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The purpose of this study is to discuss about the effectiveness of ERP implementation in
manufacturing industries. This study covers the definition, benefits and the
implementation steps of lean tools and techniques. The data collections were divided
into primary and secondary data. To run this study, a survey was conducted where the
questionnaire have been distributed to the manufacturing companies. The survey
consists of respondent and company detail, ERP implementation and reason of not
implementing ERP. The data obtained were analyzed using the SPSS programming. The
analysis shows that ERP implementation has the effectiveness in manufacturing
industries.
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ABSTRAK
Tujuan kajian ini adalah membincangkan mengenai keberkesanan sistem ERP yang
telah diaplikasikan dalam industri pembuatan. Kajian ini merangkumi definisi, faedah
dan langkah-langkah perlaksanaannya. Pengumpulan data terbahagi kepada dua iaitu
data primer dan data sekunder. Untuk menjayakan kajian ini, satu kaji selidik telah
dijalankan di mana borang soal selidik telah disediakan dan di hantar kepada syarikat-
syarikat pembuatan. Kaji selidik ini merangkumi maklumat mengenai syarikat dan
responden, aplikasi sistem ERP dan keberkesanannya, dan sebab-sebab tidak
melaksanakan sistem ini. Maklumat yang diperolehi kemudiannya dianalisis
menggunakan perisian SPSS. Daripada analisis yang dijalankan, menunjukkan bahawa
perlaksanaan sistem ini mempunyai keberkesanannya di dalam industri pembuatan.
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CHAPTER 1
INTRODUCTION
Organizations today are constantly in search for ways to achieve better business
performance and sustain competitive advantages through effective deployment of
resources and business processes. To stay competitive in global market, the
manufacturing sector needs to improve productivity through upgrading of its
primary production technology. Technology can improve overall productivity in
different ways through an efficient planning and control system that
synchronizes planning of all processes across the organization. Manufacturing
firms must achieve a degree of innovative capability in managing a solid
information system and on-going changes in supply chain needs in order to gain
the advantages on competitiveness world.
ERP is the next step in a companys evaluation that began with Material
Requirements Planning and evolved into Manufacturing Resource Planning.
Material Requirements Planning (MRP) is well knows as a software based on
planning a production process and a system which control the inventory that used
to manage manufacturing processes. Meanwhile, Manufacturing Resource
Planning (MRP II) is a method for an effective planning system of all resources
of a manufacturing company. ERP is a MRP foundation like MRP II and
represents as an extended effort that integrate standardized record keeping that
will permit information sharing among different areas of an organization in order
to manage the system more efficiently.
After the computers began to apply in materials planning for the production, ERP
have become the current evolution of a progression of planning tools (Michael D.
Okrent, 2006). ERP system works essentially by integrating the whole business
information, allowing organizations to manage effectively their resource of
people, materials, and finance (Markus et al, 2000). The overall resources of an
enterprise can be planned, managed and integrated through ERP (Ching Chow
Yang, 2006).
Therefore to provide solutions for the above problems, it is important to find out
all the effectiveness of ERP system in manufacturing industry include with its
disadvantages so that this study will meet the requirements and satisfaction to the
companies involved.
In order to solve above mentioned problems, this study tries to achieve the
following objectives:
In order to find out the effectiveness of the ERP system in the manufacturing
industries, only one method will be used to gather the information which is
statistical survey through the questionnaire form that been submitted to the
companies.
This study will give benefits to the industry and also the researcher by:
a) The findings on the effectiveness of ERP system can be used by the
industries to improve their current ERP software.
This study is divided into five (5) chapters. Chapter 1 is generally about the
introduction which consists of problem statements, objectives, scope and
limitations of study, potential benefits of study and the study outlines. Chapter 2
is the literature review. Based on the reference gathered, this chapter will state
out the effectiveness of ERP system as well as the definition and the introduction
to the key words which are ERP, MRP, ERP software, SPSS program and
manufacturing industries.
2.1 Introduction
This chapter will discuss about Enterprise Resource Planning (ERP) successful
performance in manufacturing industries. Facts and findings on previous
research in and outside the country that relevant with the problems will be
discussed in order to support or to make comparison on objective of study. This
chapter also discusses about the past studies related to the project title with the
authors, titled of the study and the findings of the studies will be discovered.
The word manufacturing comes from the Latin word, manu factus, and it is
means making by hand or use a hand to make a thing. The use of word
manufacture is found in 1567 and continue by manufacturing in the year of
1683 (Kalpakjian and Schmid, 2006).
Ideally, ERP delivers a single database that contains all data for the software
modules that being implement in various kind of business in manufacturing,
which would include all the key business processes.
The following table 2.3.1 summarizes the evolution of ERP from 1960s
to 1990s:
It is also a software solution that addresses the enterprise needs taking the
process view of an organization, and in term of industry Enterprise
Resource Planning is a set of activities that support by multi-module
application software that help a manufacturer or other business manage
the all the parts of its business.
Time consuming
ERP implementation is longer and can take from six months to several
years to complete. The ERP software functions itself will usually be
available in used approximately in every six month (Michael D. Okrent et
al 2004). Companies that install ERP do not have an easy time to gain the
benefits of it. Companies usually will change their ways of business and
the ways people do their job after implement the ERP system and this
will take times. The important thing is not to focus on how long it will
take. It is effective to understand the potential benefits and how to use
wisely the system in order to improve the business itself because ERP
implementation will take almost between one to three years in average
(Stevenson, 2007).
Expensive
1. Training
Hidden cost in ERP such as testing the links between ERP package
and other corporate software links.
3. Data conversion
4. Data analysis
For an analysis purpose, the data from the ERP system must be
combined with the data from external systems. This will charge as the
cost of a data warehouse in the ERP budget.
5. Consultants
ERP systems are not easy to be defined and are complex and dispersed
within and between organizations because of its system modules and
complexity of implementation. Each of the position involves in ERP
system in organizations said that these system are elusive where the
system itself are in constant instability (Koes Boersma et al. 2005).
Nowadays, some of the mid average companies having difficulty on the
performance of ERP system that cause them lack of effective evaluation
features and models of the system (Shih Wen Chien et al. 2007). ERP
system may have too many features and modules so the user needs to
consider carefully and implement the needful only.
2.4 ERP Modules
Figure 2.4 shows an example of the modules that help ERP implementation in
the organizations. These following modules will be discussed in term of its
definition, description and the relationship with ERP system.
MRP Systems were first been used by George Plossl and Joseph Orlicky
in the late 1960s. Material Requirements Planning (MRP) is software
based on planning a production process and a system which controls the
inventory that used to manage manufacturing processes. An MRP system
is used to meet three objectives which are to maintain the lowest possible
level of inventory and to plan manufacturing activities, delivery
schedules and purchasing activities and lastly to ensure materials and
products are available for production and delivery to customers .
2.4.3 Purchasing
2.5.1 SAP/R3
SAP R/3 is a well known client server based application, that utilizing
using a three tiered model. It includes a presentation layer for a client that
can connect with the user. The application of this layer houses include
integrate all the business-specific logic and the database layer records as
well as storing the information about the system including transactional
and configuration data (Anon, 2007 b)
Fourth phase: A final preparation phase include with the last tests are
being performed before the actual go live.
For each phase, the vital activities are addressed and the deliverables or
products are explained. The process-data diagram above, gives an
overview of all of these activities or processes and deliverables. The four
gray boxes depict the four main implementation phases, which each
contain several processes that are in this case all sequential. The boxes at
the right under the SAP implementation project plan show all the
deliverables and concepts that result from the processes. Boxes without a
shadow have no further sub-concepts. Boxes with a black shadow depict
complex closed concepts. Boxes with a white shadow depict open closed
concepts, where the sub-concepts are expanded in greater detail. The
lines with diamonds show a relationship between concepts (Anon, 2007
c).
Rolls-Royce used over 1500 systems before the ERP project was started
and many of the system was developed internally by Rolls-Royce itself
over the last two decades.
These old tradition systems can not relate themselves fully to a modern
manufacturing environment. Some of the legacy systems were so old and
the problem of the year 2000 compliance problems (Y2K) always
occurred within the organizations which results work within Rolls-Royce
functionally orientated and various departments worked in isolation.
The system was developed in the years of 1980s. Although it was capable
to handle all the process data within organizations, it was prone to manual
manipulation. The example of the system difficulties is it lack of
communication between individual sites. MERLIN often had difficulty
communicating with another manufacturing system named IBIS
(inventory based instructing system) in the Rolls-Royce Company. IBIS
was an older manufacturing system that was used at the Bristol and Ansty
facilities.