- Email: [email protected]
Framework for Selection of ERP System: Case Study.
Available online at www.sciencedirect.com
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Available online www.sciencedirect.com Available online atat www.sciencedirect.com Procedia Manufacturing 00 (2019) 000–000
ScienceDirect ScienceDirect
Procedia ProcediaManufacturing Manufacturing00 38(2019) (2019)000–000 69–75
www.elsevier.com/locate/procedia
www.elsevier.com/locate/procedia
29th International Conference on Flexible Automation and Intelligent Manufacturing (FAIM2019), June 24-28, 2019, Limerick, Ireland. 29th International Conference on Flexible Automation and Intelligent Manufacturing Framework ERP Ireland. System: (FAIM2019),for JuneSelection 24-28, 2019,of Limerick,
Case Study. Framework for Selection R. ofAhmad, ERP System: Alaskari,O*.Pinedo-Cuenca, M. M Teesside University, Southfield Middlesbrough, TS1 3BX, UK CaseRoad, Study. Alaskari,O*.Pinedo-Cuenca, R. Ahmad, M. M
Abstract
Teesside University, Southfield Road, Middlesbrough, TS1 3BX, UK
Currently, for all businesses, due to market competition and continual economic pressure on businesses, there is perpetual need to adopt innovative tools and techniques, to cope with these pressures and to make the best decision to respond to market changes. Abstract This is particularly true for small to medium sized enterprise (SME), therefore, in order for SMEs to be competitive and responsive to continuously of the theycompetition need integrate of the units within pressure companyon at businesses, the information to have need correct Currently, for allchanging businesses, duemarket, to market andall continual economic therelevel, is perpetual to information in real time to make quick and right decision. This can only occur by adopting the most appropriate system relating to adopt innovative tools and techniques, to cope with these pressures and to make the best decision to respond to market changes. the and the strategysized of the company. Consequently, systems such an Enterprise Resource Thisbusiness is particularly truemanufacturing for small to medium enterprise (SME), therefore, inintegration order for SMEs to be competitive and responsive Planning (ERP) changing currently of arethe in market, high demand for both manufacturing and service organisations. an ERP system is a to continuously they need integrate all of the units within company at theImplementing information level, to have correct significant challenging for all companies, particularly SMEs as the their resources are limited. There are informationinvestment in real timedecision to make and quick and right decision. This can only occur by adopting most appropriate system relating to numerous stages themanufacturing ERP implementation One of the initial and most critical stages is that of ERP selection.Resource It is very the business andinthe strategyprocedure. of the company. Consequently, integration systems such an Enterprise important(ERP) to paycurrently detailed are attention select the to for the as the adoption of an ERP an system leadistoa Planning in hightodemand forright both systems manufacturing andcompany, service organisations. Implementing ERP can system undesirableinvestment outcomes decision were an and inadequate ERPforsystem selected particularly and implemented causing detrimental the company’s significant challenging all companies, SMEs as their resources are to limited. There are performance. Literature review indicates a failure rate as high the selection and adoption an selection. inappropriate numerous stages in the ERP implementation procedure. One of as the70%, initialdue andtomost critical stages is that of of ERP It is ERP very system. Therefore, this paper developed a theoretical framework that can be used by SMEs to select the most appropriate ERP important to pay detailed attention to select the right systems to for the company, as the adoption of an ERP system can lead to system, the framework of three phases:ERP Define, Evaluate and Select. The approachcausing taken in this work consist of two phases: undesirable outcomes consist were an inadequate system selected and implemented detrimental to the company’s the first phaseLiterature is a literature review of studies in rate ERPasselection, to develop a theoretical framework, phase, presents performance. review indicates a failure high as 70%, due to the selection and adoptionsecond of an inappropriate ERPa practicalTherefore, case study,this to paper validate the developed framework. The findings supports both manufacturing and service system. developed a theoretical framework that canof bethis usedwork by SMEs to select the most appropriate ERP organisations seeking toconsist implement ERP systems by determining theSelect. most The appropriate ERP system toward enhancing system, the framework of three phases: Define, Evaluate and approach taken in thisinvaluable work consist of two phases: successful implementation, minimising the risk of a non-fitting ERP system and consequent project failures. Moreover, this enablesa the first phase is a literature review of studies in ERP selection, to develop a theoretical framework, second phase, presents decision makers to formulate better strategies to enhance ERP and to both identify critical elements of the practical case study, to validate the developed framework. The system findingsimplementation, of this work supports manufacturing and service implementation process. organisations seeking to implement ERP systems by determining the most appropriate ERP system invaluable toward enhancing successful implementation, minimising the risk of a non-fitting ERP system and consequent project failures. Moreover, this enables © 2019 2019 The The Authors. Published by Elsevier Elsevier B.V. © Authors, Published by B.V. decision to formulate better strategies to enhance ERP(http://creativecommons.org/licenses/by-nc-nd/4.0/) system implementation, and to identify critical elements of the This is anmakers open access article under the CC BY-NC-ND license implementation process. Peer-review under responsibility of the scientific committee of the Flexible Automation and Intelligent Manufacturing 2019 (FAIM 2019) © 2019 The Authors, Published by Elsevier B.V. * Corresponding author. Tel.: +447765008205 E-mail address: [email protected] 2351-9789 © 2019 author. The Authors, Published by Elsevier B.V. * Corresponding Tel.: +447765008205 PeerE-mail reviewaddress: under the responsibility of the scientific committee of the Flexible Automation and Intelligent Manufacturing 2019 [email protected] 2351-9789 © 2019 The Authors, Published by Elsevier B.V. Peer review under the responsibility of the scientific committee of the Flexible Automation and Intelligent Manufacturing 2019 2351-9789 © 2019 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) Peer-review under responsibility of the scientific committee of the Flexible Automation and Intelligent Manufacturing 2019 (FAIM 2019) 10.1016/j.promfg.2020.01.009
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Alaskari, O. Pinedo-Cuenca, R. Ahmad, M. M / Procedia Manufacturing 00 (2019) 000–000 O Alaskari et al. / Procedia Manufacturing 38 (2019) 69–75
Peer review under the responsibility of the scientific committee of the Flexible Automation and Intelligent Manufacturing 2019 Keywords: Enterprise Resource Planning; Small and Medium Enterprises; Selection
1. Introduction Today competition is no longer local, but global, with companies increasingly required to reduce total costs, maximize investment return, shorten lead time, and enhance customer demand response. For SMEs the changing global economic conditions and greater competition cause additional challenges; thus, effective enterprise information systems, to enhance competitive advantage are increasingly important. SMEs realise that it is imperative to make better use of the information they have in order to make decisions that are more informed. Many SMEs understand that survival will be determined by their ability to comprehend and acknowledge the importance of Information Systems (IS) with accessibility to the right information at the right time (Sharma and Bhagwat, 2006b). In this regard, ERP system are large comprehensive packaged IS aimed at integrating business processes and functions. ERPs have gained importance and popularity as a technological enabling solution (Karsak & Özogul, 2009). Pellerin et al. 2007 argued that, companies will increase productivity, enhanced by access to information and managerial performance data in decision-making by implementing ERP. Despite the advantages achieved by adopting ERP system, there are many challenges such as, system complexities, organisational changes, and selection of the appropriate system. Hong and Kim, 2002 argued that ERP, in many cases, will not meet the unique needs of a particular organisation. Thus, finding the right ERP system to fit business processes is critical, elements of which are a competent system provider, hereinafter described as the Vendor; system installation; managing organisation and business processes of change, thus enabling successful ERP implementation. Haddara et al. 2012 & Aloini et al. 2012 have stated that successful ERP project involves selecting the appropriate ERP; an inappropriate ERP system selection would cause the project to fail, detrimentally reducing the company’s performance. Adopting ERP in SMEs is a difficult, costly and a time consuming task, mainly due to the lack of available resources, unlike in large companies (Sun et al., 2005). SMEs, with lesser resources, have added constraints in ERP adoptions as they often lack of modern Information Technology (IT) infrastructure and experienced IT staff. The ERP system life cycle consists of mainly of three phases: Selection, Implementation and Use (Kilic et al. 2015); the Selection Phase is the most critical for a successful adaption (Forslund & Jonsson, 2010). Haddara, M., 2014, stated that, studying the capabilities of the potential ERP system to accommodate the critical business processes of the organisation is the first step to insure a successful ERP; an inappropriate ERP system may cause financial losses, the loss of competitive advantage, even company failure. Therefore, this paper focuses on ERP selection process, providing explanatory case study conducted in a SME located in the United Kingdom (UK), introducing a theoretical framework for the identification of specific steps that were, and should be taken into account for an SME to select an appropriate ERP system in general. 2. Methodology A qualitative approach was adopted to explore and validate a developed framework. Silverman (2001) argued that qualitative, rather than quantitative; data provides a deeper understanding of certain phenomena. Yin (2009) mentioned that case studies collect rich data and are appropriate to study a contemporary phenomenon within its natural setting, hence this approach was chosen. Literature review was used as secondary source of data (journal articles in various databases); to develop theoretical framework; and then a single case study was conducted to validate the developed framework. The data was gathered from the company as the Facilitator, the author, has accessed all of the company’s historical data, included project documentation, internal organisational documents, company profile, also meeting with key staff who describe all the business processes they conducted in their day-to-day operations, then the Facilitator compiled and modelled all information as a business process map, and finally, the obtained data from the case study was analysed using Microsoft Excel, external support from Teesside University was obtained.
O Alaskari et al. / Procedia Manufacturing 38 (2019) 69–75 Alaskari, O. Pinedo-Cuenca, R. Ahmad, M. M / Procedia Manufacturing 00 (2019) 000–000
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3. Overall Theoretical Framework The developed framework was designed to help SMEs select an appropriate ERP system; accordingly, company performance will improve, accomplishing the aim of this study. Due to the limitations faced by SMEs, the construction of a suitable framework was essential; to take into account particular issues in the SME context, such as cost effectiveness and straightforward implementation. Since every SME is different, there will never be a perfect framework that will work for all SMEs; hence, this research provided a logical and simple theoretical framework. Figure 1 illustrates the three basic phases of the framework namely: Define, Evaluate and Select. Each of the three phases is divided into further steps, which includes activities. This framework initially defined and assessed the company’s current processes (Define), then an evaluation of ERP Vendors of necessary IT system, considering the related functionalities and modules which the respective Vendors offered (Evaluate). By conducting these two phases, a clear picture will be formed to enable selection of the appropriate ERP system for the company (Select), the developed framework is a means, not an end in itself.
Fig. 1. Three phases of developed theoretical framework
4. Case study 4.1. Background about the company Industrial & Marine Hydraulics Limited (IMH), a UK company incorporated in 1983, is a dynamic, rapidly expanding enterprises in the hydraulic industry, aiming to be a world class player by exploring local and international opportunities, improving its flexibly to respond to the challenges of today’s global marketplace. IMH currently has 30 employees, thus by European Commission (EU) definition a SME, of small enterprise status. IMH serve a wide range of companies across multiple sectors that offer different types of services and products included Automotive, Industrial, Infrastructure, Marine, Nuclear, Oil & Gas, Petrochemical and Renewables. The company used various independent IT systems such as Sage 50 Accounting, Customer Relationship Management (CRM), Job Costing and Microsoft Excel, these systems do not interact, which causes difficulties for the company to manage the complexity of production schedules, maximising equipment and labour use. IMH realised that faster response to the market required interaction across the company, streamlining processes, with increased information availability. They decided to re-engineer and automate current process of the company and implement an ERP system, to improve performance and strengthen their position in the market. The ERP selection process in IMH started in March 2018 and was completed in December 2018. 5. A framework for selecting an appropriate ERP system The proposed framework aimed to enhance the overall ERP implementation outcomes, and identify an overall roadmap for SMEs to assist decision-making to select the appropriate ERP system. The developed framework consist of three main phases: Identifying current company processes and requirements, Evaluation of ERP systems and Selecting the most appropriate ERP system that fulfils the company’s current and future requirements. These phases support each other as shown in Figure 2. All the key staff members of the company are involved during the process for variable periods of time.
O Alaskari et al. / Procedia Manufacturing 38 (2019) 69–75 Alaskari, O. Pinedo-Cuenca, R. Ahmad, M. M / Procedia Manufacturing 00 (2019) 000–000
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Fig.2. A framework for selecting an appropriate ERP system
5.1. Define phase This phase consists of two steps: assessment and develop request for proposal. a.
Assessment
The first step identified the current company processes, by mapping, and walking through each processes by the respective departments, the Facilitator, asked all key staff to describe every business processes they conduct in daily operations to determining the key activities carried out within the company. b.
Develop request for proposal
After determining the key processes alongside their steps, this information was used to compile and developed a Request for Proposal (RFP) document. This document consisting of three main sections: Company background, Key features and functions alongside with their requirements, and cost summary tables. The initial RFP document was reviewed by the key staff who added/altered any features and functions to ensure that all necessary features and functions were captured in RFP and thus included in the ERP system. Finally, the Facilitator and the top management, reviewed the staff feedback and determined the impact of each functional requirements from the company’s point of view, these functionalities were prioritised using a M-D-N scale: • Must have (M) = Critical requirements to the business at present. • Nice to have (N) = Requirements that would be nice to have in time and are not appropriate at this time. • Desired (D) = Important requirements to the business in a near future but not necessarily at present Using M-D-N scale, with scores weighted to differentiate and determinate the degree of importance of each function from the company’s point of view where M = 9; N = 3; D = 1, the factor of three between each score helped to clarify to differentiation the significant importance of each function. Table 1, an exemplar, shows the functionalities requirements (Column 2), their level of impact (Column 3) were listed in the tables in RFP and the Vendors were request to complete Columns 4, 5, 6, and 7. Table 1. An example of RFP.
1 ID 1 2 3 n
2 Function Requirement X1 Requirement X2 Requirement X3 … Requirement Xn
3 Impact M N D
4 CM? Y/N
5 Dev? Y/N
6 3PSW Name
7 Ind. cost
O Alaskari et al. / Procedia Manufacturing 38 (2019) 69–75 Alaskari, O. Pinedo-Cuenca, R. Ahmad, M. M / Procedia Manufacturing 00 (2019) 000–000
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Whereas: • CM? Y/N: Requirement is part of the core module of the system. Yes/No answer required • Dev? Y/N: Development will be required to deliver the requirement. Yes/No answer required. Please provide indicative costs. • 3PSW name: The system cannot deliver this requirement, but can be delivered with a 3rd party software, with working integration links and application program interface (API) to the current versions of the 3rd party software. This needs to be answered with the 3rd party software application. • Ind. Cost: Indicative costs for development of any additional functional requirement should be identified and detailed in the cost summary attached at the end of the document. 5.2. Evaluate phase a.
Conducted survey about the ERP vendors
As much information about Vendors as possible, from all possible sources including the internet, magazines, and exhibitions, was gathered to consider the related functionalities and modules which the respective Vendors offered. Conference calls and brief online demo was conducted to provide an initial filter of vendors. 13 potential Vendors were identified from this survey. b.
Send RFP
The developed RFP document was sent to 13 identified Vendors or their representatives with a request to respond to general questions, related functional in Columns 4, 5, 6, and 7 of the Tables, and cost summary tables, within a time deadline. c.
Analysis the respond of RFP
Of the 13 Vendors, seven, following their consideration of the RFP document formed the opinion that their system was not appropriate for this company’s requirements, and withdrew. This has to be regarded as a positive response, indicating the benefits of the RFP document. The remaining six responders to the REP were analysed, and their respective results were compared and contrasted. Table 2 shows an example of an analysis of RFP where the Vendor having responded Yes in Column 4 was assigned 1; a response Yes in Column 5 was assigned 0.5; and a response Yes in Column 6, was assigned 0.75. The reason for weighting 1 in Column 4 was because this requirement is part of the core module of the system, and no extra cost or time was require to obtain this requirement; however, weightings in Columns 5 or 6 of .05 and 0.75 respectively indicates that these requirements are not part of the core module of the system, and both additional cost and time was require to obtain this requirement; the indicative costs were captured in Column 7, reflected on an overall score, that help to distinguishes between the respective ERP systems. The value in Column 3 was multiple by the value in Columns 4, 5, and 6 and sum give 11.25. After that, the summation of the values was normalised to create the mechanism of percentage. Table 2. An example of analysis the respond of RFP.
1 ID 1 2 3 n
2 Function Requirement X1 Requirement X2 Requirement X3 … Requirement Xn
3 Impact M=9 N=3 D=1
4 CM? Y/N Y=1
5 Dev? Y/N
6 3PSW Name
7 Ind. cost
Y=0.5 Y=0.75
Overall
Sum 9 1.5 0.75
11.25
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For speed and ease, this analysis was conducted using Microsoft Excel. Figure (1) illustrate that result of a Vendor response where: 85% of company functionalities requirements is available out of the box, (Column 4); 12% of functionalities required some customisation, (Columns 5 and 6); 3% of the functionalities requirements are not available.
Fig. 3. Shows result of a Vendor response
As result of this analysis, three Vendors were excluded, on the grounds of poor functionality of the system, and were so informed. The remaining three proven to be accommodating and compliant with most of company’s business processes, were contacted and offered a visit to IMH’s location to gain company knowledge. d.
Demonstrating the system
The three Vendors were invited to demonstrate their system at IMH’s headquarters, having been provided with a demonstration script containing real data in advance of the demonstration date, to enable them to prove that their ERP system would meet the company’s requirements, also to clarify strengths and weakness in specific modules and their impact on the business. The demonstration script covered four scenarios: standard jobs, emergency jobs, component sales jobs and general requirements. The reason of developed script was that Vendors demonstrated the quality of their system to manage different jobs pertinent to the company, rather than the normal demonstration of the best elements of their own system. One full day was allocated for this exercise; the relevant staff attended the demonstration of the module/functionality relevant to their job. For example, when the modules/functionality of marketing and CRM was demonstrated the marking and developing staff attended that section. Such staff involvement was designed to generate dialogue, feedback and greater stakeholder feeling in the project, with the aspiration of reducing resistance to change at the implementation stage. After the demonstration, one Vendor was excluded, because their quality was lower than that of the other two who were invited to return for second round to address questions raised at the first demonstration, and to enable the demonstration of other modules/functionality. The demonstration script was modified for the second demonstration, and a half day was allocated for this exercise. The last step before final decision-making, both Vendors were asked to provide two references from their current customers using similar type of processes to that of IMH or operation in a similar industry, and to arrange a conference call or site visit with them. Due to time constrains the Facilitator and the top management decided to conduct both a conference call and a site visit to the reference of the now preferred Vendor, and to conduct conference call with another reference. The successful ERP system managing the same type of business processes with organisation can be considered as key criterion for the selection the ERP system. 5.3. Selection phase Many factors were taken into account to make the selection decision, first, an essential factor, considered was the functionality of the ERP system, carrying a heavy weight in the whole decision evaluation procedure, as the system must have no less than adequate modules relating to the company main activities, and supporting the critical business processes, with the system capable of integration with other systems such as: Computer-aided design/Computer-aided manufacturing (CAD/CAM) package and Microsoft Project; that the company may be using to accomplish specialised requirements. From this perspective, integration with other systems is considered to be a crucial criterion for selecting the ERP solution. Another factor is that the ERP system should have mobile application compatibility with cell phone and tablets used within the organisation. Further, considering this process create a long relationship with the Vendor
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rather than one off purchase, as there will ongoing after sale support, thus, the reputation the ERP vendor was taken in consideration to ensure that this is the right vendor with whom to partner. Overall, the decision was made based on functionality ease rather than cost. 6. Conclusion It is essential for SMEs to implement ERP system to successfully trade in the existing competitive environment; however, due to many SMEs’ limited knowledge regarding ERP system, the literature indicated that a need existed for more research into a framework for selecting appropriate ERP system, primarily for SMEs. Thus, a theoretical framework that can be used by SMEs to select the most appropriate ERP system was developed in this study, the framework consist of three phases: Define, Evaluate and Select. The framework was developed and validated using case study approach, the results of a case study indicated that the proposed procedure is useful for selecting a successful ERP system for SMEs according to the company processes, instead of using so called “common sense” or blind selection. Additionally, a benefit of this developed framework is that appropriate ERP system was clearly presented to the top management, and thus gained their confidence in implementing the ERP system. In the next stage of this work, IMH will implement the selected ERP system; this can be considered as a further way to evaluate the developed a theoretical framework. 7. Future work The results from a single case study cannot be generalised, however, it can provide important insights and directions for future research. Therefore, to generalise application of the developed framework, further research case studies for SMEs; in-depth analysis will be necessary. 8. Acknowledgements This work was generously supported by IMH, along with the collaboration of Teesside University. The authors would like to thank everyone who helped and contributed in this work. 9. Reference [1] Sharma, M.K. and Bhagwat, R, Practice of information systems, evidence from select Indian SMEs, Journal of Manufacturing Technology Management, Vol. 17, No. 2 (2006b) 199-223. [2] Sun, A.Y.T., Yazdani, A. and Overend, J.D. Achievement assessment for Enterprise Resource Planning (ERP) system implementations based on Critical Success Factors (CSFs), International Journal of Production Economics, Vol. 98, No. 2 (2005) 189-203. [3] Hong, K.K. and Kim, Y.G. The critical success factors for ERP implementation: an organizational fit perspective, Information and Management, Vol. 40, No. 1 (2002) 25-40. [4] Pellerin, R., Léger P.M. and Babin,G,. The impact of board interlocks on the diffusion of enterprise resource planning systems. International Journal of Networking & Virtual Organisations, Vol. 4, No. 4 (2007) 402-412. [5] Karsak, E. E., and Özogul, C. O. An integrated decision making approach for ERP system selection. Expert Systems with Applications. Vol. 36, No.1 (2009) 660-667. [6] Kilic, H. S., Zaim. S., and Delen, D. Selecting “The Best” ERP system for SMEs using a combination of ANP and PROMETHEE methods. Expert Systems with Applications Vol. 42, No. 5 (2015) 2343-2352. [7] Haddara, M., and Elragal, A. ERP Lifecycle: A Retirement Case Study. Information Resources Management Journal (IRMJ). 26, No. 1 (2012) 1-11. [8] Aloini, D., Dulmin, R., and Mininno,V. Risk assessment in ERP projects. Information Systems Vol. 37, No. 3 (2012) 183-199. [9] Silverman D, Interpreting Qualitative Data: Methods for Analysing Talk, Text and Interaction, seconded. Sage Publications, London, (2001). [10] Haddara, M. ERP selection: the SMART way. Procedia Technology, 16 (2014) 394-403. [11] Yin, R.K., Case Study Research: Design and Methods, Sage Publications Inc, Thousand Oaks, CA, (2009). [12] Forslund, H. and Jonsson, P. Selection, implementation and use of ERP systems for supply chain performance management. Industrial Management & Data Systems, Vol. 110, No. 8 (2010) 1159-1175.
ScienceDirect
Available online www.sciencedirect.com Available online atat www.sciencedirect.com Procedia Manufacturing 00 (2019) 000–000
ScienceDirect ScienceDirect
Procedia ProcediaManufacturing Manufacturing00 38(2019) (2019)000–000 69–75
www.elsevier.com/locate/procedia
www.elsevier.com/locate/procedia
29th International Conference on Flexible Automation and Intelligent Manufacturing (FAIM2019), June 24-28, 2019, Limerick, Ireland. 29th International Conference on Flexible Automation and Intelligent Manufacturing Framework ERP Ireland. System: (FAIM2019),for JuneSelection 24-28, 2019,of Limerick,
Case Study. Framework for Selection R. ofAhmad, ERP System: Alaskari,O*.Pinedo-Cuenca, M. M Teesside University, Southfield Middlesbrough, TS1 3BX, UK CaseRoad, Study. Alaskari,O*.Pinedo-Cuenca, R. Ahmad, M. M
Abstract
Teesside University, Southfield Road, Middlesbrough, TS1 3BX, UK
Currently, for all businesses, due to market competition and continual economic pressure on businesses, there is perpetual need to adopt innovative tools and techniques, to cope with these pressures and to make the best decision to respond to market changes. Abstract This is particularly true for small to medium sized enterprise (SME), therefore, in order for SMEs to be competitive and responsive to continuously of the theycompetition need integrate of the units within pressure companyon at businesses, the information to have need correct Currently, for allchanging businesses, duemarket, to market andall continual economic therelevel, is perpetual to information in real time to make quick and right decision. This can only occur by adopting the most appropriate system relating to adopt innovative tools and techniques, to cope with these pressures and to make the best decision to respond to market changes. the and the strategysized of the company. Consequently, systems such an Enterprise Resource Thisbusiness is particularly truemanufacturing for small to medium enterprise (SME), therefore, inintegration order for SMEs to be competitive and responsive Planning (ERP) changing currently of arethe in market, high demand for both manufacturing and service organisations. an ERP system is a to continuously they need integrate all of the units within company at theImplementing information level, to have correct significant challenging for all companies, particularly SMEs as the their resources are limited. There are informationinvestment in real timedecision to make and quick and right decision. This can only occur by adopting most appropriate system relating to numerous stages themanufacturing ERP implementation One of the initial and most critical stages is that of ERP selection.Resource It is very the business andinthe strategyprocedure. of the company. Consequently, integration systems such an Enterprise important(ERP) to paycurrently detailed are attention select the to for the as the adoption of an ERP an system leadistoa Planning in hightodemand forright both systems manufacturing andcompany, service organisations. Implementing ERP can system undesirableinvestment outcomes decision were an and inadequate ERPforsystem selected particularly and implemented causing detrimental the company’s significant challenging all companies, SMEs as their resources are to limited. There are performance. Literature review indicates a failure rate as high the selection and adoption an selection. inappropriate numerous stages in the ERP implementation procedure. One of as the70%, initialdue andtomost critical stages is that of of ERP It is ERP very system. Therefore, this paper developed a theoretical framework that can be used by SMEs to select the most appropriate ERP important to pay detailed attention to select the right systems to for the company, as the adoption of an ERP system can lead to system, the framework of three phases:ERP Define, Evaluate and Select. The approachcausing taken in this work consist of two phases: undesirable outcomes consist were an inadequate system selected and implemented detrimental to the company’s the first phaseLiterature is a literature review of studies in rate ERPasselection, to develop a theoretical framework, phase, presents performance. review indicates a failure high as 70%, due to the selection and adoptionsecond of an inappropriate ERPa practicalTherefore, case study,this to paper validate the developed framework. The findings supports both manufacturing and service system. developed a theoretical framework that canof bethis usedwork by SMEs to select the most appropriate ERP organisations seeking toconsist implement ERP systems by determining theSelect. most The appropriate ERP system toward enhancing system, the framework of three phases: Define, Evaluate and approach taken in thisinvaluable work consist of two phases: successful implementation, minimising the risk of a non-fitting ERP system and consequent project failures. Moreover, this enablesa the first phase is a literature review of studies in ERP selection, to develop a theoretical framework, second phase, presents decision makers to formulate better strategies to enhance ERP and to both identify critical elements of the practical case study, to validate the developed framework. The system findingsimplementation, of this work supports manufacturing and service implementation process. organisations seeking to implement ERP systems by determining the most appropriate ERP system invaluable toward enhancing successful implementation, minimising the risk of a non-fitting ERP system and consequent project failures. Moreover, this enables © 2019 2019 The The Authors. Published by Elsevier Elsevier B.V. © Authors, Published by B.V. decision to formulate better strategies to enhance ERP(http://creativecommons.org/licenses/by-nc-nd/4.0/) system implementation, and to identify critical elements of the This is anmakers open access article under the CC BY-NC-ND license implementation process. Peer-review under responsibility of the scientific committee of the Flexible Automation and Intelligent Manufacturing 2019 (FAIM 2019) © 2019 The Authors, Published by Elsevier B.V. * Corresponding author. Tel.: +447765008205 E-mail address: [email protected] 2351-9789 © 2019 author. The Authors, Published by Elsevier B.V. * Corresponding Tel.: +447765008205 PeerE-mail reviewaddress: under the responsibility of the scientific committee of the Flexible Automation and Intelligent Manufacturing 2019 [email protected] 2351-9789 © 2019 The Authors, Published by Elsevier B.V. Peer review under the responsibility of the scientific committee of the Flexible Automation and Intelligent Manufacturing 2019 2351-9789 © 2019 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) Peer-review under responsibility of the scientific committee of the Flexible Automation and Intelligent Manufacturing 2019 (FAIM 2019) 10.1016/j.promfg.2020.01.009
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Alaskari, O. Pinedo-Cuenca, R. Ahmad, M. M / Procedia Manufacturing 00 (2019) 000–000 O Alaskari et al. / Procedia Manufacturing 38 (2019) 69–75
Peer review under the responsibility of the scientific committee of the Flexible Automation and Intelligent Manufacturing 2019 Keywords: Enterprise Resource Planning; Small and Medium Enterprises; Selection
1. Introduction Today competition is no longer local, but global, with companies increasingly required to reduce total costs, maximize investment return, shorten lead time, and enhance customer demand response. For SMEs the changing global economic conditions and greater competition cause additional challenges; thus, effective enterprise information systems, to enhance competitive advantage are increasingly important. SMEs realise that it is imperative to make better use of the information they have in order to make decisions that are more informed. Many SMEs understand that survival will be determined by their ability to comprehend and acknowledge the importance of Information Systems (IS) with accessibility to the right information at the right time (Sharma and Bhagwat, 2006b). In this regard, ERP system are large comprehensive packaged IS aimed at integrating business processes and functions. ERPs have gained importance and popularity as a technological enabling solution (Karsak & Özogul, 2009). Pellerin et al. 2007 argued that, companies will increase productivity, enhanced by access to information and managerial performance data in decision-making by implementing ERP. Despite the advantages achieved by adopting ERP system, there are many challenges such as, system complexities, organisational changes, and selection of the appropriate system. Hong and Kim, 2002 argued that ERP, in many cases, will not meet the unique needs of a particular organisation. Thus, finding the right ERP system to fit business processes is critical, elements of which are a competent system provider, hereinafter described as the Vendor; system installation; managing organisation and business processes of change, thus enabling successful ERP implementation. Haddara et al. 2012 & Aloini et al. 2012 have stated that successful ERP project involves selecting the appropriate ERP; an inappropriate ERP system selection would cause the project to fail, detrimentally reducing the company’s performance. Adopting ERP in SMEs is a difficult, costly and a time consuming task, mainly due to the lack of available resources, unlike in large companies (Sun et al., 2005). SMEs, with lesser resources, have added constraints in ERP adoptions as they often lack of modern Information Technology (IT) infrastructure and experienced IT staff. The ERP system life cycle consists of mainly of three phases: Selection, Implementation and Use (Kilic et al. 2015); the Selection Phase is the most critical for a successful adaption (Forslund & Jonsson, 2010). Haddara, M., 2014, stated that, studying the capabilities of the potential ERP system to accommodate the critical business processes of the organisation is the first step to insure a successful ERP; an inappropriate ERP system may cause financial losses, the loss of competitive advantage, even company failure. Therefore, this paper focuses on ERP selection process, providing explanatory case study conducted in a SME located in the United Kingdom (UK), introducing a theoretical framework for the identification of specific steps that were, and should be taken into account for an SME to select an appropriate ERP system in general. 2. Methodology A qualitative approach was adopted to explore and validate a developed framework. Silverman (2001) argued that qualitative, rather than quantitative; data provides a deeper understanding of certain phenomena. Yin (2009) mentioned that case studies collect rich data and are appropriate to study a contemporary phenomenon within its natural setting, hence this approach was chosen. Literature review was used as secondary source of data (journal articles in various databases); to develop theoretical framework; and then a single case study was conducted to validate the developed framework. The data was gathered from the company as the Facilitator, the author, has accessed all of the company’s historical data, included project documentation, internal organisational documents, company profile, also meeting with key staff who describe all the business processes they conducted in their day-to-day operations, then the Facilitator compiled and modelled all information as a business process map, and finally, the obtained data from the case study was analysed using Microsoft Excel, external support from Teesside University was obtained.
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3. Overall Theoretical Framework The developed framework was designed to help SMEs select an appropriate ERP system; accordingly, company performance will improve, accomplishing the aim of this study. Due to the limitations faced by SMEs, the construction of a suitable framework was essential; to take into account particular issues in the SME context, such as cost effectiveness and straightforward implementation. Since every SME is different, there will never be a perfect framework that will work for all SMEs; hence, this research provided a logical and simple theoretical framework. Figure 1 illustrates the three basic phases of the framework namely: Define, Evaluate and Select. Each of the three phases is divided into further steps, which includes activities. This framework initially defined and assessed the company’s current processes (Define), then an evaluation of ERP Vendors of necessary IT system, considering the related functionalities and modules which the respective Vendors offered (Evaluate). By conducting these two phases, a clear picture will be formed to enable selection of the appropriate ERP system for the company (Select), the developed framework is a means, not an end in itself.
Fig. 1. Three phases of developed theoretical framework
4. Case study 4.1. Background about the company Industrial & Marine Hydraulics Limited (IMH), a UK company incorporated in 1983, is a dynamic, rapidly expanding enterprises in the hydraulic industry, aiming to be a world class player by exploring local and international opportunities, improving its flexibly to respond to the challenges of today’s global marketplace. IMH currently has 30 employees, thus by European Commission (EU) definition a SME, of small enterprise status. IMH serve a wide range of companies across multiple sectors that offer different types of services and products included Automotive, Industrial, Infrastructure, Marine, Nuclear, Oil & Gas, Petrochemical and Renewables. The company used various independent IT systems such as Sage 50 Accounting, Customer Relationship Management (CRM), Job Costing and Microsoft Excel, these systems do not interact, which causes difficulties for the company to manage the complexity of production schedules, maximising equipment and labour use. IMH realised that faster response to the market required interaction across the company, streamlining processes, with increased information availability. They decided to re-engineer and automate current process of the company and implement an ERP system, to improve performance and strengthen their position in the market. The ERP selection process in IMH started in March 2018 and was completed in December 2018. 5. A framework for selecting an appropriate ERP system The proposed framework aimed to enhance the overall ERP implementation outcomes, and identify an overall roadmap for SMEs to assist decision-making to select the appropriate ERP system. The developed framework consist of three main phases: Identifying current company processes and requirements, Evaluation of ERP systems and Selecting the most appropriate ERP system that fulfils the company’s current and future requirements. These phases support each other as shown in Figure 2. All the key staff members of the company are involved during the process for variable periods of time.
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Fig.2. A framework for selecting an appropriate ERP system
5.1. Define phase This phase consists of two steps: assessment and develop request for proposal. a.
Assessment
The first step identified the current company processes, by mapping, and walking through each processes by the respective departments, the Facilitator, asked all key staff to describe every business processes they conduct in daily operations to determining the key activities carried out within the company. b.
Develop request for proposal
After determining the key processes alongside their steps, this information was used to compile and developed a Request for Proposal (RFP) document. This document consisting of three main sections: Company background, Key features and functions alongside with their requirements, and cost summary tables. The initial RFP document was reviewed by the key staff who added/altered any features and functions to ensure that all necessary features and functions were captured in RFP and thus included in the ERP system. Finally, the Facilitator and the top management, reviewed the staff feedback and determined the impact of each functional requirements from the company’s point of view, these functionalities were prioritised using a M-D-N scale: • Must have (M) = Critical requirements to the business at present. • Nice to have (N) = Requirements that would be nice to have in time and are not appropriate at this time. • Desired (D) = Important requirements to the business in a near future but not necessarily at present Using M-D-N scale, with scores weighted to differentiate and determinate the degree of importance of each function from the company’s point of view where M = 9; N = 3; D = 1, the factor of three between each score helped to clarify to differentiation the significant importance of each function. Table 1, an exemplar, shows the functionalities requirements (Column 2), their level of impact (Column 3) were listed in the tables in RFP and the Vendors were request to complete Columns 4, 5, 6, and 7. Table 1. An example of RFP.
1 ID 1 2 3 n
2 Function Requirement X1 Requirement X2 Requirement X3 … Requirement Xn
3 Impact M N D
4 CM? Y/N
5 Dev? Y/N
6 3PSW Name
7 Ind. cost
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Whereas: • CM? Y/N: Requirement is part of the core module of the system. Yes/No answer required • Dev? Y/N: Development will be required to deliver the requirement. Yes/No answer required. Please provide indicative costs. • 3PSW name: The system cannot deliver this requirement, but can be delivered with a 3rd party software, with working integration links and application program interface (API) to the current versions of the 3rd party software. This needs to be answered with the 3rd party software application. • Ind. Cost: Indicative costs for development of any additional functional requirement should be identified and detailed in the cost summary attached at the end of the document. 5.2. Evaluate phase a.
Conducted survey about the ERP vendors
As much information about Vendors as possible, from all possible sources including the internet, magazines, and exhibitions, was gathered to consider the related functionalities and modules which the respective Vendors offered. Conference calls and brief online demo was conducted to provide an initial filter of vendors. 13 potential Vendors were identified from this survey. b.
Send RFP
The developed RFP document was sent to 13 identified Vendors or their representatives with a request to respond to general questions, related functional in Columns 4, 5, 6, and 7 of the Tables, and cost summary tables, within a time deadline. c.
Analysis the respond of RFP
Of the 13 Vendors, seven, following their consideration of the RFP document formed the opinion that their system was not appropriate for this company’s requirements, and withdrew. This has to be regarded as a positive response, indicating the benefits of the RFP document. The remaining six responders to the REP were analysed, and their respective results were compared and contrasted. Table 2 shows an example of an analysis of RFP where the Vendor having responded Yes in Column 4 was assigned 1; a response Yes in Column 5 was assigned 0.5; and a response Yes in Column 6, was assigned 0.75. The reason for weighting 1 in Column 4 was because this requirement is part of the core module of the system, and no extra cost or time was require to obtain this requirement; however, weightings in Columns 5 or 6 of .05 and 0.75 respectively indicates that these requirements are not part of the core module of the system, and both additional cost and time was require to obtain this requirement; the indicative costs were captured in Column 7, reflected on an overall score, that help to distinguishes between the respective ERP systems. The value in Column 3 was multiple by the value in Columns 4, 5, and 6 and sum give 11.25. After that, the summation of the values was normalised to create the mechanism of percentage. Table 2. An example of analysis the respond of RFP.
1 ID 1 2 3 n
2 Function Requirement X1 Requirement X2 Requirement X3 … Requirement Xn
3 Impact M=9 N=3 D=1
4 CM? Y/N Y=1
5 Dev? Y/N
6 3PSW Name
7 Ind. cost
Y=0.5 Y=0.75
Overall
Sum 9 1.5 0.75
11.25
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For speed and ease, this analysis was conducted using Microsoft Excel. Figure (1) illustrate that result of a Vendor response where: 85% of company functionalities requirements is available out of the box, (Column 4); 12% of functionalities required some customisation, (Columns 5 and 6); 3% of the functionalities requirements are not available.
Fig. 3. Shows result of a Vendor response
As result of this analysis, three Vendors were excluded, on the grounds of poor functionality of the system, and were so informed. The remaining three proven to be accommodating and compliant with most of company’s business processes, were contacted and offered a visit to IMH’s location to gain company knowledge. d.
Demonstrating the system
The three Vendors were invited to demonstrate their system at IMH’s headquarters, having been provided with a demonstration script containing real data in advance of the demonstration date, to enable them to prove that their ERP system would meet the company’s requirements, also to clarify strengths and weakness in specific modules and their impact on the business. The demonstration script covered four scenarios: standard jobs, emergency jobs, component sales jobs and general requirements. The reason of developed script was that Vendors demonstrated the quality of their system to manage different jobs pertinent to the company, rather than the normal demonstration of the best elements of their own system. One full day was allocated for this exercise; the relevant staff attended the demonstration of the module/functionality relevant to their job. For example, when the modules/functionality of marketing and CRM was demonstrated the marking and developing staff attended that section. Such staff involvement was designed to generate dialogue, feedback and greater stakeholder feeling in the project, with the aspiration of reducing resistance to change at the implementation stage. After the demonstration, one Vendor was excluded, because their quality was lower than that of the other two who were invited to return for second round to address questions raised at the first demonstration, and to enable the demonstration of other modules/functionality. The demonstration script was modified for the second demonstration, and a half day was allocated for this exercise. The last step before final decision-making, both Vendors were asked to provide two references from their current customers using similar type of processes to that of IMH or operation in a similar industry, and to arrange a conference call or site visit with them. Due to time constrains the Facilitator and the top management decided to conduct both a conference call and a site visit to the reference of the now preferred Vendor, and to conduct conference call with another reference. The successful ERP system managing the same type of business processes with organisation can be considered as key criterion for the selection the ERP system. 5.3. Selection phase Many factors were taken into account to make the selection decision, first, an essential factor, considered was the functionality of the ERP system, carrying a heavy weight in the whole decision evaluation procedure, as the system must have no less than adequate modules relating to the company main activities, and supporting the critical business processes, with the system capable of integration with other systems such as: Computer-aided design/Computer-aided manufacturing (CAD/CAM) package and Microsoft Project; that the company may be using to accomplish specialised requirements. From this perspective, integration with other systems is considered to be a crucial criterion for selecting the ERP solution. Another factor is that the ERP system should have mobile application compatibility with cell phone and tablets used within the organisation. Further, considering this process create a long relationship with the Vendor
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rather than one off purchase, as there will ongoing after sale support, thus, the reputation the ERP vendor was taken in consideration to ensure that this is the right vendor with whom to partner. Overall, the decision was made based on functionality ease rather than cost. 6. Conclusion It is essential for SMEs to implement ERP system to successfully trade in the existing competitive environment; however, due to many SMEs’ limited knowledge regarding ERP system, the literature indicated that a need existed for more research into a framework for selecting appropriate ERP system, primarily for SMEs. Thus, a theoretical framework that can be used by SMEs to select the most appropriate ERP system was developed in this study, the framework consist of three phases: Define, Evaluate and Select. The framework was developed and validated using case study approach, the results of a case study indicated that the proposed procedure is useful for selecting a successful ERP system for SMEs according to the company processes, instead of using so called “common sense” or blind selection. Additionally, a benefit of this developed framework is that appropriate ERP system was clearly presented to the top management, and thus gained their confidence in implementing the ERP system. In the next stage of this work, IMH will implement the selected ERP system; this can be considered as a further way to evaluate the developed a theoretical framework. 7. Future work The results from a single case study cannot be generalised, however, it can provide important insights and directions for future research. Therefore, to generalise application of the developed framework, further research case studies for SMEs; in-depth analysis will be necessary. 8. Acknowledgements This work was generously supported by IMH, along with the collaboration of Teesside University. The authors would like to thank everyone who helped and contributed in this work. 9. Reference [1] Sharma, M.K. and Bhagwat, R, Practice of information systems, evidence from select Indian SMEs, Journal of Manufacturing Technology Management, Vol. 17, No. 2 (2006b) 199-223. [2] Sun, A.Y.T., Yazdani, A. and Overend, J.D. Achievement assessment for Enterprise Resource Planning (ERP) system implementations based on Critical Success Factors (CSFs), International Journal of Production Economics, Vol. 98, No. 2 (2005) 189-203. [3] Hong, K.K. and Kim, Y.G. The critical success factors for ERP implementation: an organizational fit perspective, Information and Management, Vol. 40, No. 1 (2002) 25-40. [4] Pellerin, R., Léger P.M. and Babin,G,. The impact of board interlocks on the diffusion of enterprise resource planning systems. International Journal of Networking & Virtual Organisations, Vol. 4, No. 4 (2007) 402-412. [5] Karsak, E. E., and Özogul, C. O. An integrated decision making approach for ERP system selection. Expert Systems with Applications. Vol. 36, No.1 (2009) 660-667. [6] Kilic, H. S., Zaim. S., and Delen, D. Selecting “The Best” ERP system for SMEs using a combination of ANP and PROMETHEE methods. Expert Systems with Applications Vol. 42, No. 5 (2015) 2343-2352. [7] Haddara, M., and Elragal, A. ERP Lifecycle: A Retirement Case Study. Information Resources Management Journal (IRMJ). 26, No. 1 (2012) 1-11. [8] Aloini, D., Dulmin, R., and Mininno,V. Risk assessment in ERP projects. Information Systems Vol. 37, No. 3 (2012) 183-199. [9] Silverman D, Interpreting Qualitative Data: Methods for Analysing Talk, Text and Interaction, seconded. Sage Publications, London, (2001). [10] Haddara, M. ERP selection: the SMART way. Procedia Technology, 16 (2014) 394-403. [11] Yin, R.K., Case Study Research: Design and Methods, Sage Publications Inc, Thousand Oaks, CA, (2009). [12] Forslund, H. and Jonsson, P. Selection, implementation and use of ERP systems for supply chain performance management. Industrial Management & Data Systems, Vol. 110, No. 8 (2010) 1159-1175.