Enterprise Resource Planning.
When friends do not talk to each other, relationships can get rocky. The same is true of businesses: they can succeed or fail on their ability to communicate. With the plethora of information technology created in the last decade, the challenge for most businesses has been how to get their different parts talking to each other and, in one voice, to their customers and partners.
Enterprise resource planning (ERP) systems collect and feed data from a company's range of activities into modular applications. They are capable of integrating data from every department and in this way, ease the day-to-day tasks of efficient management and administration. The systems can also be linked to specialized software to deal with extremely complicated tasks. A convenience-store chain, for example, might use supply-chain-management software to link its data to the ERP system that handles its accounting.
Makalot Industrial Co., a manufacturer of ready-made garments, has cut costs after its migration to an ERP system. The company, headquartered in Taipei, has a network of 30 plants in nine countries, all performing different functions in the supply chain.
Filling an order requires cloth, thread and buttons from different factories in different countries. This used to require a lot of e-mailing to and fro, checking inventories and production schedules; an accounting report could take up to a few weeks to reach management. To overcome such problems, the company decided to adopt an ERP system in 2000. Now, when Makalot receives an order, the system automatically reviews data from all the factories so it can select the one that can most efficiently and rapidly fill the order. With a few clicks of a mouse, a manager has all the information required to make decisions and respond to client requests with firm price quotations and delivery schedules.
Vandy Liu, director of Chung Yuan Christian University's ERP Research Center, says that one of the goals for the development of ERP was to deal with the Y2K problem. Large Taiwanese companies, mainly in the information and electronics industries, started to implement ERP systems in the late 1990s at the request of their foreign business partners. To customize applications for their Taiwanese clients, several of the world's largest ERP vendors such as SAP and Oracle set up offices in Taiwan.
Foreign ERP solutions had to be customized to cope with regulations and fit the needs of Taiwanese users and specific industries. Ma Guang-yu, who has worked as a chief technical officer for several ERP consulting companies and is starting his own, says that it was actually a little risky for Taiwanese enterprises to adopt an ERP solution in the beginning. Sometimes after months of work and tons of money, the systems would just not run. "Local engineers were inexperienced with the software while foreign engineers were unfamiliar with our business models and laws," he says. "Instead of benefiting from ERP solutions, some companies ended up suffering losses because of them."
The initial high cost was also an obstacle that kept many Taiwanese companies, especially the small- and medium-sized enterprises (SMEs), from adopting ERP systems. Foreign software and customized service did not come cheap, and the additional cost of upgrading existing software and integrating incompatible systems was prohibitive. Projected costs totalling more than NT$100 million (US$3.1 million) were simply out of the question for most SMEs.
Perfect Model
Investment bottlenecks and compatibility issues, however, were overcome by an increase in demand. Local vendors entered the market with products developed specifically for Taiwanese businesses. Competition among vendors eventually brought costs down. Currently, the price of implementing foreign ERP solutions is about one tenth of what it was seven years ago and local products are even cheaper.
When competition for the business of large enterprises leveled off as a result of relatively early adoption, ERP vendors began to target SMEs, which make up 97 percent of Taiwan's businesses. Vendors like SAP and Microsoft have already come up with, or are working on, products designed for SMEs. These products are required by the SME's larger enterprise partners and so, out of self-interest, the SMEs adopt ERP. "When your competitors have boosted their efficiency and are taking away your business, it's really just a question of how fast you can catch up, not of whether you're going to," Liu says.
Compared with that of large enterprises, local products are more competitive than foreign brands in the SME market. Liu says that each vendor has its strong point. The German company SAP, for example, is good at multinational systems handling business in Europe. American Oracle, on the other hand, handles interstate systems in the United States well. For many Taiwanese businesses, however, the most important requirement is to link them to their facilities in China. SAP and Oracle ERP systems need considerable modification, which translates to high consultancy costs, to deal with cross-Strait business models.
Data Systems Consulting Co. (DSC) Vice President Huang Chin-lu thinks that foreign companies were not willing to invest the time or the money in the SME market. For these reasons, few foreign products designed for SMEs were well-received and Taiwanese SMEs tended toward local products.
The Local Approach
Local ERP vendors also have a distinct price advantage in after-sales service. Most SMEs do not have their own IT staff and cannot afford the services of technical consulting companies, so they rely heavily on vendors for after-sales service and maintenance. One example of Taiwanese SMEs adopting local technology is an ERP system designed specifically for pet shops. Designed by DSC, the largest local vendor, the system cuts implementation costs to a minimum. Users do not need to pay for expensive software, but instead pay a modest monthly fee and work through the DSC Web site.
Despite ever-sophisticated products and more experienced engineers, there is no guarantee implementing ERP will work. "There are no longer any technical problems, but the system is operated by people, and things get complicated when the human factor is involved," Vandy Liu says. "Different companies implementing the same software will have different problems due to the people operating the systems."
Liu explains that when a business adopts an ERP system, it should look at a solution that not only handles present operations but can also quickly adjust to the constantly changing business environment. "Competing in the old business world was like mountain climbing: you could get to a certain height and see if you wanted to stay there or go higher," he says. "But doing business nowadays is like surfing: you ride a wave for a second then you get dumped by the next one."
Many SME owners, however, limit themselves to the present and have no idea how to keep riding wave after wave. "They are satisfied with what a system can do now, but are not interested in what it is able to do in the future, so they can't respond when changes occur," Ma says.
Another human factor that always causes problems is employee rejection. A successful ERP implementation, managed as a program of wide-ranging organizational change rather than a software installation, leads to a redistribution of workload. Before Makalot's ERP implementation, sales representatives only needed to write down orders and pass them on to other departments. Now they are responsible for keying in all the order details as well as delivery schedules and client information.
Although ERP systems aim for greater efficiency, they are highly centralized. Individual employees are required to do things traditionally outside their job description, without always knowing why. It is therefore very important for employers and vendors to communicate with and educate employees to heighten their understanding of the processes they are involved in. "There are many reasons why employers and we IT people think businesses should adopt ERP systems, and there are just as many reasons employees can come up with why they don't want them," Ma says. "The stronger the rejection, the longer the transition time during which employees are under high stress due to working with two systems, and as a result, there is a higher chance of failure," Liu says.
Complex enough to integrate the activities of a large enterprise internally and with its customers and partners, an ERP system boils down to clear and timely communication. Just like a conversation between friends, ERP enables the relationship between businesses and their stakeholders to flourish.