ERP and Supply Chain Management: Literature review and the case of Nike

ERP and Supply Chain Management: Literature review and the case of Nike

Stefan Piech Simeon Vasilev Radu Simion 1

ABSTRACT Enterprise resource planning (ERP) systems are increasingly adopted by companies of all sizes all over the world. While previous research on ERP mainly focused on the relationship and the differences between ERP and supply chain management (SCM), this paper focuses on the intraand inter-organizational impact of ERP in SCM practices. To answer the research question of this paper, this study first gives more expanded definitions of the ERP and SCM terms. Subsequently, a review of distinct relevant scientific literature about the effect of ERP systems on SCM is given. Additionally, a case study about Nike, Inc. is used to find empirical evidence for the theory presented. The results of this paper show that ERP systems usually enhance the firm competences of SCM in planning and control process integration. These results indicate that ERP systems reduce errors and improve the order processing and order fulfilment processes affecting the customer. Nevertheless, as the Nike case study points out, implementation of ERP can be hindered by a lack of trained employees and attention. Consequently, an organization must spend enough time researching SCM strategies and offer enough hours of training for its employees.

Future research should expand on this study’s findings and focus on larger and more globally significant SCM markets (e.g. USA).

1.INTRODUCTION Today, companies are facing a more tortuous and competitive environment than ever before as success is no longer a matter of analyzing only the firm individually, but rather the chain of supplying and delivering organizations along the entire supply chain (Chen & Lin, 2008; Ellram, 1991). Subsequently, companies are currently focusing on supply chain strategies to boost plant productivity, streamline internal operations, reduce manufacturing costs, and improve product quality. In theory, supply chain management (SCM) is the process to control the information flow, goods and services amongst and within the firms while also developing strong ties between suppliers and customers, thus providing a better integration of production and distribution systems. This way, supply chain management is an effective approach to sustain high firm performance and thus to achieve a competitive advantage (Mzoughi et al., 2008; Li et al., 2006).

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A significant factor contributing to the success of SCM practices within and amongst firms is the integration of an enterprise resource planning (ERP) system, a comprehensive transaction management system that integrates different information processing capabilities and allocates data into a single database. In practice, ERP replaces and subsumes separate systems for procurement, order management, human resources, and accounting, into a single integrated structure (Sharif et al., 2005).

The benefits of ERP are well-documented in relevant, yet dissimilar academic literature on the matter. McAfee (2009) identified information system fragmentation as the paramount culprit for information delays and distortions along the supply chain. Consequently, Lee et al. (1997) conclude that information delays and distortions, cause forecasts to yield supply chain inefficiencies, signifying the so-called ‘bullwhip effect’. Being increasingly adopted by companies of all sizes (Chang et al., 2008) and present at practically every Fortune 100 company (Escalle, 1999), ERP systems are assumed to improve work conditions and facilitate information use (Mzoughi et al., 2008).

Nevertheless, ensconcing an ERP system is still an expensive and uncertain endeavor, posing high cost and implementation risks (Chen & Lin, 2009). Furthermore, despite its popularity, the failure rate of ERP implementation is high. According to Cooke et al. (2001), for a sample of 117 firms, 40% of adoption projects failed to deliver substantial improvements. Older ERP systems have been deprecated for detrimenting supply chain integration by being too introspective (Akkermans et al., 2003). Furthermore, Kelle and Akbulut (2005) claim that ERP systems have poor measurement, leading to inefficient and ineffective buyer-supplier coordination. However, since the potential benefits are large, many organizations are willing to undertake the difficult process of converting from their current system to an ERP system. Thus, there is reason to believe that ERP implementation, while being risky, can be associated with significant gains in supply chain effectiveness.

As the theory given above raises the question about the real impact of ERP and if the benefits out-weight the risks, the analysis of this question is of scientific and social relevance. While previous research mainly focused on the relationship and the differences between ERP and SCM,

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this paper focuses on the impact of ERP on SCM. Therefore, this research performs a distinct analysis on the varying topics, thus providing further implications for the subject and allowing for a beneficial and scientifically relevant study of the matter.

The secondary literature used in this study was found by first searching on the online library of Erasmus University Rotterdam for research articles written in the past 15 years and regarding ERP systems and their effect on SCM. Subsequently, relevant papers were selected on the basis of the quantity of citations of the specific paper compared to the mean citation count for the field of Operations Research & Management Science for 2003-2016, specifically 23.54 (Thomson Reuters, 2017). The second criterion was the Journal Impact Factor, which represents the quantity of citations of the articles published in the last two years divided by the total number of articles for that time period (Thomson Reuters, 2017). During the last 15 years, the median score for the Operations Research & Management Science category has been 0.89, hence a rate above that would indicate a comparatively good quality. Both journal scores were obtained through Thomson Reuters’ Journal Citation Reports 2017.

The purpose of this literature review is to analyze and trace the effect of implementing ERP systems in supply chain management on firms. This research is of high social relevance in an age where organizations face a growing need to monitor and integrate all their data in one system.

This makes a study of this topic challenging yet relevant, thus enabling the formulation of the following research question: HOW DOES THE IMPLEMENTATION OF ENTERPRISE RESOURCE PLANNING SYSTEMS IN SUPPLY CHAIN MANAGEMENT PRACTICES IMPACT COMPANIES?

To answer the research question, this study first gives a more expanded description of the ERP and SCM terms. The subsequent part represents the main body and contains a review of distinct relevant scientific literature about the effect of ERP systems on SCM. This paper demonstrates the connections between the secondary articles and the nature of their relationship. The review of research that builds upon each other, helps to propose an answer to the central question.

Afterwards, the third section covers a case study about Nike Inc. to find empirical evidence for the theory presented in the former section and allowing for a detailed and in-depth examination 4

that builds on the previous literature analysis. Finally, this paper presents a conclusion that integrates the findings of the literature review and case study, while additionally presenting the limitations of the analysis.

2. DESCRIBING ENTERPRISE RESOURCE PLANNING (ERP) AND SUPPLY CHAIN MANAGEMENT (SCM) Before performing the literature review, it may prove useful to specifically present more throughout and detailed descriptions of enterprise resource planning and supply chain management. This way, the reader can understand the main body of this paper comprehensively.

2.1 ENTERPRISE RESOURCE PLANNING (ERP) Regarding the history of the term, The Gartner Group first used the ERP acronym in the 1990s to further develop the capacity of material requirements planning (MRP), and also extend computer-integrated manufacturing. Without substituting the above terms, ERP reflected the universal evolution of integrating applications beyond manufacturing. Even though most software was created from a manufacturing core, ERP systems providers began to implement finance, procurement, maintenance, and HR components. In the 1990s, after experiencing expeditious growth, the systems could address all fundamental functions of a firm (Jacobs, 2007). Customized and integrated ERP software was first introduced in the mid-1990s by large companies such as SAP (Systeme, Anwendungen, Produkt in der Datenverarbeitung), Oracle, and PeopleSoft. (Choi et al., 2011) Fundamentally, an enterprise resource planning (ERP) system is a technology infrastructure that aids a firm in integrating information from its internal departments with both customers and suppliers. Thus, the system also allows information to be diffused and shared between different partners, and improves the flow of information. It increases transparency across the supply chain by eliminating information distortions and enhances information speed by reducing information delays. An ERP system subsumes information from dissimilar departments and organizational functions into a single database (O'Leary, 2007).

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The majority of ERP systems are modular to permit automating only a selected range of standard functional areas. For example, common modules, such as finance and accounting, are utilized by almost every company (Lee et al., 2011). Nevertheless, a service firm would deem a manufacturing module unnecessary. In general, implementing additional modules causes larger integration benefits, but also leads to bigger changes, risks, and costs (Lee et al., 2011). The following table presents a sample of ERP modules and their sub-sections: Table 1: Sample ERP modules (Lee et al., 2011) Finance & Accounting

Management Accounting

HR

Manufacturi ng

Supply chain managemen t

Order Processing

Fixed assets

Cost management

Rostering

Materials billing

Supplier scheduling

Order entry

General ledger

Costing

Training

Scheduling

Supply chain planning

Credit checking

Payables

Budgeting

Payroll

Capacity

Product configurator

Order to cash

Financial consolidation

Activity-based costing

Diversity manageme nt

Workflow management

Order to cash Pricing

Cash management

Retirement

Engineering

Inventory

Inventory

Receivables

Recruiting

Work ordering

Procurement

Shipping

Benefits

Quality control

Warehousing Sales analysis

Separation

Product life cycle management

Claim processing

Manufacturin g process and flow

Sales reporting Sales commissionin g

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Sharif et al. (2005) stipulate that ERP systems are mainly used in the context of software, which collects information about the activity and condition of various company departments, and openly shares this data. The application is usually configured by systems integrators that have competences in vendor, equipment and process provisions. Furthermore, every authorized user can put information on the system in real time, and access it at any time. The software runs on diverse hardware and network configurations, often utilizing a database as an information repository. Its components include the following: transaction database, search engine, document management, messaging, workflow management, business intelligence system, management portal, firm-specific reporting, and external access via technology (e.g. web services).

Most of ERP systems prevalently include best practices, as the specific software indicates the vendor’s understanding of what the most effective way to perform each business process is (Olson, 2004). In addition, systems differ in terms of how customer firms can modify the already incorporated best practices. In general, incorporating software with industry best practices enhances tasks, such as training, documentation, and configuration. Furthermore, it proves easier to follow industry requirements and laws (e.g. IFRS).

Grant (2003) explains that ERP systems access real–time data in multiple ways. The first one is via direct integration where the software is connected straight into the current equipment on the plant floor. In general, modern manufacturing processes and equipment are suitable for this type of integration. Additionally, this method requires that vendors offer exact support for the plant floor equipment their customers utilize. The second way to access real-time data is via database integration, utilizing staging tables that pool information on plant floor resources. Unlike the direct integration method, this setup makes the system read the data in the tables. This procedure can solve more complex issues, but needs to be facilitated by a systems integrator, thus bringing higher costs. The third method for connectivity is through employing enterprise appliance transaction modules (EATM), which utilize web services, staging tables or concrete systemspecific interfaces that communicate directly with plant floor equipment and with the ERP system. It proves beneficial that the EATM is a relatively standardized solution and thus is easy

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to implement. The final and fourth method represents custom - integration solutions usually employing server class computers and workstations. In general, this method involves the highest integration and maintenance costs (Grant, 2003).

Having identified the main technicalities of an ERP system, the subsequent subsection will give more detail on supply chain management (SCM) and its intricacies.

2.2 SUPPLY CHAIN MANAGEMENT (SCM) The term ‘supply chain management’ originated in the beginning of the 1980s, when Oliver and Webber (1982) discussed the potential benefits of integrating the internal business functions of purchasing, manufacturing, sales and distribution. More specifically, Keith Oliver, a consultant at Booz Allen Hamilton (now Strategy&) at that time, coined the term ‘supply chain management’ in an interview for the Financial Times (Bozarth and Handfield, 2006). The origination of the SCM term was driven by the new strategic business trends, where the focus was shifted from the internal firm processes to establishing an integrated and efficient company structure, thus benefiting suppliers, customer, and stakeholders (Christopher and Peck, 2004). A decade later, in the 1990s, multiple books and articles were published on the matter, thus popularizing the term.

In the late 1990s and early 2000s, supply chain management rose to prominence, and operations managers began to use it in their titles with increasing regularity.

One can better describe the term of supply chain management (SCM) by first comprehending its synergistic meanings, analyzing the definitions of its individual elements. Broadly speaking, supply chain management signifies the amalgam of processes that manage the flow of a distribution channel from supplier to end customer. In other words, the term indicates the coordinated flow of products and material within the company and with trading partners (i.e. suppliers, customers). Nevertheless, SCM further incorporates the control of information flows, workflow, and cash flow. Harland (1996) defines SCM as the management and control of a system of networked organizations pursuing the provision of products and services to endcustomers.

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SCM has several distinct and crucial functions and purposes. As organizations strive to focus on core competencies and become more flexible, they decrease their use of raw materials sources and distribution channels, as these are commonly outsourced to other firms for cost purposes.

Thus, SCM offers a solution for the modern, more expanded supply chain, while decreasing management of quotidian logistics operations. Hence, the term ‘supply chain management’ is associated with additional supply chain partners and decreased managerial control. In this way, SCM improves trust and collaboration between supply chain partners, thus enhancing the inventory visibility and the inventory movement speed (Christopher and Peck, 2004).

Mentzer et al. (2001) demonstrate that SCM encompasses three interconnected constructs of activities that distinct company divisions can concentrate on - operational, tactical, and strategic.

The first level involves making daily decisions that influence the development, transport, manufacturing and sale of products. Basically, operational activities decide the movement of products across the supply chain. Sample decisions include establishing purchasing agreements with suppliers, taking customer orders, scheduling production modifications, and transporting products in or out of the warehouse. Operational choices should be made according to the strategic and tactical frameworks that a firm has embraced, and which dictate how best to manage the company’s operations (Su and Yang, 2010). At the second, strategic stage firm decisions regard the organization as an entity and are often long-term. For example, analyzed factors include the location and size of manufacturing sites, target markets, and partnerships with external organizations. Furthermore, strategic activities represent integrating an ERP system for SCM and building relationships with customers and suppliers. While strategic SCM analyzes the long term, tactical SCM decisions alternatively emphasize on providing cost benefits and efficiencies while satisfying customer and supplier demands. Sample areas of tactical SCM include developing a purchasing strategy with reliable suppliers, utilizing industry best practices, studying and reacting to competitors, and reducing inventory storing costs by more efficient warehouse processes (Mentzer et al., 2001).

Supply chain management includes several functional areas, including: procurement, order management, logistics, inventory management, forecasting and planning, returns management.

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Specifically, SCM incorporates five basic components (Blackhurst et al., 2015). The first process in supply chain management is planning and forecasting. This way, firms develop strategies, focusing on establishing an efficient and profitable supply chain. Furthermore, the majority of the SCM planning process involves incorporating both quantitative and qualitative metrics that monitor the supply chain. The second stage in the SCM process is sourcing, which means establishing a strong connection with suppliers. In addition, this stage further incorporates recognizing dependable suppliers and planning payment and shipping methods. The third stage represents the creation of the product or service itself. Thus, this involves testing, manufacturing, packaging, and delivery scheduling. This stage of the supply chain necessitates the usage of multiple metrics to quantify throughput, capacity utilization, overall equipment effectiveness, production output, and worker productivity. Subsequently, the fourth stage of the SCM process is the delivery stage. This phase is also dubbed ‘logistics’, as companies manage customers’ order receipts, create warehouse networks, develop an invoicing system for payments received, and pick carriers to deliver its products to customers. The final phase of the SCM procedure is ‘return’ where customers return defective products. This stage could pose several issues, as it requires firms to possess an extensive framework for receiving defective items and contact both suppliers and customers (Blackhurst et al., 2015).

3. ANALYSIS Having defined and described the SCM and ERP terms, this paper proceeds to its main analysis, featuring a literature review and subsequently a case study of Nike, Inc. The former is inspected in the following subsection.

3.1 LITERATURE REVIEW The literature review is partitioned into two subsections. They are based on whether research findings have confirmed a positive and significant company effect of ERP systems in SCM, or have denied or unconfirmed it.

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3.1.1. POSITIVE AND SIGNIFICANT IMPACT OF ERP SYSTEMS IN SCM ON FIRMS First, to commence the literature review section, it proves useful to present a fundamental mathematical model of the effect of enterprise resource planning (ERP) systems on supply chain management (SCM) and thus the firm as whole. The first reviewed paper is Su and Yang (2010), where the researchers develop a structural equation model for analyzing the ERP benefits to firm competences in SCM utilizing data from Taiwanese IT firms.

The research framework of the paper incorporates and utilizes two areas: firm competences in SCM, established from the 21st Century Logistics framework, and ERP benefits as classified by Stratman and Rothe (2002). Additionally, the ERP benefits are partitioned into three categories, namely: operational, business process and management, and strategic IT planning benefits.

Relating to that, the research also establishes three constructs for firm competences of SCM, namely: operational process integration, customer and relationship integration, and planning and control process integration. The paper hypothesizes that the ERP benefits serve as antecedents in improving firm competences in supply chain management after the implemented ERP system is operationally and functionally constructed. A description of the six constructs of firm competences of SCM and ERP benefits follows: Fig. 1. The proposed conceptual model and research hypotheses of Su and Yang (2010)

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The study followed a two-stage process regarding its research design. In the former stage, the researchers performed a literature review encompassing the areas of ERP and SCM, followed by interviews, and site visits. Afterwards, Su and Yang developed a questionnaire encompassing 35 items for six constructs, and 10 questions related to industry, type of ERP software used, and the number of months since the establishment of the ERP system. Regarding the second stage, the researchers collected and utilized survey data from a sample of Taiwanese IT companies listed on the Taiwan Stock Exchanges (TSE) and filtered them with regards to whether they had functional ERP systems. Finally, 285 responses were received and utilized in the analysis.

Concerning the methodology, the research employs a structural equation model (SEM) to analyze the relationship between ERP benefits and firm performance of SCM. The mathematical method comprises two parts, a measurement model and a structural equation model. The measurement model describes the measurement properties (reliabilities and validities) of the observed variables. In return, the structural equation model designates the causal relationships among the latent variables, and expresses the causal effect.

Subsequently, the empirical results of the paper first demonstrate that the three types of benefits of ERP positively impact firm competences of SCM on operational process integration (first construct), providing higher-level basic service at lower cost. Thus, an ERP system connects the internal work into a unified process, and integrates operations with suppliers to enhance the flow of external and internal work. Hence, integrating an ERP system results in more efficient business processes, transparent and untroubled flow of information, and connecting external and internal work. This improves inventory management and delivery time, thus decreasing costs.

Furthermore, through the ERP benefits, companies decrease redundant and duplicated materials from the supply chain operations. Consequently, this leads to improvements in quality management, enhanced resource management, and more efficient forecasting. In sum, the operational functions of ERP benefits cause standardization, rework, rationalized processes, error reduction, and cost reduction.

The performed analysis by the researchers strongly corroborates the hypothesis that ERP benefits cause developments in SCM firm competences regarding customer and relationship integration.

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Companies can access consistent and valid data in a timely manner, through the business process and management benefits of ERP, which include reduced information distortions and delays.

This way executives can access integrated information to make decisions, while possessing efficient production control and resource management capabilities for satisfying customer needs.

Thus, an ERP system results in better decision making, resource management, and investment.

Furthermore, it leads to meeting unique customer requests and responding to customization in a more efficient and effective manner. The ERP integration competences insure that unique customer orders are suitably converted into the appropriate production orders. Moreover,

it

proves convenient to develop catalogues containing a high number of normalized end products.

The strategic IT planning benefits of ERP further affect customer and relationship integration.

Fundamentally, companies can share key information with others in the supply chain. This in turn facilitates the creation of business alliances and strengthen the relationships between supply chain partners.

The results further demonstrate that ERP systems enhance the firm competences of SCM in planning and control process integration. In general, those competences require information systems capability to support the wide variety of operational configurations. Thus, the results indicate that ERP systems reduce errors and improve the order processing and order fulfilment processes affecting the customer. Furthermore, ERP systems improve decision-making regarding inventory management, and workforce planning in these processes contributes to cost decrease.

Additionally, ERP systems drastically increase operational efficiency and thus reduce costs. For example, reduced work stoppages and enhanced data controls refine corporate performance.

Furthermore, through the ERP system firms can more easily have budgeting and activity-based costing to analyze cost/revenue contributions of specific products or customers. This in turn allows for making effective and efficient operational, tactical and even strategic decisions.

With respect to other papers that assess the positive impact of ERP systems implemented in SCM, Adaileh and Abu-alganam (2010) inspects the impact of ERP in SCM in Jordan, at the organizational and interorganizational levels. The paper tests two hypotheses: first that ERP

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systems are positively correlated with internal supply chain integration, and second that external supply chain integration is positively associated with implementing ERP systems.

The two supply chain integration classifications have been studied extensively, as Stevens (2002) indicates that the development of external integration with customers and suppliers should succeed the internal supply chain integration first. Internal integration can be described as the inwards consolidation of the functions within a firm, while external integration involves the amalgamation of activities across firm boundaries (Stevens, 2002). Regarding both classifications, supply chain integration closely consolidates the internal functions in a firm and connects them with the operations of external channel members, suppliers, and customers (Gryna, 2001).

Regarding the design of the research, the analysis exploits both an exploratory and explanatory framework. Adaileh and Abu-alganam (2010) covers a wide assortment of Jordanian manufacturers from dissimilar industries that utilizate ERP systems to consolidate with supply chain partners. The sample size was taken by utilizing judgment sampling and performing surveys on selected firms, as there were no comprehensive samples of companies exploiting ERP systems in Jordan. The research utilized a questionnaire with 51 statements (i.e. variables), which was targeted to employees and top management in the areas of IT, warehousing and inventory, finance and accounting, procurement, and transportation. Furthermore, the researchers conducted an exploratory factor analysis to check measurement credibility and validity.

The methodology of Adaileh and Abu-alganam (2010) involves exploratory factor analysis (EFA) to check the measurement validity. Furthermore, characteristic values (i.e. eigenvalues) measured the variation in the total sample considering each factor (Stevens, 2002). In addition, the researchers utilized the Kaiser-Meyer-Olkin (KMO) test for sampling adequacy, to measure the data suitability for factor analysis. The Bartlett’s test was performed, to complement the KMO test and further prove the sampling adequacy and thus the suitability of factor analysis.

The exploratory factor analysis brings two dimensions and main criteria of the study.

Five

constructs designate the ERP benefits (system quality, individual impact, information quality, workflow impact, and organizational impact), and two others define the supply chain integration

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(internal and external supply chain integration, respectively). Finally, multiple regression analysis was conducted to test the two hypotheses.

Adaileh and Abu-alganam (2010) signifies that ERP systems significantly enhance firms’ information quality and contribute to internal supply chain integration. Further benefits include positive individual effect, and organizational influence. However, the research proves that the workflow impact is insignificant. Furthermore, ERP systems significantly increase system quality and thus facilitate external supply chain integration. Nevertheless, the analysis indicates that supply chain members may not see or consume the entire benefits of ERP until the system stabilizes. This way, chain members will identify those benefits, when possessing additional time to adjust to the new firm practices. This observation further holds valid for the case of the sample Jordanian manufacturing companies. Therefore, both researchers emphasize the importance of further exploring the positive and negative aspects of ERP systems implementation.

In the same direction, Shatat and Udin (2012) researched the relationship between ERP systems and supply chain management performance concerning Malaysian manufacturing companies.

Thus, the paper presents further implications for manufacturing sector firms, adding to Adaileh and Abu-alganam (2010). The researchers examine the association between ERP system and SCM performance, analyzing five rudimentary components of ERP: integration, workflow management, production planning, materials management, and controlling. Subsequently, the paper hypothesizes five positive relationships, between the respective ERP components and SCM performance in Malaysian manufacturing companies.

The research design of Shatat and Udin (2012) includes sending a questionnaire to 132 Malaysian companies utilizing an ERP system and receiving 83 responses, of which 80 were used in the analysis. The survey emphasized the above-mentioned five dimensions of an ERP system with regards to SCM performance. The target respondents (in majority, the IT executives or persons in charge of the EPR system) evaluated the degree of agreement for each of the five components of an ERP system and further for the SCM performance. This was performed via a five-point Likert scale from 1 Âź (strongly disagree) to 5 Âź (strongly agree).

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The data analysis of Shatat and Udin (2012) first included a chi-squared test for differences, to detect response bias and juxtapose between early and late responses. The significance level (Pvalue) for all cases was larger than the alpha value of 0.05, demonstrating no response bias or significant dissimilarities. The research further performed a factor analysis on the ERP system, establishing five factors with 23 items, as two items were deleted. The five factors created in accordance to the ERP system components: workflow management, controlling, production planning, integration, materials management. The researchers analyzed the eigenvalues and thus the relative explanatory power for each factor, as the five overall explain 55.84% of the variance.

Afterwards, the Kaiser-Meyer-Olkin (KMO) test of sampling adequacy was exploited, as well as the Bartlett’s test, both giving positive implications for factor analysis.

Shatat and Udin (2012) indicates that a large majority (77.50%) of Malaysian companies that have implemented ERP systems, have increased capabilities at any time to meet changing customer needs and market trends. Thus, an ERP system provides flexibility and swifter adaptation to demand and market circumstances. Furthermore, 72.50% of the surveyed companies confirm that an ERP system yields correct, on-time information that enables management to take quick and accurate actions. 68.80% of the respondents reckon that the exact information is customarily accessible for decision making, whereas 67.50% experience quicker information flow within the supply chain. The overall questionnaire results demonstrate that an ERP system improves SCM performance by enhancing product quality and on-time delivery, decreasing inventory and operational costs, and enhancing flexibility and customer satisfaction.

What is interesting, the main two reasons behind ERP system implementation was to improve SCM performance wby 47.50%. This was followed by enhancing overall business performance rating with 43.80%, respectively.

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These results show that the adoption of an ERP system brought numerous benefits to Malaysian manufacturing firms, mainly concerning integration and flexibility. Integration between the dissimilar business units, software applications and across the supply chain, was considered the main dimension of an ERP system. Regarding the two hypotheses, Shatat and Udin (2012) observes that an ERP system is positively and significantly correlated with each of the specific five components of ERP except workflow management. Thus, integration, material management, production planning, and controlling, are significantly and positively correlated with SCM performance. Nevertheless, similarly to Adaileh and Abu-alganam (2010), workflow management is not significantly associated with SCM performance.

In general, this study concludes that successful implementation and effective usage of an ERP system can contribute to enhancing SCM performance in diverse manners. For example, integration of internal business processes, enhancement of information flow, improvement of the company’s relationships and collaboration with suppliers and customers, and supply chain partners, and reduction of inventory and operation costs. Consequently, ERP integration provides easy and reliable access to data from any unit within the supply chain and prevents the existence of redundant data, avoiding inefficient operations, which eventually contribute toward an improvement in the performance of the SCM system. Moreover, the data analyzed in the companies that have successfully adopted and utilized an ERP system, would increase their SCM performance.

Furthermore, De Burca et al. (2005) inspect how small and medium-sized enterprises (SMEs) employ ERP systems to improve performance and competitiveness. The study poses two central questions, mainly: how SMEs respond to the challenge of harnessing ERP technologies, and what are the barriers preventing SMEs from utilizing ERP?

The analysis derived its data by adopting a case-based approach, as the primary data was collected through structured in-depth interviews with respondents, crucially involved in the

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implementation of an ERP system at an SME. Overall, respondents constituted 36 executives from four SME’s from the distribution, manufacturing, transport and software industries. The responses were inspected by the ‘Non-numerical Unstructured Data Indexing Searching and Theorising’ (NUD.IST) software, which specializes in handling non-numerical and unstructured data and helps users in performing qualitative analysis.

De Burca et al. (2005) first demonstrates that a company-wide change management programme should train and develop staff to adapt to a newly-implemented ERP system. Senior management should inspire workers and also participate in technical training to better understand the specificities and benefits of ERP. The analysis concludes that the full benefits of ERP were not initially visible or fully experienced by everyone. Nevertheless, in accordance to Adaileh and Abu-alganam (2010), the ERP benefits demonstrated over time after the system has stabilized and staff has adapted the new working practices. In addition, unlike the previously discussed literature, De Burca et al. (2005) find that implementing an ERP system modifies the career aspirations of staff, as supposingly power and control transitioned in the direction of people who embraced ERP. Nevertheless, ERP systems add value to SMEs by improving both the internal, in-house activity, as well as the interactions with external parties.

Finally, implementing an ERP system at SMEs is not simply a matter of adding a brand-new software, as it involves considering several crucial challenges. First, business processes (external or internal) should be inspected and re-designed to utilize the new technology to its maximum potential. Second, firms must complete an effective change management and communications program. Finally, when it comes to failing to adopt an ERP system successfully, the original implementation should be revisited, thus ensuring that no mistakes are made in the future. This way, firms engage in ‘deutero-learning’, where they learn from previous a learning experience (Argyris and Schön, 1978).

Additionally, Davenport and Brooks (2004) presents an extensive exploratory study in the form of a literature review and undetailed case study on the firm effects of ERP systems in SCM. The research indicates that at the most rudimentary level, ERP systems offer ways to decrease costs 18

within internal supply chain operations, thus improving the efficiency of internal operations. For example, a firm can maintain its resources to accurately meet customer demand with maximum efficiency. ERP systems further enhance efficiency across the extended supply chain. By sharing and diffusing sales and forecast information, two firms along the supply chain can decrease total inventory, while at the same time improving in-stock performance and both experiencing financial benefits. Agreeing with Stevens (2002) and Adaileh and Abu-alganam (2010), Davenport and Brooks (2004) states that internal integration should serve as an antecedent to the external one, solving issues along the entire supply chain. ERP systems offer dissimilar and various ways of transmitting information, and higher number of firms that can access it.

In addition, Davenport and Brooks (2004) states that firms along the supply chain can share an ERP system, thus increasing efficiency for every partner in the chain. By way of illustration, logistical and supply processes, can become a shared activity across firms, or outsourced to firms that excel at information management and supply chain operations. For example, several Canadian oil and gas corporations have collaborated to construct a commonly-owned refinery, with shared ERP and financial management operations. Further arrangements can regard purchasing, delivery, transportation and other supply chain processes.

Moreover, Hwang and Min (2013) inspects the role of ERP in supply chain operations and assesses the impact of ERP on the supplier capability (SCAP), which further affects supplier performance (SPERF). The paper hypothesizes that the level of ERP implementation, is positively correlated to the degree of SCAP, which is further associated with SPERF. The theory behind this assumption may seem intuitive. First, ERP provides exact real-time demand information to the supplier, which can enhance its reactions to quickly changing demand patterns and serve customers better. The accessibility of real-time data facilitates the supplier in modifying its product volume and mix in a short time frame, and hence aid in consistently meeting the buying firm’s various sourcing requirements. Even though the effect of ERP on the individual firm was reviewed in the previous articles, its impact on the firm’s upstream supply chain partners has not been documented in other research.

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To examine which factors gauge the level of ERP success and its effect on SCAP, the research employs three phases. First, potential survey items are predicated on previous ERP literature.

Second, as with Su and Yang (2010), a structural equation model (SEM) was created along with the identification of valid constructs based on interviews with firms utilizing ERP. Finally, the researchers conducted a survey targeting Korean manufacturers and their suppliers, and then executed a path analysis to examine the proposed SEM’s validity. The SEM calculated the relationships amongst the constructs.

The results of Hwang and Min (2013) show that ERP implementation significantly and positively correlates with SCAP, meaning that a buying company’s successful ERP adoption can improve its supplier’s capability and thus enhance the whole supply chain. This way, the ties between the supplier and the buying company are solidified. Logically, ERP systems ease information sharing between suppliers and buyers and consequently enable the former to enhance its demand forecasts, synchronize logistics and production and activities, harmonize inventory planning, and then decrease bottlenecks and supply disruptions (Lee and Whang, 2000). Finally, augmented supplier capability (SCAP) is translated into enhanced supplier’s performance (SPERF). This way, SCAP, resulting from expeditious information access, process improvement, and product innovation, contributes to the supplier’s order fulfillment performances and hence, market competitiveness.

Two years after this inspiring publication, the academic community presented additional research, proving the positive company impact of ERP in SCM. Hwang and Min (2015) determines the role of ERP systems in supply chain operations and further examines its impact on supply chain capabilities (SCAP) and supply chain performances (SPERF). Following

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similar methodology to Hwang and Min (2013), comprising SEMs, this analysis further adds a Q-sort method and an extended survey. The paper confirms the previous findings of Hwang and Min (2013), further adding strength to the surmise of positive, company-beneficial and significant effect of ERP in SCM.

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In the same year, Huang and Handfield (2015) examines the effects of ERP system implementation and the selection of ERP vendors on supply chain management performance for Fortune 500 companies concerning three factors, namely: sourcing, category management, and supplier relationship management.. The paper hypothesizes firstly that ERP users have greater supply management process maturity than non-ERP, and secondly, that selection of SAP and Oracle ERP vendors causes higher supply management maturity compared to that of other ERP vendors.

The methodology for the analysis sconsists of two sections. First, the researchers develop a supply chain maturity model utilizing public information to evaluate the supply chain performance of Fortune 500 companies, with respect to the above-mentioned three factors.

Afterwards, using the supply chain maturity model, the paper presents how selection of different ERP vendors impacts supply chain maturity outcomes by using multivariate analysis of variance (MANOVA) models.

The results of the study demonstrate that companies that incorporated an ERP system, experience significantly higher levels of supply management maturity compared to non-ERP users regarding all three factors (sourcing, category management, and supplier relationship management).

Furthermore, ERP systems facilitate the sourcing practices segmentation, thus enhancing transformational value, which in turn improves supplier relationships and even other forms of intangible value (e.g. innovation). This way, employing an ERP system All of these capabilities take time to build and create, and for that reason, deployment of ERP systems in SCM serves as a catalyst for organizational change, especially if partnered with reliable leadership.

Huang and Handfield (2015) further conclude companies that utilize SAP possess higher levels of supply management maturity regarding sourcing, compared to non-ERP users. Oracle users do not show significant difference in sourcing relative to non-ERP users. In category management, SAP users again take advantage of increased supply management maturity compared non-ERP users and firms with other ERP vendors. Companies utilizing Oracle software again are not significantly different to non-ERP in this class. Finally, concerning supplier relationship management, firms that utilize both Oracle or SAP softwares are significantly better than non-

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ERP users. Nevertheless, integration of SAP software again causes higher benefits than other vendors, including Oracle. Conclusively, firms that utilize SAP as their ERP vendor, experience the most enhanced supply chain performance relating to sourcing, category management, and supplier relationship management (relative to firms that do not possess ERP systems).

3.1.2. NEGATIVE OR INSIGNIFICANT IMPACT OF ERP SYSTEMS IN SCM ON FIRMS As no one system is perfect in this world, certain papers have concluded that ERP systems in SCM might have a negative or insignificant effect on firms. Akkermans et al. (2003) identifies that the implementation process presents important risks of failure or of progress limitations in various cases (Akkermans et al. 2003). The issues presented through the research papers range from lack of support operations across multiple organizations and lack of flexibility in adapting, to the ever-changing supply chain needs, up to lack of more advanced supporting functionality beyond transaction management and lack of open internet-like system architectures.

In terms of research design, the authors had noticed the absence of relevant academic literature on the topic of ERP implementation and decided to develop their initial theories by listening to managers familiar to the supply chain business. Defined as a Delphi study, this form of research represents a method for structuring a group communications process, thus allowing participants to analyze complex issues. Furthermore, this mechanism is highly appreciated in exploratory theory building on complex, interdisciplinary problems, which involve several new and future trends. Additionally, regarding the group size, while at least 20 respondents are needed in order to overcome the risks of individual biases, the paper presents the opinion of 23 Dutch supply chain executives that implemented ERP systems in their firms, thus ensuring validity. In addition, another advantage of the Delphi study is represented by the opportunity to receive feedback during the process and integrate the advice into the research process.

Regarding the methodology, the group of executives was asked to meet during a workshop, where they were asked to assess the expected ERP support for new trends in SCM all around the world, and to identify any key limitation in current ERP systems for efficient SCM support.

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Among future steps taken in the process, the most relevant ones were the identification of ERP limitations (22 items), prioritisation of new SCM trends, and evaluating these trends’ business impact and ERP support.

Accordingly, the empirical results of the paper pose great insights into the implementation of ERP systems, current trends in SCM, and new challenges that the systems have to face in the business environment. First of all, maintaining sufficient flexibility while supply chain needs are in a continuous process of change is considered to be the second most important trend in the industry, with 57% of the executives’ votes. Specifically, the fast-changing and extremely diversified customer demands request more information exchange among the participant sides of the supply chain. In other words, not only ERP systems have to further develop to meet current needs, but also more enhanced IT-tools have to foster the integration of different parties in the chain.

Secondly, the executives’ general opinion is that the contribution of ERP to future SCM developments is far from being optimistic. Out of the twelve SCM trends identified at the beginning of the paper, only four of them (33%) are supported by ERP, while the rest of them (66%) are perceived to be hindered by ERP systems. Furthermore, ERP systems are considered to be more helpful for more technical issues such as global IT systems, but fail to have a significant positive impact on the strategic business developments, such as outsourcing or integration.

Lastly, there are three main categories where experts identified limitations associated with ERP implementation: extended enterprises’ functionality, flexibility in adapting to current business environments, and advanced supporting functionality. However, the authors argue that ERP systems are not realistically expected to cover all of these functionalities, mostly because of its initial design. The ERP systems, by design, are focused on managing only internal resources in an integrated manner, and other functions could be available only by implementing a range of add-ons such as data warehousing tools or supply chain execution systems. In addition, the researchers suggest that the ERP’s architectural advantage of being fully integrated for one individual company can always become a strategic disadvantage in a business environment,

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where open and flexible IT solution are required. Only with more in-depth research on the topic of long-term trends and needs in SCM practitioners will be able to judge whether ERP or an extended version would satisfy their executive needs.

Adding to Akkermans et al. (2003), Koh et al. (2006) further conclude that ERP systems in SCM might have a negative or insignificant effect on firm by examining the integration of SCM and ERP systems for a Chinese company.

The research utilized a case study approach to facilitate in-depth analysis and examine the transformation process, specifically inspecting a Chinese manufacturing company. This further proves interesting as implementation of ERP systems in the Chinese manufacturing sector is successful only a third of the time in the West, while in China this figure significantly smaller in general (Zhang et al., 2003). The primary data was collected by telephone interviews, while the secondary data collection comprised of literature published digitally or in paper. Regarding the former, the researchers conducted five in-depth interviews with several top management staff. It includes the SAP systems director, the chief procurement officer (CPO), the general manager of the purchasing department, the senior manager of the purchasing department, and the senior IT manager.

Koh et al. (2006) concludes that currently and in the recent future, it will not be the case that single companies compete against each other. Instead, individual firms will attempt to integrate themselves into a competitive supply chain, and the various supply chain will rival each other.

The research advocates that the highest benefit of implementing an ERP system is the potential and often uncertain future profit growth, after successfully integrating the company to its entire supply chain. Regardless, the majority of implementation projects (especially with SMEs) prove unsuccessful, costly, and risky. Additionally, ERP systems do not contribute to the supply planning and demand planning functionality of the firm. Thus, the fundamental conclusion of Koh et al. (2006) is that ERP systems do not improve and ameliorate the management of supply chains in the paper manufacturing environment, as the study demonstrates that ERP systems satisfy only limited subset of SCM needs in the case company.

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3.2 CASE STUDY OF NIKE, INC. After reviewing contrasting and complementary literature that inspects the effects of ERP systems in SCM on the intra- and inter-firm level, it proves useful to test the practical implications of the analyzed literature. This can be done by examining the case of Nike, Inc. and its ERP implementation.

Nike, Inc. originated in the 1950s, when University of Oregon field coach Bill Bowerman was striving to perceive a competitive advantage for his track runners by developing a lighter shoe.

Through the years, Nike pursued the design and creation of innovative sports clothing and apparel, while expanding into new markets and always searching for a competitive edge (Knight, 2016) Forty years since its founding, Nike continues to seek new and creative ways to develop superior athletic products, and innovative ways to communicate with its customers. Currently, Nike is one of the leading seller and manufacturer of sports apparel, controlling approximately 32% of the worldwide sports apparel market (Koch, 2004). As of today, the stock price of the company is ranging around 60 US$, with 1.6 billion basic shares outstanding (Knight, 2016), making Nike one of the highest grossing apparel companies in the world. Furthermore, Nike combines brands such as Converse, Hurley, Umbro, Jordan brand, and many more under its global umbrella. Led by president and CEO Mark Parker holding office since 2006, Nike runs an aggressive strategy based on an exceptional commitment to innovation (Knight, 2016).

In the early 1990s, Nike decided to incorporate an early ERP system implemented by SAP (Systeme, Anwendungen und Produkte in der Datenverarbeitung). However, this system was inefficient, full of bugs, and offered outmoded and obsolete demand forecasting (Laudon, Laudon, 2010). Consequently, Nike decided to change its ERP system, switching from the SAP system to a custom-made ERP system by i2 Technologies, Inc. In 2000, Nike decided to implement this ERP system with the goal of forecasting market demand, and meeting those demands in an expeditious and precise manner. Specifically, the key element of this huge scale project by i2 Technologies was to aid Nike in forecasting market

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changes and help the company automate its main processes. This way, Nike would decrease its operational costs by increasing efficiency for its manufactures and lowering shipment costs. At that time, ERP software applications were becoming increasingly popular, as even former Federal Reserve Chairman Alan Greenspan indicated that modern technologies for supply-chain management could recognize imbalances in inventories at a very early stage (Knight, 2016).

At the same time of implementing the i2 software, Nike was also in the process of incorporating a specific SAP ERP system, but found that again the demand forecasting was inadequate to its needs and thus decided to forego the project (Laudon, Laudon, 2010). Hence, the organization decided to use the ERP software of i2 Technologies for its management of inventory, production, shipping, and sales forecasting. Specifically, one of the main decision drivers for the company was that it decreased its response time to shoe market changes, planned production schedules of the new demand, and began production of the new shoes in one week, rather than the one month as a result of the new i2 Software (Laudon, Laudon, 2010). If successful, Nike would gain a competitive advantage due to the reduced production of unwanted products and decreased inventory levels, while having higher production of products in demand (Laudon, Laudon, 2010).

Nevertheless, the company knew that ERP systems can pose various risks and uncertainties, and was hence patient with regards to its implementation. However, since the i2 system was much smaller than the old SAP system, the firm did not take as many precautions as required (Koch, 2004).

In addition, external experts were surprised that Nike did not hire a third-party integrator helping them to smoothly implement the new system, as the company was replacing an already vexatious application. The new i2 system had to be customized, thus significantly impeding the implementation process. During the procedure, Nike decided to follow an all-at-once approach for implementing its new ERP system, as the guiding instruction of the former chief information officer (CIO) Gordon Steele, was that the single-instance ERP was not a discussion, but instead a resolution.

After implementing the ERP system in 2000, the new demand-planning engine used by Nike made more orders for a shoe model than the market had demanded and thousand fewer of the

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then popular Air Jordan shoe (Koch, 2004). The company reported that this malfunction caused a loss of more than 100 million US$ in sales, depressing the stock price by about 20% at that time.

The corporate stock suffered for over a year as a result of this failure, thus significantly detrimenting the health of the company. Nike executives stated that the new ERP system was responsible for manufacturing the wrong kind of sport shoe (McVey, 2001), and further found the system to be slow, unresponsive, and bug-heavy. (Koch, 2004). However, Nike failed to properly train and develop its staff to understand the new ERP system, which led to the excess production of unsought shoes (McVey, 2001). In addition to that, external analysts identified further project failures and inconsistencies. While they aligned with Nike in that the software miscalculated the shoe demand, they indicated that the company suffered due its over reliance on demand forecasting software and the lack of system customization.

Despite the fact that Nike was faced with massive losses and large technical issues, the company did not disengage the new ERP system when it functioned improperly. Instead, the organization hired external experts and consultants to construct additional databases and bypass portions of the i2 software application. Additionally, the firm further constructed ways within the software to enable data sharing. Subsequently, Nike switched its short- and long-run shoe demand planning to the SAP ERP system, which used a more predictive algorithm for estimating the real demand (Koch, 2004). In addition to that, Nike focused heavily on training and developing its employees and implemented a phased geographical approach while integrating its new SCM, CRM, and ERP systems (Koch, 2004). Though envisioned as a 2-3-year implementation at the beginning, it took Nike over 6 years, and cost the company about 500 million US$ to properly implement its ERP system (Koch, 2004). Nevertheless, by 2004, the company successfully launched its Nike Supply Chain (NSC) project, which enhanced its centralized planning, production and delivery processes, thus facilitating the single-instance ERP strategy.

Since Nike implemented ERP, CRM, and SCM systems all at once, the company experienced a multitude of benefits, which caused many companies to follow a similar approach. For example, the successfully implemented ERP system benefits were heavily linked to the firm’s reduction in its ‘pre-building’ time required per shoe from 30% to approximately 3% in some factories (Koch,

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2004). In addition to that, the required amount of time from design to completion of a shoe was reduced from nine to six months, allowing for faster and better on-demand manufacturing.

Inventory levels were reduced from one month to one week and the system allowed for better demand forecasting and control (Koch, 2004). The positive effects of ERP further reduced the risk of a ‘bullwhip effect’, leading to a significant competitive advantage. Lastly the new ERP system caused major cost reductions along the supply chain through reduced inventory, process and product costs, subsequently increasing Nikes margins and overall economic performance (McLaren et al., 2004).

In conclusion, Nike experienced a problematic and difficult process through its implementation of an ERP system, and had to spend an extensive amount of time and money to make the new ERP system work properly. Nevertheless, the benefits that the functional implementation offered helped the company improve revenues, productivity, and sales while decreasing costs. In general, the effective ERP system delivered better economic, operational, and overall company performance.

4. CONCLUSIONS AND RECOMMENDATIONS In the previous sections, the paper analyzed past academic literature with respect to the research question “How does the implementation of enterprise resource planning systems in supply chain management practices impact companies?”. The qualitative analysis supported three dissimilar areas of study, including: positive and significant effects of ERP implementation, negative or insignificant effects of ERP implementation, and a case study presenting Nike’s attempts at implementing an ERP system.

In the first part of the literature review, the data analyzed in the selected research papers provide an empirical justification for several quantifiable models (e.g. SEM) that identify the main constructs of ERP benefits and how they affect SCM competences. More specifically, SCM benefits from almost all aspects of ERP systems (e.g. operational, tactical, and strategic).

Although the utilized data inspected specific cases, mainly in developing economies (e.g.

Taiwan, Jordan, Malaysia, China), the nature of the results presents acceptable measures of validity and reliability, as the inspected companies that have adopted ERP systems have achieved 28

outstanding results over the past decades, have the capability to cooperate with all members of a supply chain, and are able to react to any unexpected changes. Furthermore, ERP systems are beneficial at both SMEs, as well as at large corporations.

In the second part, the studies of companies in the Netherlands and China, research postulates that business executives should not expect too much from ERP implementation in SCM in extended enterprises. The ERP system’s nature of internal control may not be designed to support SCM operations that stretch over multiple firms, but it does provide the perfect fit for just one fully integrated firm. However, as firms expand in diverse markets all over the world, their SCM operations also extend, hence an ERP implementation becomes a strategic disadvantage in the long term.

The Nike, Inc. case further illustrates the importance of training and developing staff with regards to the ERP system implementation, and the usual necessity of external expertise and consultancy. Furthermore, according to Chen (2009), the inclusion of project management skills can significantly increase the chances of ERP implementation success, especially within large multinational companies, such as Nike. Nevertheless the firm continued to believe and invest in an ERP system while learning from its failure. Linking the case to the articles in the literature review, Nike engaged in ‘deutero-learning’, where the firm learned from its failure (De Burca et al., 2005). De Burca et al. (2005) also indicates that a large company-wide change transformation programme should train employees to adapt to a the new ERP system. Nonetheless, conforming to Adaileh and Abu-alganam (2010), the ERP benefits affecting Nike had to develop over time until the firm has adapted to its new practices.

Contrary to past papers, this literature review illustrates the exact setup in which ERP implementation in supply chains can provide real benefits or disadvantages. The more complex and extended a multinational company can become, the less necessary is the implementation of current ERP systems. In addition, the process of implementation can be hindered by lack of trained employees or simply lack of attention, as Nike’s case points out. Consequently, an organization must deeply research its future SCM strategies and offer enough hours of training

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for its employees before implementing an ERP system, otherwise the software will most likely cause irremediable damage to the company.

A significant limitation of this research could be the lack of relevant and highly cited scientific research that tackles aspects of ERP implementation in SCM The majority of the studies concentrated on this theme was performed between 1980-1990, when ERP systems gained mainstream popularity. However, 30 years later, both ERP and SCM systems have passed through fundamental structural changes, and previous research is not sufficiently relevant anymore. In addition, another important limitation might be the lack of strong reliability, as most academic literature used in this review is concentrated on only an individual country’s companies or executives. As for suggestions, future research should focus on more complex enterprises (multinational corporations), or on larger and more globally significant SCM markets (the USA).

Additional research should also concentrate on supply-chain-wide performance assessment and incentive design, in order to better assess whether ERP implementation affects SCM in the most vital aspects.

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Enterprise Information Systems Study Erasmus School of Economics

14 February 2018 


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