Page 137 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes Second, the centralized ERP approach offers significant software scale economies since only a
limited number of software licenses are necessary with all divisions and regions using the same
application. While the initial software license cost might be substantial, the license and
maintenance fees for the single ERP application should be less than the multiple copies required
for each division or region. However, the real scale economy benefits result from the reduced
personnel required to implement and maintain a common ERP system. Multiple divisional or
regional systems require many individuals with varying hardware and software expertise to
implement, maintain, and modify each application. Since some knowledge has limited
transferability across hardware and software platforms, the expertise of the individuals typically
cannot be used effectively. While potential scale economies for ERP expertise do exist, they may
not be apparent today as relatively few individuals have developed extensive skills and they are
highly sought after as employees.
Finally, the centralized ERP approach increases the potential for a multidivisional firm to
implement shared resources and services across divisions or even regions. The ability to review
the production, storage, or transportation resource requirements of multiple divisions in the
common system increases the potential for sharing of critical resources. The integrated
information facilitates use of common suppliers, production facilities, storage facilities, or
transportation equipment, resulting in substantial potential for negotiating and operating
economies.

While there is not adequate evidence that current ERP implementations are yielding these scale
economies, the benefits will likely begin to accrue as the relatively recent implementations
stabilize.

6.6.3 Integration

The final ERP benefit is enhanced system integration both within the firm and enterprise and
between suppliers and customers. Internal integration results from a common integrated database
and implementation of common processes across divisions and regions. Typical common
processes included in ERP are order entry, order processing, warehouse management, invoicing,
and accounting. Such commonality offers the capability to merge processes and provide major
customers with a common and consistent interface with the firm. Such integration also results in
standard financial practices across business units. The standardized interfaces offered by many
ERP systems also facilitate external communication with supply chain partners.

Example: Many firms in the automobile and chemical industries are standardizing on
the ERP system offered by SAP. The major manufacturers are then asking their suppliers to
interface with their SAP database to obtain requirements data and to provide release schedules.
Such information and process integration substantially enhances supply chain information
sharing, which reduces uncertainty within the firm and between supply chain partners. The
growth in ERP implementations has slowed among large firms as most absorb and refine what
they have implemented. In contrast, smaller firms are just beginning their investment and
implementation.

A new generation of ERP systems is evolving to provide additional integration, particularly
with customers. These systems, identified as ERP II, integrate traditional ERP along with a
Customer Relationship Management (CRM) system to better integrate the requirements of key
customers with the firm’s supply chain plans. The major improvement offered through ERP II is
the external connectivity that is so critical for supply chain collaboration. It is also becoming
more common for these integrated applications to be accessed via the Internet, thus providing
a common global interface.

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