THE BUSINESS CASE OF SAP-ERP SYSTEM

International Journal of Technology Management and Information System (IJTMIS) eISSN: 2710-6268 [Vol. 1 No. 2 December 2019]

Journal website: http://myjms.mohe.gov.my/index.php/ijtmis

THE BUSINESS CASE OF SAP-ERP SYSTEM

IMPLEMENTATION IN THE BIG ENGINEERING COMPANY (TBEC)

Shamila Akram^1*, Muhammad Zulqarnain² and Najath Akram³

1 2 School of Computing and Technology, Staffordshire University, MALAYSIA

3 Faculty of Engineering, Florida International University, USA

*Corresponding author: shamilaakram@gmail.com

Article Information:

Article history:

Received date : 12 October 2019 Revised date : 23 November 2019 Accepted date : 6 December 2019 Published date : 26 December 2019

To cite this document:

Akram, S., Zulqarnain, M., & Akram, N.

(2019). THE BUSINESS CASE OF SAP-ERP SYSTEM

IMPLEMENTATION IN THE BIG ENGINEERING COMPANY (TBEC).

International Journal Of Technology Management And Information System, 1(2), 59-69.

Abstract: The Big Engineering Company (TBEC) is an old, large engineering firm currently operates across 1200 legacy systems, most of which were established over the last twenty years. This study is aimed at implementing SAP-ERP as a recommendation system in solving problems related to TBEC whereas the consequences of critical success factors related to SAP-ERP implementation along with drawbacks caused while implementing.

Keywords: SAP-ERP, benefits, drawbacks, TBEC, implementation.

1. Introduction

The global information technology and the climate of competitive market development pushed some organizations in order to do business transform. Therefore, most of the organizations planned to implement information system in improving the efficiency and effectiveness of their businesses (Kumar, 2010). Some organizations have outdated software’s that cause capability gap. In order to hinder and expand the business, some organizations implemented Enterprise Resource Planning software that combines every aspects of business (Smyth, 2001).

Enterprise Resource Planning (ERP) is considered as a software solution, integrates data into a single system that shares within an organization. It has transformed the process of information system providing’s. Other than locally producing all novel information, organizations are able to internationally sourced packages with well integration that seek to provide best IT system practice around the world (Smyth, 2001). It also helps to manage organizational business process with using common management reporting plus database tools. It also supports the efficient business operational process by combining business events such as manufacturing, marketing, accounting and staffing (Brady, Monk and Wagner, 2001).

1.1 Potential Benefits of ERP Implementation in TBEC

Adoption of SAP-ERP brings various business benefits to an organization (My SAP ERP, 2007).

It improves business performance such as receiving inventory management, integrating supply chain management, production planning, managing human resources and accounting and so on.

(Hong & Kim, 2002; Gefen & Ridings, 2002; Kalling, 2003). It provides excellent benefits checklist, that are accomplished by using organizational SAP-ERP system.

SAP-ERP; most popular IT integrated system, that offers the broadest range of functionalities that are available in the market, that supports in the process of decision making that can be implemented in TBEC (Smyth, 2001). Flexibility, extendibility and adapting system possibility to an organizational specific requirement, made it the best integrated ERP solution on the market, that guarantee an unquestionable benefit range. According to Shang and Seddon (2000), implementing SAP-ERP will gives benefits such as strategic, operational, IT infrastructure managerial and many organizational benefits.

1.1.1 Operational Benefits

Due to implementation of SAP-ERP to organizations, they obtain operational benefits like productivity improvements, cost reduction, error reduction and cycle time reduction in their daily business operations. According to Bavarsad (2013), there is a direct effect on SAP-ERP software adoption towards the organizational financial performance. By adopting SAP-ERP, organizations can reduce cost (Love, 2015), increase production (Esteves, 2009), reduce administrative cost (Tommaso and Federici, 2009) and decline the inventory level. This made it easier for management of information (Esteves, 2009) to handle errors such as data redundancy, miscalculations and typographic (Williams and Schubert, 2010). It also helps in producing reliable and clear business operational information by removing the financial statement deficiencies. This implementation reduce corruption by, using it as a finger print scanner that is used for attendance system which is directly integrated with the payroll system.

Implementing SAP-ERP in TBEC can reduces the cycle time that includes client support activities (customer enquiries order fulfilment, billing and delivery), employee support activities (requisition, month end closing, learning, payroll and HR) and activities that support the supplier (information exchange, processing and payment). By using SAP-ERP, it can be able to automatically check the current inventory against the desired level and send the new inventory that is automatically ordered to the head office. It results in better inventory management for the head office and firm where order purchases happen. It reduces labour hours, warehouse costs, inventory holding costs and other inventory related cost.

The crucial reason for SAP-ERP adoption in an organization is for the need of timely information.

According to the previous studies, it is mentioned that information can be hastily recovered from the main source, as the information flow is better with SAP-ERP system. Moreover, it results in faster and efficient transactions, accurate and timely information (Bavarsad, 2013) and helps to enhance customer satisfaction.

1.1.2 Managerial Benefits

It is needed for the management to make decisions using information that are collected from their environment and operations. Operation of SAP-ERP system in the TBEC helps the management to have updated, timely and accurate information. In the past, information was manually collected and examined with Microsoft Excel as well as extra software’s which were period consuming. But implementation of SAP-ERP helps organizations to save their time while giving updated information. When considering product costing in concerns to manufacturing, SAP-ERP helps managers to calculate expenses, predict production quantity and to improve product quality. So, implementing ERP system for a company like TBEC can be considered.

In management functions, it is crucial to prepare financial statements. SAP-ERP is considered as a suitable tool that is needed to prepare and to audit statement of profit/loss account, balance sheet and cash flow statement. According to tax authorities, they do an extensive investigation on financial statements that are issued by business entity. But implementing ERP is helpful for tax administrators as Federal Board of Revenue (FBR) tax officers are confident on the ERP generated information accuracy.

1.1.3 Strategic Benefits

The following mentioned benefits concerns the strategies done by organizational management.

These benefits are in a varied activity range in both areas of internal and also external in product strategies, overall competitiveness, competitive organizational position in TBEC and strategic capabilities. The SAP-ERP is considered as a strategic tool that supports the organization for new product development and new service offers. An improved strong external linkage related to customers and suppliers plus the information quality has improved for an effective decision making that results in strategic benefits of ERP implementation.

1.1.4 Technical Benefits

Technical assistances that can be gained from SAP-ERP implementation are solving the ‘Year 2000 millennium bug’ (Y2K) and related problems, integrating cross functionally applications, reducing the burden of software maintenance via outsourcing and so on.

1.1.5 IT Infrastructure Benefits

Implementation of SAP-ERP in TBEC is disconcerting to the department of IT. Transitioning the IT infrastructure towards ERP takes strong organizational skills, empathy and patience of timing.

ERP implementations are result in information technology benefits such as increased the flexibility of IT infrastructure, reduction in IT costs and ease of accommodate in forthcoming new technologies. It also ensures the data integrity of the organization where running an SAP-ERP- check leads to enhance in the integrity of data, increase reporting speed and accuracy. It also gives chances for data managers to imagine the workable system implementation. It also helps to reduce the downtime as it currently reflects the accurate information on the ongoing business process, provide information on key individuals who pulls data using SAP-ERP system as well as handling the organizational resources in order to directly collaborate on increasing the overall organizational system performance.

1.1.6 Organizational Benefits

Implementation of SAP-ERP has a direct influence on the entire TBEC which helps in business learning, building common vision, customer satisfaction and interdepartmental harmonize functioning as it helps to solve inter department issues efficiently and effectively.

One of the organizational benefits that they gain by SAP-ERP is the standardized business processes, where most of the organizations develop according to the best practice of the industry (Bavarsad, 2013). It allows the business to standardize their unique systems and processes that further increase the level of efficiency and productivity.

1.1.7 Communication

ERP consents sharing the identical information in a single system, that allows communication between different departments in TBEC. It enhances the interaction and cooperation among organizational business units (Harrison, 2004).

1.1.8 Financial Benefits

Implementation of ERP helps an organization to enhance the accuracy of financial information, capability of decision making and transparency plus corporate governance (Bavarsad, 2013). Other than that, there are some other financial benefits such as increasing the industry performance, increasing the business units and department interaction, enhancing the capacity of decision making with accurate and financial cost diminishes. Implementation of SAP-ERP in a large company such as TBEC will results in organizational benefits and reduce the financial cost.

2. Critical Success Factors of Implementation of SAP-ERP in TBEC

Successful SAP-ERP system implementation depends on management which prepares the organization for challenges (Madan, Motwani and Gunasekaran, 2002) and the senior management involved in general organizational strategies, that are not user-friendly with technical aspects (Gunasekaran, Yusuf and Abthorpe, 2004). Top management help and commitment aim at overall administrative commitment that results in successful implementation of ERP (Umble and Umble, 2002). According to Al-Mudimigh, and Zairi (2003). Critical success factors aim at ERP implementation benefits.

2.1 Change Management

According to Madsen and Ethie (2005), implementation of ERP involves changing hardware or software systems that benefit an organization for improved performance and higher efficiency level. It also causes changes that leads to employee resistance. Accordingly, balancing conflicts between technology and staff plus managing employees effectively in the process of change, are key factors of successful implementation of ERP (Ash and Burn, 2003).

2.2 Project Management

Effective project management in an organization is important for the implementation of successful ERP (Nah and Delgado, 2006). According to Bingi, Godla and Sharma (1999), “less understanding of the project needs, inability to provide proper project guidance and leaderships” are the key factors of ERP implementation failures. It needed for an effective project management to clearly define project objectives, develop resource plan and track the project progress.

2.3 Communication Plan

In order to do a successful ERP implementation, it is needed to have a strong organizational communication during the implementation process. It let the TBEC organizational stakeholders to identify the expected benefits and organizational goals plus share the project progress. An open information policy saves the project communication failures (Al-Mashari, Al-Mudimigh, and Zairi, 2003).

2.4 Training

End user training considered as a critical ERP implementation aspect to robust the understanding of system works (Bajwa, Garcia and Mooney, 2004). Therefore, applicable end user training and education will increase user satisfaction and maximize the benefits of ERP in TBEC (Ash and Burn, 2003).

2.5 ERP Team Composition

ERP team composition is considered as a critical success factor of implementing ERP due to the diverse organizational functional areas (Ash and Burn, 2003). It is needed for an ERP project team to have representatives from each and every ERP related functional units in TBEC.

2.6 Consultant Relationship and Selection

ERP consultants act as a critical role in the implementation of ERP. Consultants can be vital knowledge resources for ERP’s software, hardware as well as personnel. They are being able to audit the project, have project management responsibility and help the staff. Other than that, it is needed to transfer knowledge from consultants for an effective organizational system maintenance.

3. Issues and Challenges of ERP Adoption of an Organization

Lack of awareness and different challenging issues that surrounded the implementation process can bring problems to the whole implementation. Moreover, absence of key success issues acts as a serious obstacle in the process of implementation of information system. Implementation of ERP system changes the whole management of business process.

3.1 Cost of Adoption

The major drawback of implementation of ERP is, it’s overall cost of starting up. The implementation of ERP process requires training, hardware as well as consultants in giving the needed instruction apart from the software. It also creates huge price tags that will not acceptable by an organization, especially where systems are unable to guarantee the profit.

3.2 Complexity

Implementation of ERP process is a time consuming and complex process where it makes it easy to select the entirely wrong ERP. Other than that, it is difficult to implement and too costly to upgrade.

3.3 External Security

ERP is designed with the main priority of internal security, where it has the vulnerability towards the threats of external security. These attacks can happen in the form of dictionary, that aimed at cracking passwords or else flooded applications, that permitting easy access for hackers. Other than that, there are methods that include duping users towards divulging credentials, that leads to hackers who are entering in to the system just like authorized users.

3.4 Resistance to Change

There can be a resistance for implementing ERP process as middle managers will fight on the consequences of hours that they lost on ERP trainings and distinguish the new initiatives of distraction (Al-Mashari, Al-Mudimigh, and Zairi, 2003). Most of the middle management staff are considered as legacy system experts and they will be considered this new ERP system implementation as threat for their authoritative role.

1) Lack of user friendliness

2) Cultural Dimensions

4. Illustration of ERP Functionality of Global Bike Inc.

In 2009, Global Bike Inc. incorporated a shared model of services in all IT functions along with centralized IT. Global Bike Inc. implemented SAP ERP 6^th version. Before implementing ERP, Global Bike Inc divisions were running independent, multiple application environments. Every functions of ERP are centralized with the main objective of cost reduction and best-in-class deliver technology, for all the global divisions. This Global Bike Inc centralized approach offer an advanced platform of business, under an extremely controlled environment, that enable the operational consistency and integrity process worldwide. The appropriate SAP-ERP functionalities are shown below as demos of Global Bike Inc designs.

Figure 1- Demos of ERP Implementation in Global Bike Inc

Figure 3- Demos of ERP Implementation in Global Bike Inc

Figure 2- Demos of ERP Implementation in Global Bike Inc

Figure 4- Demos of ERP Implementation in Global Bike Inc

Figure 5- Demos of ERP Implementation in

5. Discussion

There are different predominant types of Enterprise Systems such as Enterprise Resource Planning system, Customer Relationship Management system, Knowledge Management system and Supply Management system. They cover key enterprise operational aspects that involve range of functional areas and business processes. Control of these operations are crucial in reducing poor performance risks, improving communication, streamlining processes and reduce damaging incidents. Adopting an information system process involves supportive Information Systems. The advantages and critical reason factors act as a key adoption reason of ERP system (Ash and Burn, 2003). Business process re-engineering in matching the best practice requirements is disruptive, costly and political implications. An implementation of ERP system leads to a reduction of 70%

of accounting staff.

There are organizations with some old systems that don’t support the business growth and not agile sufficiently with the changing organizational environment (Al-Mashari, Al-Mudimigh, and Zairi, 2003). The Big Engineering Company (TBEC) is one among them that specializes in industrial power and aero propulsion, that offers great after sales service, spare part distribution and cover mechanical overhauls. It has approximately 1200 legacy systems that developed over the previous twenty years, that are difficult to maintain as well as expensive to operate. These systems don’t provide consistent, accurate and accessible data that required for performance assessment, timely and decision making. These systems don’t fully lend to a contemporary manufacturing environment. As their major manufacturing system is WIZARD; a scheduling system that deals with logistics, resources and inventory, it became hard to communicate among sites. Other than that STORK; older inventory system used in TBEC’s makes it hard to track, makes problems related to stock-takes and inventory. As there are different file formats and databases, they have interfacing problems with range of individual systems for procurement and financial functions, monitoring and controlling commercial and cost accounting. These systems are not integrated with significant business growth while not agile to keep leap with altering business growth, as TBEC doesn’t allow online communication with partners, customers, suppliers and also not allowing systems to establish directly.

There is a complex order process in particular to product planning and material management process. There, supply chain operates internally between facilities while externally operates with partners.

Although implementing SAP-ERP is a large investment, it will be a productive investment to TBEC; as it is less costly to implement than spending much on disparate systems that cost-a-lot for maintenance. Other than that, using a single system will reduce end-users training requirements as it is needed to learn on one system than interacting with several individual applications. Instead of spending resources on many systems that need infrastructure, dedicated staff, licenses and support teams, TBEC can focus all the above-mentioned costs into one SAP ERP. As it became hard to communicate among sites in TBEC and many processes will become automated due to the implementation of ERP, costs and errors get reduced and it results in less fiction and enhance the

An implementation of ERP system can strengthen the supply chain management in TBEC as it deals with physical inventory moving and production that results in on-time delivery and shortened lead time that helps in overall operation and business success. With well-designed ERP platform, TBEC’s supply chain can be able to response more to inventory management, demand forecasting, procurement and so on. Moreover, ERP system will be able to reduce overages and enhance profitability that involving production and inventory.

According to an analysis conducted by the manufacturers of SAP-ERP and some other researchers, it indicated the increase of average organizational effectiveness after ERP implementation and average time of waiting for the occurrence of effects. As an example, according to the report of the American Production and Inventory Control Society (APICS) they gathered the ERP implementation effects as increase in efficiency by 10-16%, sales by 16-28%, procurement cost reduction by 7-16% and also increased the quality control while reduced the times of production.

The business benefits that gained from SAP-ERP implementation are, improved organizational management that ensure the control over available resource utilization, managing ability of organizational group with single system, increase the internal and external financial reporting, enhance customer service, enhance the organizational logistics process effectiveness with inventory management, planning and sales support, possibility of cost reduction in procurement and increase inventory management effectiveness in the organization, support the suppliers optimum selection and execution delivery method, eliminate the manual work with business automated support process that results in individual workload reduction.

6. Conclusion

Most of the companies such as, The Big Engineering Company (TBEC), that specializes in industrial power and aero consists of over 1200 systems that are developed over twenty years, which are expensive to operate and difficult to develop and maintain. They do not consistent, accurate and data accessible that require timely performance assessment and decision making.

They don’t lend in environment of modern manufacturing and use WIZARD manufacturing system that scheduled in inventory, logistic and resources. But it is hard to communicate among sites and with the STORK; the old inventory system. As individual systems are unable to interfere, due to its file format and different databases, those systems are not significantly support the business growth and not agile in keeping the pace with the diverse business environment.

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