Intended learning outcomes: Explain possibilities and limitations of the IT support of planning & control. Disclose factors that influence individual acceptance and the range of implementation of ERP software.
For many years, contradictory opinions have been expressed about the effectiveness and the efficiency of ERP or SCM software. This contradiction can be illustrated by two extreme and opposite views:
- “There is no satisfactory ERP or SCM software package.”
- “Every ERP or SCM software package is good.”
If we examine these two statements in greater detail, we discover some interesting and somewhat surprising results that show that the contradictory views are due to different starting positions. The first statement concerns the limitations of any ERP or SCM software package, whereas the second relates to the essential success factors.
The following illustrations relate to both company-specific and standard software, although some of the comments concerning the choice of logistics package will of course apply only to the standard software.
“There is no satisfactory ERP or SCM software package.” Within companies, this type of view is generally expressed in departments involved in the strategic or overall management of the company, rather than operational management. The problem is often that such people have the wrong expectations of what ERP or SCM software can and cannot do.
These unrealistic expectations may be explained by the abbreviation PPC, which stands for Production Planning & Control, and by the term PPC system. These are used to describe both the actual task of planning & control and the software used to support this task. The same is true for the abbreviations, or the terms
- ERP (Enterprise Resource Planning), or ERP system,
- SCM (Supply Chain Management), or SCM system,
- APS (Advanced Planning and Scheduling, or APS system.
An opinion about one cannot be applied to the other. The mistake is still made, however, often unintentionally but sometimes intentionally, as well (for both positive and negative purposes). The term software is therefore used below in association with IT support.
The acronyms PPC, SCM, or APS can nevertheless be misleading when used in association with the software. This misunderstanding may even be encouraged by the software vendors, but unfortunately, it leaves a large area open to attack by anyone looking for an argument.
- The first letters in PPC and in SCM have extended meanings. PPC software packages no longer relate solely to production or supply, but rather as ERP software to the entire logistics chain from sales, production, and procurement, through distribution and maintenance. In addition, new requirements have arisen in association with return and recycling. It is also no longer possible to equate PPC software with MRP II packages since it incorporates the just-in-time, the variant-oriented, and the processor-oriented concept and with varying levels of quality, just like the MRP II concept. Similarly, SCM software is as useful for demand chain planning.
- The letter “P” in PPC or APS for “planning”: Neither a PPC software nor an ERP software nor an SCM software nor an APS software does planning in the strict sense of the word. It simply supports the planning function, for example, by showing the availability of components and capacity along the time axis. Then comes the planning, e.g., action to change stocks, capacity, or order dates. Every attempt to hand this planning step over to the computer, e.g., through the use of simulation software, has ultimately failed, because the software is unable to cope with the day-to-day problems of decision making, either because the relevant parameters were not all known or because they could not be reliably shown along the time axis.
- The letter “C” in PPC for “control” or “S” in APS for “scheduling”: Neither PPC nor ERP nor SCM nor APS software controls or schedules anything in the strict sense of the word. In the best-case scenario, it merely provides a snapshot of the current status of order processing in the various domains in the company and recommends options for control or regulation. The actual control or scheduling task still has to be carried out by people. Production and procurement in the manufacturing and service industries cannot be compared to the control of a machine or production system, since the equation inevitably includes people whose behavior finally cannot be predicted or simulated. On the other hand, although the inclusion of people as a production factor appears to be a disadvantage, it is also an advantage: No automated control system will ever be able to match the capabilities and potential of a human in control or scheduling, however flexible and autonomous it might be.
So what are the consequences with respect to the influence of ERP or SCM software on a company’s ability to fulfill the entrepreneurial objectives? Figure 126.96.36.199 lists the four target areas discussed in Figure 188.8.131.52 and shows, for each primary and secondary objective, the extent to which ERP or SCM software can help to fulfill the objective.
Fig. 184.108.40.206 Influence of ERP or SCM software on the extent to which corporate objectives are fulfilled.
If we consider the extent to which software influences the various objectives, we see that the objectives aimed at improving the company’s performance can only partly be affected by the ERP or SCM software.
- Quality: The advantage of using ERP or SCM software is that a company has to explicitly store its products and services, and the processes by which they are created, in the form of master data or, more precisely, in the form of bills of material, routing sheets, or master data on technology and the network. In this way, products, processes, and organization are made transparent and easy to understand for all employees. However, this is only an aid to description and thus has only a minor influence over quality. The quality of products, processes, and the organization is more substantially improved by design, development of processes, and through the choice of production infrastructure, employees, and partners in the supply chain.
- Costs: Reduction of inventory in store and in process and increasing the utilization of capacity lead to conflicting objectives. ERP or SCM software cannot resolve these conflicts, but it makes the processes faster, more comprehensive, and transparent to more people. As indicated above, decisions concerning scheduling and materials planning and the actual control cannot be left to the software, so the increased transparency must be converted into better decisions by the people involved. The software thus has only an indirect influence.
ERP and SCM software require a complete and accurate management of master and order data. The software thus has a direct influence on improving the input for costing and accounting. The software supports the automation of the processes. It thus has a direct influence on reducing the cost rates for administration. However, stocks and utilization are also subject to macroeconomic influences, such as the employment market and the competitiveness of an entire national economy.
- Delivery: Information on orders in progress or stocks can be quickly called up by anyone involved in the process. Software thus directly reduces lead times within the data and control flow. Experience shows, however, that this does not necessarily affect lead times within the goods flow. This can be illustrated by an example in which it took just a few seconds to identify the physical location of a delayed order within the factory. The check demonstrated that the information was correct and reliable, but the goods had been left there because the operator was unavailable. This meant that the promised delivery date could not be met.
Shorter overall lead times and increased delivery reliability therefore require a firm foundation within the company’s internal organization. Simply holding the data on the computer is not enough to improve fill rates or customer service ratios — action must be taken in practice, as well. Thus, the software has only an indirect influence on the target area of delivery as well.
- Flexibility: As a first aspect of flexibility, today’s software allows product families with a wide range of variants to be managed efficiently. In fact, this is essential to be able to respond flexibly to customers’ requirements. However, the potential for flexibility is determined more by the way processes and the production infrastructure are designed and planned. ERP or SCM software are a less important factor.
The same applies to the other aspect of flexibility — the utilization of resources. ERP or SCM software quickly provides comprehensive information on the needs and options arising from a given situation. It will rarely be able to make the decision to move resources without human input, however. It is worth repeating that the ability to use people flexibly and the capacity of machines to be used flexibly will essentially depend on the qualifications of those people and on the way in which the production infrastructure was planned.
If we consider these points together with Figure 220.127.116.11, we draw the following conclusion:
ERP or SCM software provides IT support for planning & control the way in which a company provides its services. However, an ERP or SCM software package is used first and foremost — and, in most cases, successfully — for representing products and their production and procurement processes (make-or-buy) and to administer orders, and thus for administration and preparing accounting.
ERP or SCM software ultimately links people together by the way it uses information. If we assume that sufficient numbers of people have been adequately trained and are given enough time, then they could manually do everything that the software can do.
ERP or SCM software can be used to good effect in situations where human skills and capabilities are insufficient, typically because of:
- The increasing complexity of products and the product mix
- Increased volumes of data and frequency of orders (or processes)
- Greater requirements placed on the speed of process administration
To summarize, ERP or SCM software will always be able to do exactly what Hollerith intended data processing to do right from the start; that is, fast and accurate processing of large quantities of data. It is thus not a replacement for the task at operational level. It is merely used to automate this task. It would be wrong to expect any more of it.
Each ERP or SCM software package has roughly the same influence over whether entrepreneurial objectives are achieved. This means that if a certain package does not fulfill the objectives that a company has set itself, then these objectives will not be achieved by using a different package. If the software is then investigated as the cause of failure, people will be all too ready to say that, “There is no satisfactory software package.” They will view this as a welcome opportunity to pass the buck outside the company.
If the processes at operational level have to be reorganized, it is therefore advisable to divide the procedure into two steps, each with its own break-even analysis. This procedure requires attention to be paid to the training of people who will carry out the task within the company.
- The first step is to change the organization and the processes. Can the existing organization and processes actually be carried over to the new? What will this cost? IT support should intentionally be left out of the equation because, as mentioned above, all the tasks of software can, at least theoretically, be carried out by people. The break-even analysis for this first step must then consider the cost of the training required to cope with all aspects of the new organization. Consideration should also be given to how the entrepreneurial objectives (e.g., to reduce lead times in the goods flow) can actually be achieved by the changed processes.
- Only the second step, and thus the second break-even analysis, considers the precise value of IT support with ERP or SCM software. Here, again, there will be costs associated with training employees in the correct use of the hardware and software. On the other hand, in this case it will also be possible to reduce staffing numbers since the flow of information will no longer be processed manually.
This type of procedure can disprove the view that there is no suitable ERP or SCM software (which is sometimes used as a convenient excuse). The problems really arise because the people involved have insufficient knowledge of the processes and the associated tools.
9.3.2 Factors That Influence Individual Acceptance and the Range of Implementation of ERP Software
It is not easy to quantify the success of implementing an ERP software package. Figure 18.104.22.168 has already shown that success should not be measured against explicitly worded corporate objectives, since these are influenced by the logistics used, the product design process, and factors outside the company’s control, rather than by the software. One study [Mart93] adopted “PPC acceptance” and “Range of PPC implementation” as its measured variables. Here, PPC means PPC software and, more broadly, ERP software. Consequently, it is better to speak of the acceptance and range of implementation of ERP software below. Many of the factors can as well be transferred to SCM software. The study was carried out in 100 firms. 900 people were surveyed, particularly those who regularly work with the software. Analysis of the questionnaires revealed extremely high acceptance of ERP software at the individual level: The people questioned felt that the package more or less met their expectations. Figure 22.214.171.124 shows the factors that influence individual acceptance.
Under personal features, education, vocational training, experience, and position within the company had no significant influence over the individual acceptance of ERP software, whereas it was affected by general data processing knowledge and experience and the support of colleagues.
Of the factors that influenced the support for employees during implementation, the duration and breadth of training, satisfaction with the training, and the opportunity for participation all had significant influence over acceptance, which rose steadily as the number of days of training increased. No “saturation point” was identified, even with a high number of training days ([Mart93], p. 102). It also appears that certain deficits in the software can be overcome with the aid of training.
The most important factors appeared to be information on the reasons for implementing ERP software, combined with cooperation between departments, planning and organization, and the time available out of normal daily work. The extent to which the data had to be revised and, unexpectedly, supported from senior management appeared to be much less important.
For the user’s opinion of the ERP software, the most important factor was whether the individual agreed that the adopted software was generally suitable for his or her own work. Work psychology concepts expressed by the scope for action also played a central role. This means that users are given the freedom to decide the order in which they perform their tasks and the sequence of activities within each task, even after implementation. On the other hand, the layout of screens and lists and, with the exception of error messages, other components associated with user friendliness (help functions, familiarization period, error correction) appeared to be less important.
Fig. 126.96.36.199 Factors that influence individual acceptance of ERP software. (From [Mart93]).
To summarize, the reasons for implementation, good training, freedom of choice in work, and suitability for an employee’s own work are all important factors in the acceptance of an ERP software package.
The range of implementation of the ERP software was then identified with reference to the factors of “time since implementation started,” “number of functions implemented,” and “degree of distribution.” For the first factor, the sobering result from the questionnaire was an average time of 4.3 years, even though all the companies questioned were either in the process of implementation or had just completed this phase. The number of functions implemented was derived by counting the number of modules, such as Sales, Stockkeeping, and so forth. Thirteen such functions were implemented on average. The degree of distribution was calculated by dividing the number of people working with the ERP software by the total number of people working in the operational departments. The range of implementation was derived from the combination of the three values. Figure 188.8.131.52 shows a selection of the factors that might influence the range of implementation.
Fig. 184.108.40.206 Factors that influence the range of implementation of ERP software. (From [Mart93]).
The company features (total number of employees, influence from the group level, company type, and branch of industry) had just as little influence over the range of implementation as the data processing equipment used (hardware, operating system, or cost of software). The selected ERP software also had no influence over the range of implementation, although it did appear to matter whether it was the first implementation of such software or a replacement for an existing package. This result is particularly interesting in view of the opinion that, “Every ERP software package is good.”
Of the project features, the importance of “ownership” of the project was key. The most successful projects were those in which responsibility was held solely by the Organization and Data Processing Department, rather than by a specialist department or two or more departments. This is one of the most unexpected results of the survey. It can be explained by the fact that, in an SME environment (small- or medium-sized enterprise), responsibility for the ERP software probably lies with employees in the Organization and Data Processing Department, rather than the specialist departments.
The number of levels of the management hierarchy that receives training is also very important. Training must be received by at least the top level (board) and the bottom level (group leader). It is also important to adopt a professional procedure for evaluating standard software (visiting reference customers, vendor tests using the company’s own data, analysis of the current situation, list of requirements) and clear project management (appointing employees for the project, establishing a control committee and project team). In contrast, the number of project teams, team members and represented departments, and the project leaders and the amount of time they are able to devote to the project are less important.The average acceptance of the ERP software, which is derived from the individual acceptance scores, also has a significant influence over the range of implementation.
To summarize, the survey shows that, for the acceptance and range of implementation of ERP software, the characteristics of the software are important with regard to two points. First, individuals must believe that it is suitable for their own work and that they will retain freedom of choice in their work. Equally important is the support provided during implementation, the employee training, and the quality of the project management in general. If these requirements are fulfilled, it is possible to gain acceptance for and implement any of a number of ERP software products, which ultimately leads to the view that “Every ERP software package is good.” This opinion is normally expressed by those who work with the ERP software every day and is not necessarily applicable to people who only use it sporadically.
Course sections and their intended learning outcomes
Intended learning outcomes: Describe software used for logistics purposes. Explain contents of logistics software packages. Disclose factors for successful implementation of logistics software.
.Intended learning outcomes: Produce an overview on history and origin of ERP software. Disclose scope and range of ERP and SCM software.
Intended learning outcomes: Describe classical MRP II / ERP software. Present software for customer order production, for the process industry, for transcorporate planning & control in a supply chain, and for Customer Relationship Management (CRM). Differentiate between standard and company-specific software.
Intended learning outcomes: Explain possibilities and limitations of the IT support of planning & control. Disclose factors that influence individual acceptance and the range of implementation of ERP software.
Intended learning outcomes: Review factors that influence people’s acceptance of ERP software. Differentiate between standard and company-specific software. Describe basic issues of software for transcorporate planning & control.