EC2009 第十二屆電子商務學術研討會
Enterprise Resource Planning (ERP) systems have long been used to facilitate business efficiency. Many studies have identified factors relating to the success or failure of ERP systems implementation. A case study discusses and compares implementation process and result of two Taiwanese companies shows the preparation and evaluation before implementation is helpful to avoid problems occurring during the implementation process, and the performance of the project team is vital for the success of the project. This study also discusses how the people affect implementation in different situations. Case 1, the resistance comes from top management of family enterprise, but the external consultant develops the second generation of this family as the key man and finds him an assistant to tackle this problem. ERP system has been successfully implemented to this company. Case 2, the chairman is the patent owner of the primary product in this company, ERP has been successfully implemented in a short time under his fully support. But due to his insist on preserving the original operation process which he developed, this company adopts customised modules rather than re-engineering the operation process during the implementation.
Keywords: ERP implementation, Case study, Taiwan
The new economy breaks the boundaries between nations and makes the world flat (Friedman, 2005). The evolution of transportation makes the world move faster than ever; companies can now find cheaper suppliers easily from other countries on the internet. This competition between companies in the same industry is no longer limited to one country. Companies now need to be more responsive and agile in its approach in dealing with the dynamic business environment, and therefore, the
Enterprise Resource Planning system (ERP), as a tool to manage and control the operation process holistically has played an important role in the last decade.
From the 1970s MRP has been widely used in the manufacturing industry to improve the efficiency, and it was developed and extended into MRPII in the 1980’s.
Until the 1990’s, ERP was generated from the same logic: companies want to take advantage from the usage of technology (Brislen and Krishnakumar,1999). As the world rapidly changed, many corporations lost their market due to a lack of organisational reaction and flexibility in adjusting their business plans. But some other corporations gained an economy of scale by mass production and a superior global delivery system through established worldwide business systems at a very early stage. These corporations significantly reduced costs and increased the satisfaction of
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EC2009 第十二屆電子商務學術研討會 their customers. The single reason that contributes to the success of these corporations is the Enterprise Resources Planning systems.
The implementation of an ERP system not only reduces costs in many areas within the corporation, but also provides immediate and precise information for the managers. The information technology based on a real-time reactive system can maximise business management by substantially shortening time and distance. The
ERP system can be described as a digital central nervous system; it can help a manager to make the right decision with the necessary information provided as soon as it is transferred from a nerve. According to the international job allocation has been formulated, Taiwan will become a main producer for the global electronic and information industry. The booming development within the Taiwanese ERP industry can be explained by the power of big customers and Y2K (Market Intelligence Centre,
Taiwan, 2006). The Taiwanese electronic information and semi-conductor companies play an important role in the global supply chain. But when facing global and multinational competition, Taiwanese companies realise how important ERP is for business management and compete for international orders. Big customers also forced
Taiwan OEM companies to implement the ERP system in order to ensure that they benefit from ERP collaboration. The Y2K crisis, and a reduction of the investment from an income tax policy carried out by Taiwan government, also facilitated the adoption of new information system within Taiwan corporations.
Since most of the previous studies have been conducted in Western counties, this research tries to survey the situation in Taiwan due to the mature ERP market in Asia
Pacific area. This research will discuss the factors that would affect the adoption of
ERP systems by a review of the literature; interviews with companies that have successfully implemented ERP in the electronic manufacturing industry in Taiwan will reveal how they put ERP systems into their enterprises.
1.1
Implementation of ERP
As a company implements more enterprise-based systems within its organisation, the cost of integration will become more paramount. In other words, the more you buy, the more you have to pay for integration. Two central reasons for most of the cases of failure have been addressed by Ehie and Madsen (2005). First, companies not able to realize a competitive advantage from ERP implementation is attributed to a failure of proper technology usage to address the design and structure of an organisation.
Second, the costs overall were underestimated, with the training, post-sale service and integration besides the ERP software itself, averaged merely 15% of total ERP implementation. Ehie and Madsen (2005) argued that ERP implementation should be viewed as a system that would change the company into a more efficient and effective organisation. They found top management support is the most important factor for the success of ERP implementation. Another five factors also have a strong correlation: project management principles, feasibility/ evaluation of ERP project, process re-engineering, cost/ budget issues and consulting service. Implementation is divided into five stages such as project management, business blueprint, realisation, final preparation, and going live and support. Each of them is vital for the success of ERP
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EC2009 第十二屆電子商務學術研討會 implementation.
1.2 The definition of a success ERP implementation
It became obvious that there were profound differences in how well companies were using this set of tools. To help focus on this issue, Oliver Wight, the leading pioneer in this field, developed the ABCD classification which includes 20 questions which can evaluate the performance of MRPII (Table 1). In 1993, the checklist has been improved to 72 overview and 449 questions which can be applied on evaluating
ERP systems implementation.
Table 1. Oliver Wight’s ABCD classification chart
Class A Effectively used company-wide; generating significant improvements in customer service, productivity, and costs.
Class B Supported by top management; used by middle management to achieve measurable quality improvements.
Class C Operated primarily as better methods for ordering materials; contributing to better inventory management.
Class D Information inaccurate and poorly understood by users; providing little help in running the business.
2.
This study is conducted by case study approach and focuses on the human factors affecting ERP implementation. Therefore, technical problems will be discussed they do not affect ERP implementation. This study has two cases in two data collection methods. Case 1 is conducted by participant observation. Observer is the outside professional in this case who served as the consultant of case company. He records the process of the implementation he joined within 3 years. Basic company data such as name, product, and financial report are not available due to confidential. Case 2 is conducted by interview with semi-structured questionnaire as a post implementation research. The details may not be as clear as case 1. In order to categorise the two companies generally, this study consult the standards used by Taiwan (Small and
Medium Enterprise Administration, Ministry of Economic Affairs), U.S (APICS,
1995), UK and EU (Commission of the European Community, 1996), for non-Taiwanese readers’ ease of understanding the way this study identifying the size of enterprises. According to the standard of recognising the size of enterprises by
Europe and Taiwan, company A in case 1 is a medium-sized enterprise, company B in case 2 is a large enterprises. According to Oliver Wight’s ABCD classification, this
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EC2009 第十二屆電子商務學術研討會 study defines both cases in this study can be considered as class A success cases of
ERP implementation. This study tries to present the implementation process and reveal the whole story objectively.
2.1 Case Company 1
Company A is a chemical engineering company established in 1977, it makes
150 million NT$ annual turnover and has 42 employees. The core management staffs consist of the chairman, financial manager, and technology development. Sub staffs involve production technology and business managers. All of them have worked as important positions in the company for more than 20 years with great loyalty and are very familiar with company culture. The common character of them is that they know quite few about ERP. The timing of the ERP system implementation is when the business is growing with great profitability. Due to lack of professional employees of
ERP implementation, company A adopted outside professional who was invited by the chairman. The outside professional was well trusted and fully empowered by the chairman.
The outside professional work as an external consultant, therefore he has shorter working hour and not able to teach and supervise ERP system users step by step. The outside professional uses the strategy that to find suitable people, and develop them as middle interface or seeds. Finally, the son of top manager was found to be the key man (We call him as SX in the following paragraphs). He was graduated from technological university in information management, with great knowledge of computer but lack of practical experience of ERP. Be the second generation of the top manager, he has certain degree of power to encourage and supervise employees to learn and use the system. The ERP system adopted by company A is a standard module for small and medium-sized enterprises which has modules such as stock, sales, financial & accounting, production management.
2.1.1 Difficulties in the beginning of implementation:
2.1.1.1 Opinions from the top management family members
The decisive influence for the system selection comes from the top management family members. Facing the different opinions is the most frustration and intervention for the outside professional. The result of giving way to these unprofessional opinions is the partial imperfection of the system development. Hence, in the traditional studies of ERP system implementation the support of top management plays a very important role. The same situation happens in the family owned business, the support for the outside professional from the top management were affected by the resistance of family members, especially when the top management is not familiar with ERP system.
2.1.1.2 The other problems
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EC2009 第十二屆電子商務學術研討會
The other resistance comes from the middle managers lack of enough knowledge for ERP system and unfamiliar with the outside professional. This is so called the psychological resistance of ERP implementation. Traditional studies in the past sorely focus the discussion on the top management and the shop floor users but not middle managers. But in this case, outside professional found that they play important role which would reinforce the resistance of ERP users.
2.1.2
Difficulties during the implementation:
2.1.2.1
Basic jobs: Coding and data transformation
According to the limited understanding of outside professional toward the company and the SX lacks of ability of execution. Outside professional has to spend more time learning and understanding the job content of the company. This step has been considered as the most crucial part of the success of the system implementation from outside professional’s view. That is, the correspondence analysis of professional
ERP knowledge with practice provides the basis for the judgments and the criterion on decision making to outside professional. According to this part, indicates that the effort and the knowledge of ERP system of outside professional have great influence during the beginning of ERP implementation.
The crucial factor is outside professional’s driving on ERP system implementation is not only about the knowledge of profession and practice of ERP system, but the outside professional is willing to understand and learn the job content of the company. In comparison with other cases, many small and medium-sized companies in Taiwan usually give the whole job to DSC (Data System Consulting
Co., Ltd.) or ATTN (Attention System Develop Co., Ltd.) but not able to get fully support. How much does the consultant know the customer seems to be the crucial factor of the success of ERP system implementation. The topic worth to be discussed is that how the ERP system venders proceed knowledge transformation and assist small and medium-sized enterprises to drive the ERP system implementation.
2.1.2.2
Education and training:
The resistance of ERP system users formed when the middle managers did not fully support. Users’ attitude toward this situation is just waiting and sees aside. Thus, outside professional made a strategy to develop a young man has the same degree as
SX (We call him KW in the following paragraphs). Both of them have basic computer knowledge and understand the value of ERP system. And, they set up the implementation as an opportunity to improve their competivity. Choosing SX and
KW as seeds is a success strategy of outside professional, not only affect users to decrease the resistance, but also learn from practice to perceive the value and purpose of ERP system. The basic jobs of coding and education & training took a period of time but it’s really critical to provide the consensus of RP users and let all the managers to feel the real value of ERP system.
2.1.3 Important work after the implementation:
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EC2009 第十二屆電子商務學術研討會
Institutionalisation is an important work after the implementation. Outside professional has to resign the position of ERP system implementer, and assign all the jobs to each organisation in company A. On the other hand, outside professional work on the building of standard operating procedure, which includes documentation and institutionalisation. He also reorganise the organisations partially and help SX and
KW to get promotion. Furthermore, he suggested raising the salary of ERP system users. To sum up, outside professional gives company A an opportunity to integrate with its ERP system, and bring the ERP system into full play.
2.2 Case Company 2
Established in 1998 in Tainan, Taiwan, company B is a professional company producing collimation prism and diffusible membrane, which are the key optical components of LCD back-lit modules. Company B is second only to 3M in the world within this industry. Its authorised capital is NT$ 904 million, and
500 employees are active between Taiwan and China. Company B has set up its sub companies in Suzhou, Xiamen, and Kunshan in 2006. Also, company B set up a
Guangzhou sub company in 2007. The core product, collimation prism, has around
10% market share (Display Search LCD market annual report, 2006), and most of the collimation prisms are manufactured at the Tainan factory. The second generation factory building was constructed at the end of 2007, which increased the factory building area to 40,000 square metres. Raw material production increased fourfold, and it can satisfy 50% of global needs when it is running at maximum production
(Display Search TFT LCD equipment report, 2006). Its customers include Samsung,
LG Philips, CHIMEI, and AU Optronics.
2.2.1 Background of ERP implementation
Company B has a competitive advantage in technology of its major product collimation prism. But its major competitor, 3M, performs better at cost control, efficiency, and supply chain management. In order to compete with 3M and other competitors, company B decided to adopt an ERP system.
The other reason was due to the increas ing sales and plans to enter the
Chinese market, company B decided to make use of an ERP system to manage its sub companies in China, especially its ability to communicate across the organisation with its different languages and currencies.
The project evaluation team leader was the manager of the information division appointed by the general manager. In order to ensure evaluation suitable for the whole enterprise policy, the project team consisted of first class directors from units which use an ERP system the most, such as finance, purchase, resource, sales divisions. Top management fully empowered and supported the project team, and showed attention and expressed expectations for the project at each of its company conferences. The company has been established for ten years, and set up 4 subsidiary companies in China. Before the subsidiary companies established, company
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EC2009 第十二屆電子商務學術研討會
B had already planned to adopt ERP system to improve its competitive advantage.
Company B chose the ERP systems from Data Systems consult ing company (DSC co.ltd, Taiwan), and the product is WORKFLOW ERP ver.6.
Users have to get used to new information systems, and the operation process change seems to be a bigger problem. But users are confident to learn to use the new system which shows the ambitious culture of the company. The method company B used to implement ERP system was to plan all modules and then adopt them at different stages. Company B has more than 20 add-on modules to support the ERP system for different functions. But the business process of company B that had to be re-engineered was around 10%. During implementation, company B had problems in the process such as the user units that did not state their needs clearly. It took company B 6 months to implement the ERP system, which finally went live on January, 2004.
2.2.2 After Implementation
There are two major problems that occurred after the implementation.
One is technical, and the other is about people. Company B found some problems in the production planning and work in prog ress (WIP) parts. For example, one of the real cases of the DSC ERP system was that some manufacturing orders were not used; finished and semi -finished products were left in shop floor. But when inventory check in the end of every month, the ERP system could not find the finished and semi -finished products which were not made in the inventory of the system check lists. It makes financial and accounting divisions difficult to check the inventory if these finished and semi-finished goods if they are not on th e check lists. The reason why they could not find these products on the check list was because the system did not encode the work in progress separately. In reality, many products in different workshop exist in different production process should be encoded as finished or semi-finished products but encoded according to different working process. And the WIP check in workshop should know not only what manufacturing process the product is, but also what work order the product belongs to. Therefore the materia l analysis and cost accounting adjustment will be reliable.
The other problem is the excessive involvement of the chairman during the implementation. Due to centralising the power in himself, he controls most of the decisions of the company. In fact, he h as limited knowledge about ERP. But, during the implementation, when facing situation such as the consultant suggests that working process has to be changed to fit the
ERP system, the chairman refuse to change original process but to use add-on modules to solve this problem. This is the crucial factor make the imperfection of the system and increase the cost and budget.
In this case, the chairman was involved too much, which affects the efficiency of the project team. If any problem happens, even the project leader has to consult the
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EC2009 第十二屆電子商務學術研討會 chairman. Because of the chairman’s high involvement, customised functions are also applied very much in this case. In fact, the chairman preferred to adjust the system to fit the original operation process. This also resulted in the low performance of the
ERP system. The consultancy did not explain the software functions clearly before implementation. The project was also not well planned. Therefore, problems, such as the chairman insisting on using the original material encoding method, which resulted in the database not being able to transfer work in progress data for financial and accounting division. DSC did not help company B to solve these technical problems, so company B was not satisfied with the post sale service. Finally company B stopped paying for maintenance and gave this job to its own information division. Company B was not totally satisfied with the existing ERP system, but it does not have any plans for change new systems.
This study contains two cases to record how they implement it, and what problems they encountered. The most contribution this study found is that human factor would affect the implementation process. All of them are very successful companies in their own industry, and they all completed their projects in a short time.
This may be the result of referring templates and best practice from successful companies.
Company A invited external consultant to educate and develop internal seeds which helps them able to supervise the system users even when the consultant left.
Company B faced the least resistance because the chairman’s fully involvement and support. But company also used the most customised functions due to the high involvement of chairman. He chose to change the system to fit the original operation process which results to the excessive use of customised modules.
From the two cases above, this study finds that people play a more important role than the technique which affects the perfection of ERP system. In general, a clear project goal will make the project focus more on results of execution. Choosing the right template will meet the balance between the implementation benefits and execution results.
In all, the most important key success factor is people. Unless the key man who has the real power on decision making has the basic knowledge of ERP system, and being objectively, even perfect ERP software and experienced consultants cannot ensure the perfection of ERP implementation.
1.
American Production and Inventory Control Society (APICS),
Dictionary, Eighth edition, 1995.
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2.
Brislen, P. and Krishnakumar, K. 1999. “What is ERP”, http://searchsap.techtarget.com/sDefinition/0,,sid21_gci213946,00.html , Last
Retrieved, 15 August 2008.
3.
Commission of the European Community., Commission recommendation of 3 April 1996 concerning the definition of small and medium-sized enterprises , in Official Journal, Numbers. L 107 30, April, 1996, pp. 4-9.
4.
Display Search, “TFT LCD equipment report 2006”, Display Search,
Inc., 2006.
5.
Everdingen Y., Hillegerberg J. and Waarts E. “ERP adoption by
European midsize companies”. Communications of the ACM , Vol. 43(4), 2000, pp.27–31.
6.
Friedman T.L., The World is Flat: A Brief History of the 21st Century ,
New York: St. Martin's Press, 2005.
7.
Ike C. Ehie, Mogens Madsen, “Identifying critical issues in enterprise resource planning implementation”, Computer in Industry , Vol. 56(6), August
2005, pp. 545-557.
8.
Market Intelligence Centre, Taiwan, “2005 B2B e-business survey on macro and domestic market”, 2006.
9.
Oliver Wight, “The Oliver Wight ABCD Checklist for Operational
Excellence,” John Wiley & sons,5th Edition, USA, 2000.
10.
Small and Medium Enterprise Administration, Ministry of Economic
Affairs, Taiwan, http://www.moeasmea.gov.tw
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EC2009 第十二屆電子商務學術研討會
企業資源規劃系統(ERP)長期被應用在促進企業營運效率,眾多相關研究已歸
納影響 ERP 系統導入成敗之因素，本個案旨在討論兩間台灣公司導入前準備及
評選過程中所發生之問題，再次確認導入專案小組的表現對於專案的成功極具關
鍵之影響，本個案之最主要貢獻在於討論不同情況之下，人為因素對於導入過程
所造成之影響。個案一:家族企業管理階層對於 ERP 基礎知識了解不深而造成導
入之阻力，專業外部顧問以培植企業第二代接班人以及輔以專業助理來化解，而
順利完成 ERP 系統之導入。個案二:老闆為開發公司主力產品之專利所有人，因
為老闆之全力投入，ERP 系統導入完全沒有阻力，也在極短的時間內完成順利上
線，但也因為老闆堅持不修改自己開發之原始作業流程，因此使用了較多的客製
化模組。
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