Enterprise resource planning (ERP) systems are information systems that are used for enterprise integration. It replaces material requirements planning (MRP) manufacturing resource planning (MRPII) systems with a broader perspective. It integrates application programs for different business functions in a manufacturing firm.
The paper presents an ERP systems implementation survey in Swedish manufacturing firms. Sweden is recognized as an early user and adopter of new information technologies, and is the origin for some leading ERP software vendors (Intentia, IFS and IBS). The surveys are mailed to the Swedish Production and Inventory Management (PLAN) members in manufacturing firms
The paper first discusses the research methodology and the firm's characteristics that responded. Then it analyzes the Swedish survey results. It also provides some comparison relative to the US study.
2.0 RESEARCH METHODOLOGY
The survey focuses on 6 areas: responding firm's characteristics, pre-implementation procedure, experience of implementation, ERP system configuration, benefits of using ERP, and future directions of ERP.
In November 2000, the surveys are mailed to 511 PLAN members in different manufacturing firms. In January 2001, 190 from the total 511 responses were received. Response rate is 37.2%, which is very good for this kind of survey.
ENTERPRISE CHARACTERISTICS
The research's respondents are formed by various firms' employees that professional involved in ERP system implementation. Half of them are related to planning and controlling such as supply chain manager and inventory control manager. The other respondents are IT manager, operations manager, purchasing manager, executive and others. Most of the responding firms are small firms which have less than 500 employees and annual revenue less than $50 million.
The order penetration point is a point along production process where a product is reserved to a customer. Two different choices are compared: make-to-order (MTO) and make-to-stock (MTS). MTO fashion dominate in 59.6% of the responding firms while 31.4% are dominated by MTS. Balance 9% have almost equal split between MTO and MTS.
There are five process choices which are line, flow shop, job shop, continuous process project, and project. 28.9% of the responding firm's process is in line, 27.2% in flow shop, 26.4% in job shop, 11.6% in continuous process, and remaining 6% in project.
Most of the responding firms has installed a ERP system (74.6%) and currently installing a ERP system (9%). 5.3% of the firms plans to install a ERP system within the next 18 months and 11.1% of the firms do not have any plan to install ERP system.
Comparing to US study, Swedish manufacturing firms are smaller in size. In US, only 44.1% of the firms have installed ERP system compare to 74.6% in Sweden. The US study has a low response rate of 9.6% (479 responses out of 5000 surveys) compare to 37.2% in Sweden.
SURVEY RESULTS
The survey results are based on 158 manufacturing firms, 83.2 % of the respondents, who have implemented or are in the process of implementing an ERP system.
4.1 Pre-implementation Process
The survey was conducted by using 5-point Likert scale to identify the company's motivation to implement ERP. Among all 9 motivational factors, "replace legacy system" and "simplify and standardize systems" are the two most frequently motivational factors with average of 4.11 and 3.67 respectively. As for strategic approach, 55.6% of the firms are using single ERP package and 30.1% of the firms are using single ERP package with other system.
Most of the firms have estimated ERP system life more than 5 years (75.1%) where the most typical system life period is between 5-7 years. There are only 41.8 % of the firms have formal evaluation analysis for ERP and most of the firms used payback method (66.7%) and return on investment, ROI, (30.3%). 38% firms have estimated return to be 5%-15% while 30.4% firms estimated the return to be 15%-25%. Only 15.2% of the firms have optimistic estimated return that is more than 25%.
There are similarity in Swedish and US firms in the motivational factors to implement ERP. However, US firms are more likely to perform evaluation analysis of ERP system and are more optimistic on the return of the system.
Implementation Experience
The average implementation period was 17 months while the average implementation cost is 1.68M$. However, the response of large firms regarding to the implementation cost are rather low, the average cost would be higher than indicated. Most firms (42.1%) have used the "Big bang" strategy on implementing ERP system. The average implementation period is shorter for using "Big bang" strategy compare to using phasing by module or phasing by site.
Most of the implementation cost was incurred in consulting (30.1%), training (13.8%) and implementation team (12%) that total up 55.9%. Besides that, the cost of software is 24.2% which was almost one-fourth of the total cost. Sweden firms have smaller average on implementation period and implementation cost if compared to US firms.
Basically, small firms have smaller budget for ERP system whereas large firms have larger budget for the systems. However, in small firms, the investment of ERP system is relatively heavier than large firm. For example, small firms accounted for 3.5% of revenue for ERP system whereas large firm only accounted for about 1% of revenue for the system. Both Sweden and US firms have similarity in this area.
ERP System Configuration
Basically, the implementations of ERP system in the Swedish firms are dominated by the local ERP software vendors. Intentia, IFS and IBS provide systems mainly for large firms while Jeeves, Scala and Monitor focus on medium and small firms. There are non-domestic system providers too, such as SAP and Baan, which normally provide systems to firms that operate internationally.
Companies that have implemented ERP systems normally have to customize their systems to meet their own requirements. Therefore, the most frequently implemented processes are also the most frequently customized processes. These processes include purchasing, order entry, materials management, and production planning. These four modules have implementation frequency that more than 90% and customization frequency that within 60% to 70%.
At the same time, it is noticed that the modules that have lower implementation frequency and customization frequency are R & D management, maintenance, and quality management. However, the modules that require higher levels of customization are order entry, distribution/logistics, and quality management.
On the other hand, the US companies prefer to use systems by SAP, Baan and PeopleSoft. As compare to the implementation of ERP systems in US, the Swedish companies have higher implementation frequency in every module, except in financial accounting. The customization frequency in Swedish is similar with the one in US.
Therefore, the supply chain process, start from suppliers and end with customers, generally looks like important for companies. Every company has to modify and adopt the ERP system to fulfill its own needs and maintain its relationship with supply chain partners.
Benefits
Generally, companies experience improved performance in their businesses after implementing an ERP system. These companies have benefited the most from the information perspective, where the accessibility of information and the interaction within company has greatly improved. However, the impact of ERP system on the other aspects, such as the operating costs, cash management, and interaction with customers, is in a lesser extent.
In addition, the implementation of ERP system has benefited the company in different areas, especially in the availability of information, the quality of information, and the integration of business processes. Nevertheless, the costs of information technology are not effectively reduced by implementing an ERP system.
Future Direction
Companies that have ERP system implemented are implementing, considering or planning different extensions to that system. The percentage of vertically integrated information all over the supply chain is relatively high. However, most firms focused more on immediate suppliers and customers and not concern on customer relation management system. Comparing to US, data warehousing is less frequently implemented in Sweden.
5.0 SUMMARY AND CONCLUSIONS
First, ERP systems are broadly adopted by Swedish manufacturing firms. Second, expenses for execute ERP systems are within the range from 0.5% to 3.5% of enterprises' annual revenues. Third, Swedish firms prefer ERP systems provided by Swedish vendors. Fourth, core production management modules that involved in the customer order process and are the most implemented, followed by financial accounting and control modules. Fifth, information access and enhance intra-organizational relations are concerned during the improvements on ERP systems. Sixth, most Swedish companies plan to expand ERP systems for supply chain operation.
The development of ERP systems in Swedish manufacturing firms is fast. The quality and availability of information and interaction between enterprises have improved. The implementation frequency on the modules assisting customer order process and financial management are highest, but the results are among the poorest. Notwithstanding, companies are progressing forwards and expand their ERP functionality especially on supply chain integration.
