COLLEGE OF BUSINESS

SCHOOL OF TECHNOLOGY MANAGEMENT AND LOGISTIC (STML)

BJTX 4912

PROJECT PAPER

FIRST SEMESTER SESSION 2016/1017

THE EFFECTIVENESS OF ERP IMPLEMENTATION

IN MANUFACTURING INDUSTRY

PREPARED BY:

HOW SOH YONG 226672

 CHAPTER ONE: INTRODUCTION

1.0 Background of the study

Organizations nowadays are frequently searching for the best ways to improve their

business performance in more effective and efficiency processes in order to sustain

competitive advantages in the global market. To achieve the goals, the manufacturing

firm needs to improve their productivity through upgrading of its production

technology. Moreover, technology is the primary key to improve overall productivity

in many ways through an effective planning and control system that synchronizes of

all processes throughout the organization plans. Therefore, manufacturing firms must

pay more attention in the needs of information systems in order to gain the advantages

on competitiveness world. Since the year of 2013, many manufacturing firm are

paying more attention to areas they were reluctant to invest in during the economic

downturn. These areas include technology investments in modern ERP (Enterprise

Resource Planning) manufacturing software systems (WorkWise, 2013)

Enterprise Resource planning (ERP) is business process management software that

allows an organization to use a system of integrated applications to manage the

business and automate many back office functions (Beal, V., 2015). ERP system can

help an organization's administrators monitor and manage supply chain, sales and

distribution, inventory, finance, logistic, human resources and other mission-critical

components of a business through a series of interconnected executive dashboards

(Rouse, M., 2014). For example, an industry could have separate system such as

production, supply chain, finance, human resource, and marketing. Every system has

its own data source which every source is important to the firm in order to carry out

effectiveness processes. ERP system is a system that able to integrate all these systems
in to single system which is more effective in communication and data transfer within

and outside of the industry such as customers and suppliers (Shamsudin, 2008).

The use of an ERP system creates a synergistic, knowledge-based management

environment. ERP systems can provide data integration that effectively transfer

important and useful ideal of data flow and replaces it with enterprise-wide data access

(David, J., Khondkar, E., & Robert, R., 2009). Besides that, ERP system allows

centralization and standardization of information and transforms it into useful data

which is very helpful for the company in making the right decision. In fact, these

systems able to improve the companys competitiveness by providing more easier way

to access the important and right information which in turns of making appropriate

decision faster (Marie, J., 2007).

Although ERP system brings benefits to an organization, there are still consists of

challenges and risk during the implementation. It is difficult and challenging during

the process of moving from functional applications to an ERP system. ERP

implementation requires development of new procedures, training and converting data

(Khaparde, 2012). Therefore, ERP system is way more costly to manage an

organization compare to other system. Meanwhile, cost effectiveness is always the

major concern and challenge of an organization. As it will analyse on costs and profits

of a product which will making the decision based on every business requirement.

However, ERP system is eliminating obstacles which improve the accuracy of

information and reducing the delay of information throughout the organizational

department (Shamsudin, 2008).

In this research the researcher will explore the effectiveness of ERP implementation in

manufacturing industry. The research will go on with the benefits of ERP

 implementation in manufacturing industry in order to improve their productivity and

business performance. Besides that, the research also studied the challenges and

difficulty in the process of ERP implementation and minimizes the risk to decrease the

failure of the system in manufacturing industry. This research is also including how the

effectiveness of ERP system is able to provide an interconnection within the

organization and other platforms such as customers, suppliers and shareholder.

1.1 Problem Statement

As the technology is getting more advanced day by day, manufacturing firms operate

their business is becoming more and more complex and dynamic. To accommodate and

implement this increasing complexity of products, services and distribution methods,

manufacturing firms are often redesigning their firm structures and business processes in

order to increase effectiveness and efficiency. Meanwhile, ERP system is able to

improve the productivity of an industry. But, it was found that majority of the

manufacturing industry do no aware about the ERP system and only few organizations

have implemented the system. The main reason of this issue is that ERP implementation

requires a huge investment in money, time and resources (El-Mashaleh.M, Hyari. K,

Bdour. A, & Rababeh. S, 2016). An ERP system takes longer time to understand and

implement. For example, Hersheys set out their systems into an integrated ERP system

and it chose SAPs R/3 ERP software. According to the recommended implementation

time of 48 months, Hersheys demanded a 30 month turnaround so that it could roll out

the system before year 2000 (Gross, 2013).

The cost and schedule associated with implementing an Enterprise Resource Planning

(ERP) System is significant. With the huge amount of data and the unique needs of

customers, more time and money spent on training consultants, training of employee,

creating middleware and how to implement the system (Rudy, Afshar & Ghosh, 2010).

Besides that, the cost of an ERP implementation can be unpredictable as the

organizations take more time to plan for their project costs which normally will exceed

their actual cost. There 63% of manufacturing industry implement the ERP system go

over budget which exceeding with the expected cost by an average of over $3 million.

According to the Panoramas research stated that the cost of ERP implementation in the

manufacturing industry is $11.4 million which is 14% higher than of all industries which

only cost $9.8 million. This is because ERP system in manufacturing industry requires

more customization. In addition, manufacturing industry often integrate their existing

system such as product lifecycle management, product configuration and manufacturing

execution systems (MES) with their new ERP system which run a higher risk on budget

exceeding (Panorama Consulting Solutions, 2014).

In fact, the current consensus is that many companies have failed to gain significant

benefits of large-scale investments in ERP warrants. One of the reason is the

organization have been very painful to implement the ERP system as it requires a huge

of time, money and resource, so the organization start launching their further projects

instead of spending resource on the system (Bramorski, T., 2002).

An ERP system implementation must have defined the goals and expectations clearly in

every industry. However, the industry still will be reported failed to partially even

though they had follow the correct step to define their goals and expectations clearly

(Graham, 2009). Most of failure of ERP implementations was not caused by the ERP

system itself, but causes by the large number of changes resulting from the ERP's high

complexity of the organization (Seo, 2013). Besides that, a lot of effort need to change

on system analysis and design in the software in ERP system but system implementation

is a challenging management issues (Holland & Light, 2014). Hence, every problem

should have solutions, it is important to seek for the effectiveness of ERP system in
 manufacturing industry including its disadvantages in order to meet the requirements

and satisfaction to the companies involved.

1.2 Research Questions

1. What are the benefits of ERP system implementation in manufacturing industry?
2. What are the risks involved when using the ERP system during the business

processes in manufacturing industry?

3. How applications from other platforms can communicate with ERP systems?

1.3 Research Objective

The main objectives of this research are listed as below:
1. To identify the benefits of ERP system implementation in manufacturing industry to

achieve the goals and expectations in more effectiveness and efficiency.

2. To explore the risks involved when using the ERP system during business the

processes in manufacturing industry.

3. To explore the methods how applications from other platforms can communicate

with ERP systems in a time manner.

1.4 Significance of the study
Information system is an important role in an organization as it carries out the business

process across functional department. An organization is able to improve their

productivity and overall performance by implement a suitable and correct information

system. Although ERP system is more complex compared with other system, every

organization should start action for implement the ERP system which follow their

expectations and goals in order to increase their effectiveness and efficiency throughout

the business process. One of the significant criteria of implement the ERP system is it

allows an organization to have an integrated view of all business process. ERP system is

able to integrate all business process into single system which provides complete

visibility and one unified reporting system. Integration of the business process are

allows effectiveness and efficiency in achieving businesss goals. Moreover, ERP

 system must be dynamic, scalable enough to match the growth of the business and will

form a standard best business process by centralized system based on organization best

practice (Saleh, 2016).

Another significant of this study is the ERP system able to increase the consistency of

data. As ERP system integrates all business process into single system which in turns of

decreases the level of inconsistency information from different system. Furthermore,

accuracy of information is very important as it helps in making a right decision

throughout the business process. ERP system is able to provide and gather the correct

data needed in order to maximize the efficiency of business process across the entire

organization (Jetley, 2016). Hence, this study is able to show the benefits of implement

the ERP system which brings the effectiveness and efficiency throughout the business

process in an organization.
1.5 Scope and Limitations of the study
This research study is focused on how effectiveness of ERP implementation in

manufacturing industry. In Malaysia, there is no many manufacturing industry

implement the ERP system as it is costly and more complex compared to other system.

Therefore, it is hard to find a company for the interview to get the data and information

regarding the ERP system. In addition, due to the time constrain and limitation of the

related industry, this research is only able to interview one manufacturing industry

which is Saudee Sdn Bhd which located at Kedah, Malaysia.

Moreover, enhancement could carry out in this research in the future research. As ERP

system is a very wide topic to study and need to be more understanding in more detail.

Nevertheless, the main purpose of study still remain, enjoyed the process of learning and

breakthrough all the challenges and difficulties in order to produce a better research

study in the future.

1.6 Definition of Key Terms

 Enterprise Resource Planning (ERP) system is a vast information system that manages

information about a companys products, customers, suppliers, employees, production

facilities, financial balances, etc (Kumar, 2014). According to Seddon, Shanks and

Willcocks gave a global vision of ERP systems by defining them as a set of packaged

enterprise application software modules, with an integrated architecture that can be used

by organizations as their primary engine for integrating data, processes, and information

technology, in real-time, across internal and external value chains.

ERP systems integrate all information and processes of an organization into a single

system. The integration of all data is done by using the multiple components of

computer software and hardware. ERP system is a combination of an organizations

information system which designed to be more firmly and closely a variety of

organization functions including financials, operation, inventories, human resource and

even linking the organization to customers, suppliers and shareholders (ERP, 2016).

1.7 Organization of the Project

This research study is divided into five (5) chapters. The research study regarding the

background of the research, problem statement, research questions, research objectives,

scope and limitations of the study and definition of key term will cover in Chapter 1.

After study and review all the related journal, the research will continue with the

literature review in Chapter 2. In addition, in Chapter 3, this research will carry out

using the qualification method in research methodology, the research will interview a

manufacturing industry call Saudee Sdn Bhd which located at Kedah, Malaysia. Next,

after the interview, the data and information will be collected and finding will be include
 in Chapter 4. Lastly, the research will make the conclusion and discussion about the

research in Chapter 5.

References

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David J. Emerson,Khondkar E. Karim, Robert Rutledge. (2009). SOX And ERP Adoption.
Journal of Business & Economics Research , 53.

Graham, J. F. (2009). ERP Implementation In Higher Education. 5.

Jetley, V. (2016). Why ERP is so important. Retrieved from

http://www.bayt.com/en/specialties/q/243092/what-is-the-importance-of-enterprise-
resource-planning-erp/

Kevin Rudy, A. A. (2010). Efficient implementation of an ERP System in a Large Company.

Khaparde, V. M. (2012). Barriers of ERP while implementing ERP: a Literature Review.

Journal of Mechanical and Civil Engineering , 49-50.

Kumar, A. (2014). An Easy Introduction to ERP Systems. Retrieved from

http://www.personal.psu.edu/axk41/ERP-intro.pdf

Light, C. P. (2014, Jun 24). A Critical Success Factors Model For Enterprise Resource
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odel_for_Enterprise_Resource_Planning_Implementation

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Seo, G. (2013). Challenges in Implementing Enterprise Resource Planning (ERP). Composite

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