Enterprise resource planing

Enterprise resource planning An integrative review E.M. Shehab, M.W. Sharp, L. Supramaniam and T.A. Spedding Medway School of Engineering, University of Greenwich, Chatham Maritime, UK Keywords Manufacturing resource planning, Literature, Critical success factors Abstract Enterprise resource planning (ERP) system solutions are currently in high demand by both manufacturing and service organisations because they provide a tightly integrated solution to an organisation’s information system needs. During the last decade, ERP systems have received a significant amount of attention from researchers and practitioners from a variety of functional disciplines. In this paper, a comprehensive review of the research literature (1990-2003) concerning ERP systems is presented. The literature is further classified and the major outcomes of each study are addressed and analysed. Following a comprehensive review of the literature, proposals for future research are formulated to identify topics where fruitful opportunities exist. 1. Introduction Enterprise resource planning (ERP) system is a business management system that comprises integrated sets of comprehensive software, which can be used, when successfully implemented, to manage and integrate all the business functions within an organisation. These sets usually include a set of mature business applications and tools for financial and cost accounting, sales and distribution, materials management, human resource, production planning and computer integrated manufacturing, supply chain, and customer information (Boykin, 2001; Chen, 2001; Yen et al., 2002). These packages have the ability to facilitate the flow of information between all supply chain processes (internal and external) in an organisation (Al-Mashari and Zairi, 2000a). Furthermore, an ERP system can be used as a tool to help improve the performance level of a supply chain network by helping to reduce cycle times (Gardiner et al., 2002). However, it has traditionally been applied in capital-intensive industries such as manufacturing, construction, aerospace and defence. Recently, ERP systems have been expanded beyond manufacturing and introduced to the finance, health care, hotel chains, education, insurance, retail and telecommunications sectors. ERP is now considered to be the price of entry for running a business, and at least at present, for being connected to other enterprises in a network economy to create “business to business” electronic commerce (Boykin, 2001). Furthermore, many multinationals restrict their business to only those companies that operate the same ERP software as the multinational firm. It is a fact that ERP is for big firms and smaller firms have to adjust their business model and approach according to the practices and software adopted by the big firms. With the opening up of the economy, small to medium sized enterprises (SMEs) have found the going very difficult. Since they do not have the robustness associated with large companies, SMEs have to tap the power of IT and an integrated information system to stay competitive and customer oriented. ERP is often considered the answer for their survival (Rao, 2000). Therefore, the ERP software market has become one of today’s largest IT investments worldwide. A recent survey predicts that the spending on ERP will reach $66 billion in 2003[1] (Themistocleous et al., 2001). It continues to be one of the largest, fastest-growing and The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at www.emeraldinsight.com/researchregister www.emeraldinsight.com/1463-7154.htm Enterprise resource planning 359 Business Process Management Journal Vol. 10 No. 4, 2004 pp. 359-386 q Emerald Group Publishing Limited 1463-7154 DOI 10.1108/14637150410548056 most influential players in the application software industry in the next decade (Adam and O’doherty, 2000; Yen et al., 2002). There are several reasons why a continued growth of ERP projects is to be expected (Stensrud, 2001): . The ERP vendors are continuously expanding the capabilities of their packages by adding functionality for new business functions such as sales force automation, supply-chain, order management, data warehousing, maintenance- repair-and-overhaul, etc. . The ERP vendors are transitioning to Web-based applications. This may lead to faster flow of information in the logistics chain, and therefore, many ERP customers will require these Web-based ERP systems. . The emergence of e-commerce will also increase the demand for Web-based ERP systems. . The share of ERP systems in certain geographical markets such as the former Eastern Bloc, Asia and South America is not widespread. ERP packages touch many aspects of a company’s internal and external operations. Consequently, successful deployment and use of ERP systems are critical to organizational performance and survival (Markus et al., 2000b). Potential benefits include drastic declines in inventory, breakthrough reductions in working capital, abundant information about customer wants and needs, along with the ability to view and manage the extended enterprise of suppliers, alliances and customers as an integrated whole (Chen, 2001). In the manufacturing sector, ERP implementation has reduced inventories anywhere from 15 to 35 per cent (Gupta, 2000). Among the most important attributes of ERP (Nah et al., 2001; Soh et al., 2000) are its abilities to: . automate and integrate business processes across organizational functions and locations; . enable implementation of all variations of best business practices with a view towards enhancing productivity; . share common data and practices across the entire enterprise in order to reduce errors; and . produce and access information in a real-time environment to facilitate rapid and better decisions and cost reductions. ERP packages are attracting increasing attention from both academic and industrial communities. No comprehensive review has been carried out on the development and implementation of ERP. A review of the recent development of ERP is needed to make decisions concerning ERP selection and implementation and to aid in guiding more research. The objective of this paper is to present an integrative review of ERP systems and to identify areas where further research is needed. A total of 76 citations on ERP systems were reviewed. Table I provides the sources. The majority of the citations were found in journals (72 per cent), while proceedings, conferences and others contributed to the remainder (28 per cent). Three journals, Business Process Management Journal, Journal of Information Technology and Communications of the ACM, accounted for 48 per cent of the citations. The remainder of the paper is organised as follows. In Section 2, an overview of ERP systems is presented. The ERP evolution is outlined in Section 3. Section 4 considers BPMJ 10,4 360 the major vendors of ERP systems and the main drawbacks of these systems. The criteria for selecting an ERP system are addressed in Section 5. Implementation of an ERP system is an extensive, lengthy and costly process, typically measured in millions of dollars. The investment is in both software itself and in related services such as consulting, training and system integration. Therefore, the various implementation approaches and the factors influencing the implementation process are presented in Source No. of citations Books on ERP systems 5 Conference papers Information Systems (International Conference): Proceedings 20th 1 Information Systems (International Conference): Proceedings 21st 1 Information Systems (Americas Conference): Proceedings 5th 1 IEEE (Management Innovation and Technology: International Conference): Proceedings 2000 1 Management of Data (International Conference): Proceedings of the ACM 1 Systems Thinking in Management (International Conference) 1 Software Reusability (5th Symposium): Proceedings 1 Manufacturing Research (National Conference): Proceedings 16th 1 Journal papers Automation in Construction 1 Business Horizons 1 Business Process Management Journal 10 Communications of the ACM 8 Computer Standards and Interfaces 1 Computers in Industry 1 Data & Knowledge Engineering 1 Datamation 1 European Journal of Information Systems 1 European Journal of Operational Research 1 Expert Systems with Applications 1 Harvard Business Review 1 IEEE Software 1 Industrial Management & Data Systems 4 Industrial Marketing Management 1 Information and Management 1 Information and Software Technology 1 Information Systems Management 2 International Journal of Agile Management Systems 1 International Journal of Physical Distribution & Logistics Management 1 International Journal of Production Economics 2 International Journal of Production Research 1 ISA Transactions 1 Journal of Information Technology 8 Journal of Information Technology: Cases and Applications 1 Logistics Information Management 1 Management Decision 1 Web sources 8 Total 76 Table I. Summary of journals reviewed on ERP systems Enterprise resource planning 361 Section 6. Finally, conclusions and the implication for future research are explored in Section 7. 2. ERP: an overview ERP allows companies to integrate various departmental information. It has evolved from a human resource management application to a tool that spans IT management. For many users, an ERP is a “do it all” system that performs everything from entry of sales orders to customer service. It attempts to integrate the suppliers and customers with the manufacturing environment of the organisation. For example, a purchase entered in the order module passes the order to a manufacturing application, which in turn sends a materials request to the supply-chain module, which gets the necessary parts from suppliers and uses a logistics module to get them to the factory. At the same time the purchase transaction shows in general – a ledger module as revenue. The traditional application systems, which organisations generally employ, treat each transaction separately. They are built around the strong boundaries of specific functions that a specific application is meant to cater for. ERP stops treating these transactions separately as stand alone activities and considers them to be a part of interlinked processes that make up the business (Gupta, 2000). An overview of ERP systems including some of the most popular functions within each module is shown in Figure 1. However, the names and numbers of modules in an ERP system provided by various software vendors may differ. A typical system integrates all these functions by allowing its modules to share and transfer information by freely centralising information in a single database accessible by all modules (Chen, 2001). The various modules of ERP include engineering data control (bill of materials, process plan and work centre data); sales, purchase and inventory (sales and distribution, inventory and purchase); material requirement planning (MRP); resource flow management (production scheduling, finance and human resources management); works documentation (work order, shop order release, material issue release and route cards for parts and assemblies); shopfloor control and management and others like costing, maintenance management, logistics management and MIS. Also, the model of ERP includes areas such as finance (financial accounting, treasury management, enterprise control and asset management), logistics (production planning, materials management, plant maintenance, quality management, project systems, sales and distribution), human resources (personnel management, training and development and skills inventory) and workflow (integrates the entire enterprise with flexible assignment of tasks and responsibilities to locations, positions, jobs, groups or individuals) (Siriginidi, 2000). Although an ERP system is a pure software package, it embodies established ways of doing business. Studies have illustrated that an ERP system is not just a pure software package to be tailored to an organisation but an organizational infrastructure that affects how people work and that it “imposes its own logic on a company’s strategy, organisation, and culture” (Davenport, 1998; Lee and Lee, 2000). For example, SAP R/3, as one of the major ERP vendors, currently stores over 1,000 predefined processes that represent financial, logistics and human resources best practices in a repository called “business engineer” (SAPWeb site, 2002; Scott and Kaindl, 2000). The BPMJ 10,4 362 evolution of ERP is described in the next section in order to better comprehend the ERP planning and implementation issues. 3. Evolution of ERP Manufacturing enterprises involved in manufacturing, sales and distribution activities have been using computers for 30 years to improve productivity, profitability and information flow across the enterprise. ERP system traces its roots commencing from standard inventory control packages to material requirements planning (MRP), and Figure 1. ERP system modules Enterprise resource planning 363 manufacturing resource planning (MRP II). An inventory control system was the software designed to handle traditional inventory processes. It was one of the early business applications, which did not belong to the finance and accounting area. In the 1970s, the production-oriented information systems were known by the name MRP. MRP at its core is a time phased order release system that schedules and releases manufacturing work orders and purchase orders, so that sub-assemblies and components arrive at the assembly station just as they are required. Some of the benefits of MRP are reduction of inventories, improved customer service, enhanced efficiency and effectiveness (Siriginidi, 2000). As competitive pressures increased and users became more sophisticated, MRP evolved and expanded to include more business functions such as product costing and marketing. In the early 1980s, MRP expanded from a material planning and control system to a company-wide system capable of planning virtually all the firm’s resources. This expanded approach was MRPII. A major purpose of MRPII is to integrate primary functions (i.e. production, marketing and finance) and other functions such as personnel, engineering and purchasing into the planning process to improve the efficiency of the manufacturing enterprise (Chen, 2001; Chung and Snyder, 2000; Mabert et al., 2001). MRPII has certain extensions like rough cut capacity planning and capacity requirements planning for production scheduling on the shop floor as well as feedback from manufacturing shops on the progress of fabrication. Since the 1980s, the number of MRPII installations has continued to increase, as MRPII applications became available on mini and micro computers (Siriginidi, 2000). Like MRP, MRPII focused on the manufacturing process. The next stage of MRPII evolution was just-in-time (JIT) methodology that combined with the plummeting price of computing to create the islands of automation in late 1980s. The Gartner Group of Stamford, CT, USA, coined the term ERP in the early 1970s to describe the business software system that is the latest enhancement of an MRPII system (encompasses all MRPII modules). A key difference between MRPII and ERP is that while MRPII has traditionally focused on the planning and scheduling of internal resources, ERP strives to plan and schedule supplier resources as well, based on the dynamic customer demands and schedules (Chen, 2001). The maturity stage of ERP occurred in the mid-1990s. The scope offered by ERP expanded to include other “back-office” functions such as order management, financial management, warehousing, distribution production, quality control, asset management and human resources management. The evolution of extended-ERP systems has further expanded in recent years to include more “front-office” functions, such as sales force and marketing automation, electronic commerce and supply chain management systems. The scope of ERP implementation encompasses what is often referred to as the entire value chain of the enterprise, from prospect and customer management through order fulfilment and delivery. An enterprise, to stay competitive, has to not only identify information needs but also ensure that the information infrastructure provides the right support to serve the enterprise, its customers and suppliers. If it does not do so, then it runs the risk of being disconnected and excluded from future opportunities (Siriginidi, 2000). The technological evolution of ERP from MRP has been presented in detail by Chen (2001) and Chung and Snyder (2000). BPMJ 10,4 364 Information system technology evolved from mainframe-based computing through the client/server era to the Internet era. Earlier the ERP systems were developed only to work with huge mainframe computers. Most of the current ERP systems are based on the client/server solution model (Rao, 2000; Siriginidi, 2000). In a client/server environment, the server stores the data, maintaining their integrity and consistency and processes the requests of the user from the client desktops. The load of data processing and application logic is divided between the server and the client (Gupta, 2000). Now, ERP vendors are – as many other software vendors – forced to move from a traditional client/server to a browser/Web server architecture in order to deliver e-business capabilities (Scheer and Habermann, 2000; Yen et al., 2002). These systems are built with a clear separation of functional components. The user interface implemented using graphical user interface (GUI) techniques is deployed on client machines. Powerful server machines host the databases and business logic written as server procedures. The databases are built using relational database technology. Relational database systems have enabled the vendors to put in the necessary flexibility in terms of business logic and data structures to support parallel business practice implementations. These technologies in general have allowed the users to architect the system in such a way that installation, customisation and extensions are possible in shorter timeframes (Rao, 2000). 4. Main vendors of ERP systems Business information systems can be either designed as custom applications or purchased as off-the-shelf standard solutions. The development of custom applications is generally expensive and is often plagued by uncertainties, such as the selection of appropriate development tools, the duration of the development cycle, or the difficulties involved in assessing costs. Therefore, companies are radically changing their information technology strategies by purchasing off-the-shelf software packages instead of developing IT systems in-house (Holland and Light, 1999). Out of more than 100 ERP providers worldwide, SAP-AG, Oracle, JD Edwards, PeopleSoft and Baan – collectively called the “Big Five” of ERP software vendors – control approximately 70 per cent of the ERP market share (Mabert et al., 2001) (Figure 2). The middle end products include SSA, BPCS, Inertia Movers, etc., that offer good functionality and could be implemented faster. The low-end products like QAD, MFG, PRD, etc., could be implemented very fast, but offer limited functionality Figure 2. Market shares of ERP system vendors Enterprise resource planning 365 (Rao, 2000). The key features of some of the popular ERP packages including MFO/PRO from Qad, IFS/AVALON, SAP, JD Edwards, BAAN IV, Marshal(R) and PeopleSoft, have been provided in Siriginidi (2000). The top five ERP vendors have seen a growth rate of 61 per cent over the past year. Although there are some differences in the marketing strategies and products of these five ERP vendors, they have similar offerings and shortcomings. Most ERP