Thesis on "ERP Is a Vital Resource to Help Small Businesses Financially Sustain Their Competitive Advantage"

Thesis 16 pages (4357 words) Sources: 10

[EXCERPT] . . . .

ERP is a Vital Resource to Help Small Businesses Financially Sustain their Competitive Advantage

The rate of failure for ERP implementations in small businesses exceeds those in larger enterprises as smaller enterprises lack the resources to translate strategic objectives into tactical results and also have to contend with significant resistance to change (Loh, Loh, 2004). In addition to these factors, small businesses also often lack the process integration in such critical areas as supply chain management, pricing, logistics, manufacturing scheduling and fulfillment to enable an ERP system to deliver the results it is capable of. One of the most important aspects of an ERP system installation and launch inside a company is the need to first streamline the internal processes it is mean to accelerate and make more automated (Allen, 2008). When small businesses in fact streamline the core processes their companies rely on including supply chain management, distributor and reseller relationship management in the form of pricing management, and logistics integration, they significantly increase their potential for success (Allen, 2008). The intent of this analysis is to present the key success factors that small business owners and Chief Executive Officers (CEOs) need to consider in order for ERP system planning, implementation and use are effective and deliver results. For small businesses that are publicly-held in the United States there is the added complexity of having to report financial results to the Securities and Exchange Commission (SEC) as part of the Sarbanes-Oxley Act (SOX) (Walker, 2008)

Lessons Learned From ERP Failures in Small Business

For the owner or CEO of a small business the top five most critical needs they adopt ERP systems for is financial and accounting management, inventory management, order management, manufacturing coordination and procurement and sourcing. These are the five areas that have the greatest immediate financial impact on small businesses, and also provide the most critically important data about the performance of operations, supply chains, manufacturing and sales (Allen, 2008). These are also subsystems that are predominately focused on the internal performance of the company yet do not provide insights into how to better serve customers over the long-term. The financial and accounting management systems including Accounts Payable and Accounts Receivable subsystems, two of the most integrated financial systems throughout ERP systems in small businesses regardless of industry (Chou, Chang, 2008). Accounts Payable and Accounts Receivable integrate to inventory management and order management systems typically to serve as the system of records for these transaction areas (Kemp, Low, 2008). The integration of these financial systems provides small business owners with costing and variance analyses to better mange supply chains, production, fulfillment and quality management functions in their companies.

More fundamentally, ERP systems and their integration of inventory management, order management and manufacturing are often used as the catalyst of lean manufacturing and services strategies (Holmstrom, Hameri, Nielsen, Niels, Pankakoshi, Slotte, 1997). With the objective of gaining greater levels of yield optimization from their suppliers, production centers, and logistics processes and procedures, companies adopt ERP systems to gain greater levels of efficiency. The adoption of ERP in small companies whose needs center on manufacturing, procurement, sourcing, and supply chain planning and logistics are time- and cost-driven. Again a strong internal focus purely on lean manufacturing performance can potentially blind a small business to the more critical needs of using their ERP system to their competitive advantage in the market. One of the most crucial lessons learned from ERP systems that fail is that they become entirely focused on production efficiency and cost reduction, not staying agile enough to respond to customers' changing needs, preferences and requirements (Michel, 2007). The evolution of ERP systems away from being purely focused on manufacturing efficiency, supply chain cost optimization and the attainment purely of lean manufacturing objectives is well underway. Small businesses that ignore this shift of using ERP systems to better listen, respond, and exceed the expectations of customers will inevitably fail as their competitors take a far more focused and customer-centric approach to integrating customer strategies into their own ERP systems. One of the most often discussed concepts for aligning supply chain, pricing, ERP, and logistics systems to the rapidly changing needs of customers is the Demand Driven Supply Network (DDSN) (Barrett, 2007). The fundamental concept of the DDSN Model is to transform ERP systems away from being purely focused on internal efficiencies towards being more responsive, agile, and focused on responding rapidly and accurately to customers' changing demands.

Customer- and Demand-Driven Strategies Need To Dominate ERP Strategies

The failure of any ERP system in a small business can be attributed to a variety of factors, but one of the most prevalent is when it ceases to be relevant to meeting customers' needs (Loh, Loh, 2004). This occurs when customer management and selling strategies, as diverse as quoting and bidding to pricing and engineer-to-order, are not integrated to an ERP system. When this happens there are silos of information generated by each of these stand-alone systems. When these customer-facing strategies are not interlinked to an ERP system to see for example if a custom-configured product can actually be built, manufacturing companies will take on average seven iterations of a quote to get it right (Allen, 2008). In the meantime customers get increasingly dissatisfied and begin to look for other suppliers to work with.

It's not enough however for a quoting process and its strategies to be integrated into an ERP system if a small business hopes to be more responsive to customers. Instead each strategy the company relies on for attracting, selling and serving customers must also be integrated to the ERP system so that when commitments are made to customers they can be kept. Too often companies will have each of their customer strategies isolated and with varying ways to define delivery dates, prices, even the approach for building the product being ordered. Why ERP systems matter in this context is that they act as the central reference point, the synchronization point of these customer strategies so that when a price is given, it's accurate. When delivery dates for either a standardized or build-to-order product are given, they are actually met. In short, ERP systems that are so tightly integrated to the specific marketing and selling strategies of a company, delivering valuable data when needed to sell and also fulfill orders are the most effective (Chou, Chang, 2008).

Small businesses have just as much if not more complexity in their customer-facing processes, and this is often a weak point in the implementation of ERP systems (Allen, 2008). As small businesses are more dependent on selling by relationship, and often these relationships are managed very manually, attempting to automate these customer relationships and selling processes can increase the complexity of any ERP system. While small businesses implement ERP systems for greater financial accounting, financial management, order management, and manufacturing synchronization, in fact the greatest payoff is in aligning all of these internal systems to the needs of customers. Yet small businesses stumble on this point because the automation of these relationship-based processes defies consistency.

Yet for those small businesses that can automate their customer management and channel management processes, integrating them to their accounting, financial reporting and manufacturing systems in the process, they gain significant competitive advantages. Beginning with the integration of how quotes and bids for business are generated, the integration of this process to manufacturing systems is crucial (Rosenbloom, 2007). Small businesses that use their ERP systems as the foundation of ensuring their product quoting and pricing systems are delivering accurate information to customers generate higher levels of profitability over time (Bellin, 2006). Automating the quoting process includes integrating the quoting, pricing, manufacturing scheduling and logistics systems together to deliver customers accurate delivery dates for the products they order. This is commonly called the quote-to-order process. ERP systems are integral to this process working effectively and delivering accurate Available-to-Promise (ATP) and Capable-to-Promise (CTP) dates to customers (Mendelson, Parlakturk, 2008). These two dates (ATP and CTP) are used by companies to plan when a product will be delivered, and when to coordinate for installation teams to complete their work. To populate a quote with ATP and CTP dates, it is essential for a quoting system to have integration in place to supply chain management systems. This is accomplished by integrating with the ERP system in place that acts as the coordination point for this information, as supplier data is needed throughout the manufacturing scheduling processes as well (Rosenbloom, 2007). Empirical research indicates that quoting systems that have the ability to deliver ATP and CTP in real time to each customer quote produced is considered a best practice other manufacturers and service providers attempt to also achieve (Mendelson, Parlakturk, 2008).

Today the majority of small businesses rely on manual processes to get their quotes completed, and often their sales teams have to call in to get pricing for a specific set of products or a custom product configuration (Allen, 2008). In conjunction with automating the quoting process, small businesses… READ MORE

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