and SCM can work together to bring benefits to a business. We willalso review two successful case studies of ERP and SCM implementations to examine how a business cangain value from such a combined solution. Finally, a conclusion of the studies was made and it wasdetermined that ERP and SCM indeed can go hand-in-hand to deliver a solution that can be beneficial toan organization.IJOAR 2014http://www.ijoar.org

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127SUPPLY CHAIN MANAGEMENT AND E-SCMSupply Chain Management (SCM) is the “systematic, strategic coordination of the traditionalbusiness functions and the tactics across these business functions within a particular company and acrossbusinesses within the supply chain, for the purposes of improving the long-term performance of theindividual companies and the supply chain as a whole” (Mentzer et al., 2001). SCM is meant to make theoverall processes more clear and unified. Thus the flow of management and co-ordinating decisions andinventory are faster and more efficient coming from the top of the chain all the way down. SCM usesintegrated business processes in order to simplify daily operations in real time.E-Supply Chain Management (E-SCM) uses the advances of technology made available throughthe advancement of the internet to further simplify SCM by utilizing it to simplify the flow of informationto different members of the supply chain, thus, further making SCM more efficient and much easier.Through this, a supply chain can share crucial information in real-time. The use of the internet ininformation sharing will better reflect decisions from all spheres of the business in and out as it alsofacilitates information sharing and collaboration according to Gimenez and Lourenco (2004). Also fromGimenez and Lourenco (2004), it can be seen that the primary effect of E-SCM to organizations is thatthe internal value chain is improved as well because of information sharing and collaboration. Functionaland business units are able to improve customer relationship management and customer servicemanagement as a result (Gimenez & Lourenco, 2004). Supply chain business process integrationinvolves collaborative work between buyers and suppliers, joint product development, common systemsand shared information. According to Lambert and Cooper (2000), operating an integrated supply chainrequires a continuous information flow. Lambert (2004) stated that SCM and E-SCM are crucial featuresfor a successful ERP since the flow and information sharing is important for the business to function.SCM requires the management of materials and information flow in the whole chain, from suppliersthrough to customers. It has been argued that if business success is to be achieved, optimization ofbusiness processes across the value-added chain must be accompanied by modern processing technologyfor optimization of enterprise-wide information management (Buck-Emden & Galimow, 1996).BENEFITS OF SCM AND E-SCMThere are many benefits to SCM and E-SCM such as the flow of information in real-time in everyaspect of the business. Supply chain systems configure value for those that organize the networks. Valueis the additional revenue over and above the costs of building the network. Co-creating value and sharingthe benefits appropriately to encourage effective participation is a key challenge for any supply system.Tony Hines defines value as follows: “Ultimately it is the customer who pays the price for servicedelivered that confirms value and not the producer who simply adds cost until that point” (Hines, T.2004). Hence, SCM and E-SCM adds value to the business by enabling the business to save moneythrough lower costs at various stages of the supply chain. Like for instance, SCM would effectivelyenable accuracy in the inventory of items which in turn improves resource utilization. Also anotherbenefit would be time effectiveness, since there would be real-time information accessible which wouldhelp in making decisions more accurate and appropriate in response to timely issues (Gimenez &Laorenco, 2004). Additionally, E-SCM improves in-company cooperation and collaboration sinceeveryone would be on the same page, which leads to improved value chain management that would helpin sales and customer relations since everyone works towards achieving the same goals to satisfy eachIJOAR 2014http://www.ijoar.org

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127customer. There are also human resource management benefits with E-SCM. With centralizedinformation within the company, it would be easier to track employees hours worked and compliance tocompany standards. E-SCM ensures that everything is transparent to everyone in the company; therefore,improving the company’s working standards.Lancaster et al. (2006), has a list of the most common benefits of utilizing E-SCM as below assummarized below: Speed and the ability to communicate – electronic channels decreases costs ofcommunication, carrying inventory and providing customer serviceCollaboration – minimizes the “bullwhip” effect which is the distortion of demand forecastsalong a supply chain as a result of inaccuracies or inadequacies of information on handAbility to build long-term relationships along the supply chain - organizations increasethe availability of information with each other, enabling them to align their strategies andgoals, making supply chains committed to the end consumer; it also moves to stabilizeprocesses, since organizations can focus on their core competencies, while outsourcing theirremaining needs to trusted and reliable partnersImproved customer relationships - eliminates stock outs and encourages customer drivendemand as well as efficiency in tracking of deliveriesDecreased costs – through the sharing of information in the supply chain, a pull-baseddemand inventory system is created leading to lower warehouse and facility costs and morereliable operationsENTERPRISE RESOURCE PLANNINGEnterprise Resource Planning (ERP) systems are changing the ways many businesses andgovernmental organizations’ carry out their business processes by providing a means of connecting all thevarious departments together thus resulting in more accurate information for the company. ERP systemsprovide an organization with a single platform system responsible for the coordination and integration ofkey-business processes. ERP systems ensure the smooth flow of information within various levels of theorganization thus leading to more focused and precise decisions for the company.Before the ERP system’s implementation, organizations had several different informationsystems in place supporting various activities like Finance, HR, Logistics, Supply Chain, etc. without theintegration of activities individually.These systems existed separately and did not supportinterconnectivity. With the implementation of ERP systems, all these systems mentioned above alongwith various other systems become integrated and it creates a backbone for the organization by providinga means of connecting all the different departments through a single system that is efficient enough tointegrate all the relevant information together and is able to present meaningful on-time data and resultsfor the business.ERP systems are considered the system of records by many companies and offer persistence ofalmost 25 years. ERP systems mostly cost around 10 to 100 Million and sometimes even more. ERPsystems are widely being used globally and according to a study by (Gartner, 2010), ERP systems have amarket of 21.2 Billion in software revenue & a growth of 5.5%. ERP software has the 3rd largestIJOAR 2014http://www.ijoar.org

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127market share, just behind Database and Operating Systems. ERP systems’ main worldwide usage is inNorth America and Western Europe where its overall market share is 80% while the 20% is for the rest ofthe world (Gartner, 2010). The potential markets for the ERP systems exist in Asia Pacific, Latin America,Middle East and Eastern Europe.ERP systems not only integrate the various individual systems within an organization but alsoprovide an integrated system capable of supporting various web services, integrated supply chain, ecommerce and mobile support etc. According to a research conducted by Meta Group, as much as 70%of the US federal, local and state government agencies have implemented ERP solutions based on thesame reasons as businesses; i.e., to integrate the organization-wide information and lead to more usefuldecisions. Many ERP vendors see this as an opportunity, as in the coming future, other countries toowould be following the same path as the US model by installing various ERP to replace their traditionallegacy systems throughout the local and federal departments in order to increase efficiency andproductivity.ERP systems are not just limited to large firms but also are very useful for the small organizations.According to the data provided by SAP (the largest vendor of ERP systems worldwide), the companygenerated 90% of their revenues from large multinational organizations but in late 90's & early 2000, 50%of their revenues came from smaller and mid-size companies.IMPACT OF ERP SYSTEMSImpact on Competition BehaviorThe ERP systems these days differentiate many organizations from each other due to thecompetitive advantage gained through the successful implementation of ERP systems. Organizations cannow look at their competitor companies and try to learn from their implementations and come up with abetter ERP solution for themselves. This makes them not only competitive in the market but alsoinnovative at the same. These firms are able to secure a much better position in the market compared tothe reference group based on the experience gained from other companies and design solutions that resultin producing more efficiently at a lower cost.Impact on Business Partner RequirementsDuring the implementation of ERP systems organizations need to stay ahead. They need to focuson the smooth organization-wide implementation and be ready to face the challenges as every firm isresistant to change. At this point, an organization must become quick in collecting, analyzing,disseminating information as its going through a change process and there can be a certain situation insidethe firm that a business partner may need to adhere to the change process or quit as there is no turningback and conflicts can arise that can create a problem for the whole company.Impact on the Nature of Consulting FirmsERP systems have enabled many firms to increase their efficiency by integrating the processesand sharing information at all functional levels within the organization ultimately leading to more usefulinformation for the decision makers. Most multinational firms these days have either implemented theERP systems or are in the process of implementing it because they have realized that in order to stayIJOAR 2014http://www.ijoar.org

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127competitive or survive in the market they have to implement such a system. ERP systems have replacedvarious existing legacy systems such as the ones for Finance, HR, Logistics, Supply Chain, etc. by asingle system capable of running all the functions of the different systems more efficiently at less cost andthus changing the way organizations used to deal with processes as the information from top to bottom isshared through a single system also capable of performing various web services at the same time.Impact on Nature of Information Systems FunctionERP systems are outsourced from different vendors who are also responsible for the maintenanceand update activities thus, skipping the part of designing & developing as the organization can rely onvarious ERP vendors that already have a suitable ERP system in place that just needs modification inorder to meet the company requirement and move on with the implementation stage. The firms nowadays,don't need to hire system analysts and programmers as the whole system is outsourced from ERP vendorsand these systems can be run by almost all employees with some training that’s all, while previously thesuch employees needed to be hired that were specialists in system design etc. Now the companies canfocus on its core processes instead of getting too much involved in developing systems that meet theirrequirements as it puts together a list of its requirements to the ERP vendors and it is up to them to design& develop such systems.Impact on the Nature of Jobs in all FunctionsERP implementation can create and at the same time remove the jobs within in a company as itintegrates all the relevant information and changes the way of doing things thu,s eliminating certain HRinvolved processes as they are automated within the system. At the same time ERP systems, can alsocreate a certain position within a company that is unique in terms of its nature as the company canredefine its goals through an ERP implementation by offering something more to its customers thusinvolving more HR at the same time.Advantages of ERP systemsEnterprise Resource Planning systems have changed the nature of the business by transformingthe ways in which the business operates. These systems have integrated all the different processes withinorganizations and provided a platform for information sharing at all levels. The following are a fewadvantages of ERP systems: ERP systems have enabled companies specially the manufacturing industry to cut their extrainventory by providing them with all the necessary information required to forecast the demandand manage the whole process in a more efficient manner.ERP systems have also enabled firms to reduce HR cost as most of the processes are automatedthrough these systems and the ERP vendors are mainly responsible for the maintenance of thesesystems so the company doesn't need to hire programming specialists, etc. to develop or maintaintheir systems.ERP systems have replaced the legacy systems that existed separately like Finance, HR, Logistics,etc. by having a single integrated system capable of performing all the activities of these variousindividual legacy systems more efficiently at less cost.IJOAR 2014http://www.ijoar.org

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127 ERP vendors provide organizations with a flexible solution based on their needs. That means,they provide specifically customized systems based on the organization requirements thus,ultimately leads to a more efficient process delivery and at the same time let the company gain acompetitive edge over the reference group.The implementation of these systems leads to new innovative production standards that set apart acompany from its competitors which is why every organization aims to get an ERP solution thatis better than its reference group in order to stay competitive.As all the information flows within the ERP systems so it is easy for a company to plan for thefuture based on its current performance. These systems enable the decision makers to make quickdecisions based on accurate information as the whole information from various departments liewithin the same system.ERP solution enable a company to improve customer satisfaction by on time delivery, increasequality and shorten delivery times providing the company with all the integrated informationfrom various levels.Organizations these days have realized that in order to stay competitive they have to implementERP systems in order to get an edge over the market by offering more at the very less cost.SUPPLY CHAIN IN ERP SYSTEMSA successful organization must be able to manage the integration of its business, technologies,processes, departments and people within the enterprise itself and across extended enterprises (Awad &Nassar, 2010). The integration inside any business organization includes not only integrating ERPsystems with legacy systems to ensure an effective and efficient communications between these systems,but also include the integration of ERP systems with SCM systems and linking it with CRM systems toencourage the cooperation and collaboration across the entire value chain (Awad & Nassar, 2010). Dueto the rapid evolution in information and communication technologies (ICT), the traditional supply chainmanagement processes have been enhanced to be integrated with different business processes for thepurpose of increase the overall value of the chain, reduce cost, improve production process and competewith different business environments.As discussed in the earlier sections of this document, ERP effectively integrates all theinformation which is required for the business to operate including finance, accounting, production,human resources, quality management, sales and marketing. We can see that ERP is an integratedinformation system which integrates the internal working process of the organization, standardize theinternal procedures for data processing and combines all the operations data which are generated bymultiple departments or functions (Adaileh & Abu-alganam, 2010) . On the other hand, Supply ChainManagement (SCM) is the management of upstream and downstream to increase the value of the chain. Itlooks at the business as a chain of well integrated and connected entities which will add more value,reduce inventory, reduce lead time and reduce cost. The following table illustrates comparison betweenERP and SCM which will help to understand how to build relationship and integrate these two systems(Tarn & Beaumont, 2002)IJOAR 2014http://www.ijoar.org

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN nshipsScopeSCMERPIntegrating and optimizing internalbusiness processes of a single organizationas well as the interaction of theorganization with its business partnersacross the entire supply chainOptimizing information flow, physicaldistribution flow, and cash flow over theentire supply chainConstraint-based tool providing reasonableand feasible business plans based on theavailability of the required key resourcesManufacturing management, inventorymanagement, logistics management, andsupply-chain planningInvolvement of external parties in processimprovement, anticipating customers needand demandCoordinating and integrating all interorganizational activitiesIntegrating and optimizing internalbusiness processes within the boundary ofa single organizationOptimizing information flow and physicaldistribution flow within a singleorganizationNon-constraint-based tools providingbusiness plans without the consideration ofthe availability of key resourcesManufacturing management, financialmanagement, and human resourcemanagementReacting to customer demand, but there isno involvement of external parties inprocess improvement.Coordination and integrating all activitieswithin a single organizationTable 1: ERP vs. SCM (source: (Tarn et al., 2002))The rapid enhancement and thedevelopment in ICT opened the door forglobalization where companies are seeking toexpand their activities outside of their originalareas looking for more opportunities all over theworld (Tarn et al., 2002). In order to adopt withglobalization, companies are required to buildintegrated information systems which allow thetransmissionofdataacrossdifferentgeographical area. This will allow thecompany’s different departments, applicationsand functions to cooperate and communicate inmore effective and efficient ways. Furthermore,companies have to make sure that all its businessprocess and functions are integrated and worktogether before extended the integration to othercompanies (Tarn et al., 2002). For example, thecompany has to make sure that its businessprocess such as logistics and distributionfunctions are well integrated with supplymanagement manufacturing and informationtechnologies before integrating with externalcompanies (Tarn et al., 2002). In order to facethe global business environment and differentchallenges, companies are seeking to integrateits business process together using technologysolutions. For this reason, companies all over theworld are seeking to link its ERP, SCM andCRM together and share part of the informationwith their suppliers and customers to increasethe overall value of the chain.Traditional supply chain managementsystems are designed to take data fromorganization legacy systems and then data willgo under certain processes to be evaluated tomake different decisions and forecastingcustomer demand (Küçükçay, 2011). At thatIJOAR 2014http://www.ijoar.org

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127time, SCM systems were standalone softwareprovided by limited number of vendors. Sincedifferent companies started using ERP systems,SCM system started directly relying on ERP andCRM to get the information about customers andthe focal company. SCM system needs theinformation in CRM systems to make decisionabout customer’s demands and futureforecasting. Furthermore, an SCM system needsto be connected with all the departments andunits in the company by relying on ERP systemsto do this function (Küçükçay, 2011).Integration MethodsThe integration of SCM and ERPcombines business processes with state of the arttechnologysolutionstoincreasethecommunication and cooperation between theorganization different departments and functions.Since both ERP and SCM rely on similarframeworks ( e.g. intranet, extranet and EDI), itis said that ERP is the backbone of SCM (Tarnet al., 2002). For this reasons, most ERPvendors such as SAP, Oracle, PeopleSoft and i2have enhanced their ERP systems to beintegrated with different SCM systems and alsoby adding SCM capabilities (modules) toincrease efficiency, productivity and value to theend customer (Tarn et al., 2002). The followingfigure illustrates a general framework of howERP, SCM, BI and CRM can be integrated toincrease the communication and cooperationbetween suppliers, partners and customers.Figure 1: ERP, SCM, BI & CRM IntegrationThe increasing demands of using SCMsystems within the ERP systems forces top ERPvendors to realize the need to integrate theirERP systems with an SCM solution (Tarn et al.,2002) or to create their own version or moduleof SCM. For the process of integrating ERPsystems with SCM systems, vendors followthree different methods of integrations which are(Tarn et al., 2002):IJOAR 2014http://www.ijoar.org The notion of conformity whichemphasizes on the idea that allsupply chain members use thesame system. This method isimpractical in large scalesupply chain and some issues ofsecurity and trust may appear.

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127 Developingamiddlewarebetween applications whichcould be very expensive andrequire more time and effort,but it is very practical. In thismethod, programmers anddevelopers are asked to linkdifferent systems together toensure an efficient and effectivecommunicationandtransmission of data.SIS which is a specializedintegrationsoftwareprogrammed to integrate SCMsoftware with ERP systems.At the beginning, the world’s top ERPvendors such as SAP, Oracle, i2 and PeopleSoftfocused their intentions and efforts to findsolutions so their ERP systems can be integratedwith other SCM software. For example, anapplication link enabler (ALE- middleware)used in order for I2 Rhythm Supply chain suiteto communicate with SAP R/3 ERP suite (Tarnet al., 2002). Later, the rapid development andgrowth in SCM systems and the high demand oflinking and integrating it with ERP systems haveawaken ERP vendors to add more sophisticatedSCM capabilities to their ERP packages. Someof the leading ERP vendors such as SAP orOracle had partnerships with the SCM vendorsfor the purpose of adding SCM capabilities totheir systems. Thus, the leading ERP vendorSAP added SCM module to its systems andname it as SAP SCM as a part of SAPBusiness suite (SAP Website, 2012). FollowingSAP’s example, Oracle also added SCMmodular to its ERP system and named it asOracle Supply Chain Management as a part ofOracle’s E-Business Suite (Oracle Website,2012). Other ERP vendors are doing the same byadding SCM modules to their system or byproviding easy and efficient tools to integratetheir systems with SCM systems from differentvendors.SAP SCM (SAP Business Suite)SAP Supply Chain Management is apart of overall SAP Business Suite which wasdeveloped to help organizations to perform itsessential business process in more efficient andreliable ways (SAP Website, 2012) supportingintegrating with SAP and non-SAP software.The SAP Business Suite contains differentsystems which are well integrated with eachother and can be used with different softwarevendors. The business suite as illustrated inFigure 2 includes: SAP Enterprise ResourcePlanning (ERP), SAP Customer p Management (SRM), SAP SupplyChain Management (SCM) and SAP ProductLifecycle Management (PLM).IJOAR 2014http://www.ijoar.org

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127Figure 2: SAP Business Suite (source: (SAP Website, 2012))0.5SAP SCM provides different solutionswhich enable business to carry out supply chainplanning and generating high efficiency businessprocesses with different partners and suppliers.It enables business to respond to demand using asupplynetworkwheredistribution,transportation and logistics are well integratedinto real-time planning processes (SAP Website,2012). The following figure illustrates thesolution map for SAP SCM which includes thegeneral features and more detail services whichthe system can provide. This can include:IJOAR 2014http://www.ijoar.org Order facturing

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127Figure 3: SAP SCM Solutions Map (source: (SAP Website, 2012))IJOAR 2014http://www.ijoar.org

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127Oracle Supply Chain Management (Oracle EBusiness Suite)Oracle Supply Chain Managementmodule is part of Oracle E-Business Suite whichinclude different kind of modules to supportorganizations in streamline their businessprocesses and connecting them with differentsupplier, distributors, partners and customers(Oracle Website, 2012). Following the sameidea of SAP Business Suite, Oracle E-businessSuite is one of the comprehensive suites thatintegrated global business applications in orderto provide the most complete, integratedbusiness intelligence portfolio, the mostadaptable global business platform and the mostcustomer focused application strategy (OracleWebsite, 2012).Oracle E-business suite includesCustomer Relationship Management (CRM),Financial Management, Human ResourcesManagement, Supply Chain Management(SCM), Advanced Procurement, nt, Value Chain Planning and ValueChain Execution (logistics). As a part of suite,Oracle Supply Chain Management (SCM) is acomprehensive suite of applications with openand flexible architectures (Oracle Website,2012). It can be integrated with Oracle or NonOracle software which allows businesses totransform their operations across the demandand supply in order to deliver operational andinnovation excellence. The following figureillustrates the architecture of Oracle SupplyChain Management:Figure 4: Oracle SCM (source: (Oracle Website, 2012))IJOAR 2014http://www.ijoar.org

INTERNATIONAL JOURNAL OF ADVANCE RESEARCH, IJOAR .ORGISSN 2320-9127ERP systems can provide 3 typesfunctionality (H.A. Akkermans et al., 2003):IMPORTANCE OF ERP ON SUPPLYCHAINRecent communication and informationtechnologies are essential in managing supplychain. It is useful to facilitate the integration ofupstream and downstream activities and provideseveral stakeholders to collaborate with eachother. These technologies include informationsystems such as Enterprise Resource Planningsystems (ERP), Transportation ManagementSystem (TMS) and Warehouse ManagementSystems (WMS). Moreover, it also includescommunication systems such as r

ERP: Enterprise Resource Planning, SCM: Supply Chain Management, E-SCM: Electronic Supply Chain Management, CRM: Customer Relationship Management, SOA: Service Oriented Architecture, ICT: Information and Communication Technologies. . determined that ERP and SCM indeed can go hand-in-hand to deliver a solution that can be beneficial to an .

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