Using ERP Systems to Transform

Business Processes: A Case Study

at a Precession Engineering Company

C.K.M.Lee1, Linda Zhang2, P.X.Lee1 and K.O. Au3

1Nanyang Technological University
2University of Groningen
3ACW Solution Ltd

Corresponding author E-mail: [email protected]

Abstract: Enterprises nowadays strive to keep transforming their business processes in accordance with the fast-
changing customer demands so as to survive the intense global competition. In an attempt to provide
practitioners with an insight into ERP implementation and the resulting business performances, this paper
investigate how a successful ERP implementation can help transform enterprises processes. Case based research
which is based on an in-depth observation under managerial and practitioner situation. A case study at a
precession engineering company is conducted to evaluate the feasibility of the proposed strategic enterprise
information model. This paper focuses on the implementation of Sales & Marketing and Warehouse modules of an
ERP system. The key performance indicators are used to evaluate how the ERP implementation can improve the
business processes. It is found that ERP helps to improve data visibility and improve on-time delivery but less
effective on improving employee productivity. This research proposes an enterprise information model to exploit
what strategy should be formulate and how ERP tactic can be implemented in company to enhance enterprise
competitive advantages. The strategic enterprise information model is formulated based on our in-depth case
study and ERP consultant’s experience.
Keywords: Enterprise resource planning, Business process, Information system, Inventory management, Case
study

1. Introduction • examine the management aspects of ERP

implementation;
Recognizing the significance of better communication, co- • study the different phases of an ERP project life-cycle
ordination and collaborations within companies and to attain successful implementation; and
between business partners, enterprises have been seeking • analyze how to effectively link operation to strategy
information systems with the capacity to automate and tactics.
communication and integrate information across a wide The rest of this paper is organized as follows. Section 2
range of business functions by collecting and demanding reviews the relevant literature about ERP implementation
the input data in a highly standardized form. This paves and supply chain integration. A framework of a strategic
the way for the adoption of Enterprise Resource Planning enterprise information model is proposed in Section 3. In
(ERP) systems. According to a 2007 Aberdeen’s study of Section 4, the case study carried out in a Singaporean
the role of ERP systems in globalization, enterprises that company producing precision engineering products is
implemented ERP produced 66% more improvement in introduced to shed light on how sales & marketing and
reducing total time from order to delivery (Jutras, 2007). warehouse modules in an ERP system are implemented
ERP is used to simplify and streamline highly specialized and how their implementation helps transform the
business processes in manufacturing and distribution company’s business processes. Section 5 discusses and
enterprises. It comprises of the customary ERP modules concludes the findings about how ERP implementation
such as Sales & Marketing, Distribution and transforms an enterprise.
Manufacturing. The automation of database transactions
2. Related Work
across functional areas enable data integrity, information
sharing and provides a better analysis and planning. To concurrently attain high levels of customer services
When empowered with the right tools, it is able to and internal operations efficiency, enterprises strive to
transform the challenges of today’s business effectively manage their supply chains. The major
environments into the company’s competitive advantages. concern of both the academia and the industry alike,
The objective of this study is to integrating supply chains with ERP systems can be

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International Journal of Engineering Business Management, Vol. 1, No. 1 (2009), pp. 19-24
 International Journal of Engineering Business Management, Vol. 1, No. 1 (2009)

addressed from the strategic, tactical and operational strategies that can help enterprises achieve competitive
levels. At a strategic level, Ngai et al. (2008) examine the edges and have quick response to customers’ needs.
critical success factors for ERP implementation, including Enterprise information system cannot be implemented
business plan/vision/goals/justification, business process without clear mission and strategy. Enterprises intend to
reengineering, change management culture and program, improve the existing business processes during ERP
communication, ERP teamwork and composition, implementation and incorporate BPR. However, since the
monitoring and evaluation of performance. By processes changed leads to changes of company’s
undertaking an empirical study, Bernroider et al. (2008) traditional business process, inertia and hindrance will
point out that ERP success increases if firms have increase. As pointed by Al-Mashari et al. (2002), a
explicitly defined IT/IS strategies and employed a successful BPR project normally includes a change
participative form of decision making. On the contrary, management program to deal with human resource
ERP success decreases if a project team is dominated by issues. An enterprise fails to implement an ERP system
business unit. Similarly, Ng et al., (1998) address the due to the un-successful BRP. To have a successful BPR, it
importance of developing and implementing such is necessary to identify the main business processes and
manufacturing strategies that consider both ERP and real- how information assists users to improve the efficiency of
time monitoring systems. The main processes of their their works. Users have a higher acceptance of business
model include establishing present position, analyzing process changes when they can benefit from the ERP and
strategic requirement, developing strategic improvement the simplified processes. In the framework, we attempt to
and implementing strategy. At a tactical level, Change et match the business processes with enterprise tactics so as
al. (2008) study the ERP adoption from a user’s to fulfill the strategy set by the top management. Instead
perspective by taking into account factors such as of a top-down management, the implementation should
complexity and compatibility. Vandaie (2008) examines cater to the needs of the current business processes and
the issues about tactic knowledge management and the efficient information flow can allow organizations to
process modeling for configuring enterprise systems so as carry out enterprise tactics and strategy.
to fit existing organizational processes. At an operational
level, Tarantilis et al. (2008) adopted interoperate, cross- 4. Case Study
platform web-service component to develop a web-based
MAE (a disguised name of the precision manufacturer)
ERP for construction manufacturing enterprise. By
designs and manufactures equipment and precision
undertaking a case study, Bose et al. (2008) study the
engineering products, provide engineering materials and
requirements of ERP implementation, including
infrastructure management, human and financial service to the microelectronics industry as well. It is offers
resource management and project management. competitive manufacturing services to numerous
In summary, in order to reduce inventory and improve renowned multinational companies. Its various divisions
order management, there are a number of approaches are equipped with high-tech machinery and expertise
and propositions have been reported to implement ERP that enable them to design and manufacture precision
systems (Jack et al., 2008; Pan et al., 2008; Wang et al., engineering products such as test sockets, device change
2008). The literature review suggests that a strategic kits, and stiffeners. These products are primarily exported
enterprise information model is able to provide a to Asia, Middle East and the USA. It has established
systematic approach to integrate to supply chains and, branches in Malaysia, Philippines and China to support
there lacks in-depth studies and investigations on such an and complement the overall operations in Singapore.
enterprise information model. In response to the lack of
research, in this paper, we propose strategic enterprise
information model by undertaking a case study.

3. Proposed Framework

We have identified the major components of the strategic

management of enterprise information in literature
review, and summarized in the framework in Figure 1.
Most scholars address the importance of change
management, project management, risk management and
business process re-engineering (BPR) during ERP
implementation (Bergström et al., 2005; Chiplunkar, 2003;
Elisabeth et al., 2003; Huin, 2004; Varma et al., 2007).
While including the above concepts at the planning,
design and implementation stages of an ERP project is
important, it is the alignment of business processes with
enterprise information incorporation with corporate Fig. 1. The strategic enterprise information model

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C.K.M.Lee, Linda Zhang, P.X.Lee and K.O. Au: Using ERP Systems to Transform Business Processes: A Case Study at a Precession Engineering Company

4.1. Strategic Mission for ERP Implementation Outside salespersons of MAE will draw up sales
MAE faces the challenge of quickly transforming its quotations (in both hard & soft copies) according to
businesses resulting from the increasing pressure from customer requirements. When a sales quote is accepted,
customers for faster delivery of high quality precision the outside salesperson will notify an inside salesperson
engineering products at lower prices. Manual and out-of- to generate a sales order through company’s legacy
date information management systems that handle information system. The inside salesperson will call an
MAE’s operations are required to be replaced. Although operations planner to double confirm the sales order and
production control runs well, sales management is to inform him whether or not the order is an existing
inefficient to handle customer orders. As each business design and requires reverse engineering. When the order
independently operates, cost calculation is slow; quotes is an existing design, the operations planner will issue a
are often incorrect and financial reports are frequently project form for production to manufacture the ordered
delayed. As MAE implements a make-to-order business item. When the order is a new design, the operations
mode, the high number of returns and rejects come planner will issue a project form for engineering
straight out of its profit. MAE’s envisions are to become department to create new drawing for the ordered item.
one of the world’s leading companies supplying precision In case the order requires reverse engineering, the
engineering products and services to the global operations planner will issue a project form for the
electronics industry by building trust, technical excellence engineering department to create drawings according to
and value chain. Therefore, it sets a mission to search for the sample given by the customer. The operations
such an ERP system that is well-suited to its unique planner has to promise a delivery date. If it is far beyond
environment and could help provide better control of its the date requested by the customer or rejected by the
business. MAE decides to replace its legacy systems with inside salesperson, they have to meet face-to-face to
an ERP system. negotiate the delivery date.
During the entire sales process, the inside and outside
4.2. Overview of Business Processes salespersons make frequent trips to the production,
Among all, MAE urgently needs to improve and engineering and planning departments to keep tabs on
automate its entire sales workflow, its warehouse progress. There was no automated system to keep track
management system as well. of the orders/items until they reach the warehouse. When
4.2.1 Existing Sales Workflow items arrive at the warehouse, no mechanism is available
to inform the salespersons. Inside salespersons usually
The existing sales workflow, as shown in Figure 1,
check the delayed sales order in the legacy systems. As
involves a great deal of manual labor of the sales
the warehouse department does not timely update the
coordinators. The entire sales procedure is elaborated as
inventory in the system, the inside salesperson usually
follows:
trips to the warehouse department to check the inventory
Customer enquiry status. The salesperson has to pick up items personally
and sends to the shipping department as the warehouse
Outside salesperson
draws up quotation department does not handle the sales orders. The
shipping department prints out two copies of shipping
No
Sales quote ok? Draw up another sales
quotation
documents for customer to sign upon receiving orders
Yes
and for own reference. The finance department prepares
Inside salesperson
generate sales order invoice and deals with payments made by customers.

Operations planner
4.2.2 Existing Problems
issues project form
For an outside salesperson, he has to manually generate
No Engineering dept
Existing design?
create new drawing
sales quotes each time customer’s enquiry comes in based
Yes on his own judgments. Such quote generation brings
Requires Yes Outsource from
many troubles to the outside salesperson as he has to run
subcontract? external supplier
everywhere to meet customers and often generate
No
repeated quotes due to the lack of a system. Spending
Production + Assembly
time to draw up repeated sales quotes is a waste of time
Send for quality and resources.
inspection
For an inside salesperson, he has to personally oversee
No Send for review
the whole sales process within the company and make
QA ok?
frequent trips to all the departments involved to ensure
Yes
that the sales orders will be ready on time. He also has to
Send to warehouse as Shipping
inventory personally foresee that the items are being transferred
Sales Invoice + Payment from the warehouse to the shipping department.
For an operations Planner, he has to individually oversee
Fig. 2. An overview of the existing sales workflow in MAE all the manufacturing operations starting from issuing the

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 International Journal of Engineering Business Management, Vol. 1, No. 1 (2009)

project form to items being sent to the warehouse. He also Automatic conversion of sales quotes. ERP provides a sales
has to promise a date of completion for all orders based ordering functionality where sales quotes can be
on his own verdict, which often results in grieve automatically converted to sales order without the
consequences when orders are delayed. salesperson’s intervention. Based on the generated quote
For the warehouse department, it lacks an efficient number, the salesperson can retrieve the information
method for receiving items from production and, its lack from a list of items and thus quickly responding to
of communication with the other departments causes customer requirements. The system will then
inefficiency. automatically generates the relevant item information
For the shipping department, it manually generates such as description, unit price and warehouse location
shipping documents with reference from the sales order code. Furthermore, it also automatically calculates the
and, this wastes time. total price for each item, with which the salesperson can
provide an accurate quotation to the customer.
4.3. ERP Implementation
In addition, the system automatically transfers the
The criteria that MAE uses to select an ERP system is that
relevant information from sales quotes to sales orders.
the system should well suit the industry’s requirements
Subsequently, the salesperson will key in the requested
and MAE’s unique business characteristics. Microsoft
delivery date and promised delivery date. When all the
Dynamics NAV is chosen to illustrate in this case study. It
required information is entered, the salesperson posts the
is necessary to have built-in control for workflow which
sales order. The operations planning department, thus,
allows the company to control the business better at the
will be notified of the new sales order and accordingly
management level with the integration of all functions
process it.
within the company. In this study, we put the emphasis
Generation of more accurate information about order delivery.
on the Sales & Marketing and Warehousing modules to
To provide customers with the accurate information
highlight the benefits of implementing an ERP system.
about order delivery, MAE makes use of an Order
4.3.1 Sales Order Processing Promising Feature. It is accomplished based on the
The sales order processing without involving ERP in customer requested date while considering the purchase
MAE entails a long process where the salesperson and operation lead time to suggest a possible delivery
manually checks a customer’s past records to determine date. Figure 4 shows the Timeline for items from staying
the items’ pricing and availability before processing and in inventory to being delivered to customers. A planned
confirming the order. While waiting for the salesperson to delivery date is the date when MAE plans to deliver an
confirm the order, the customer may shop around by order to a customer. A planned shipment date is the date
calling other distributors and thus the sales may be lost. when the picking process is completed and items are
With the implementation of an ERP system, this problem shipped out from the warehouse. A shipment date is the
can be resolved as the system will churn out the date when an item must be available in inventory. The
information needed with a click of the mouse. It utilizes picking process can start on this date. The above three
technology like XML as support for even more types of dates are automatically calculated. An outbound
complicated orders. Figure 3 shows sales order warehouse handling time is the time duration that is
processing within the ERP system, Sales & Marketing required to pick, pack and label the items in an order. A
module in particular. shipping time is the time duration between the time that
The way that the Sales & Marketing module of ERP the items shipped out from the warehouse to the time
improves MAE’s sales order processing is elaborated as that they reach the customers.
follows. To calculate the earliest delivery time for an order if there
is no requested delivery date, the equation is as follows:
Customer enquiry
Shipment Date + Outbound Warehouse Handling Time =
No Planned Shipment Date
Existing
customer?
Yes
Planned Shipment Date + Shipping Time = Planned
Yes No Inform operations
New order? Catalog item?
planner Delivery Date
No Yes
Combined invoicing. In a supply chain, enterprise intend to
Refer to old quote Generate quote
place large orders in order to get the benefit of the
No
Customer Revise quote
accepts? Shipment Planned Planned
Yes Date Shipment Delivery Date
Generate sales order
Outbound Warehouse Shipping
Handling Time Time
Confirm sales order Operations planning

Fig. 4. Timeline from item in inventory to item being

Fig. 3. Sales order processing after implementing ERP delivered to customer

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C.K.M.Lee, Linda Zhang, P.X.Lee and K.O. Au: Using ERP Systems to Transform Business Processes: A Case Study at a Precession Engineering Company

1. System generates 2. Select customer

sales invoice number number for sales
warehouse, the warehouse staff checks the accompanying
for each sales invoice invoice delivery documents to determine the PO that the
shipment belongs to so as to perform the corresponding
receiving and putting away activities. (d)To confirm that
the shipment has been received, the warehouse staff will
post the order as received. (e)As a result of posting the
3. Selected shipment
lines for combined (a) receiving and registering the put-away, the system has 1)
shipment sales invoice run the Receive function for items received and updated
inventory; 2) created a warehouse register to record the
put-away information for the bins involved; and 3)
4. Click Functions (Get Shipment Lines window) updated the contents of the corresponding bins.
Picking and shipping. Users can pick and ship an order by
directly registering the picking information on the order
line. This meant that when a salesperson creates the sales
order, the warehouse management module automatically
fills in the corresponding bin information on the order
(b)
line. When the shipment date arrives, the warehouse staff
Select all posted shipment lines to combine them into one invoice
uses the specified bin code on the order to find the item to
pick up. Once the order is posted as shipped, the module
automatically posts the picking information such that the
Fig. 5. Invoicing process for combined shipments bin contents reflect that the items have been taken out
economic of scale in purchasing but prefer to receive an from the bins. This module also provides warehouse
order in several deliveries so as to better manage entries to record the picking activities.
inventory and efficiently schedule production. In MAE,
Microsoft Dynamics NAV can split the shipping for the 4.4. Analysis of ERP Implementation
same order and combine several shipments into one The entire ERP implementation life-cycle in MAE lasts for
invoice to improve efficiency. Figures 5 (a) and (b) show one and a half years starting from the project analysis to
the invoicing process of combined shipments. the post-implementation. The return on investment is
longer than expected due to the lack of experience and
4.3.2 Warehousing knowledge on ERP systems. In addition, it took MAE
The warehouse management module provides a solution several months to experience the benefits resulting from
for MAE to improve efficiency and to shorten handling ERP implementation. Implementing ERP, in general,
times. It allows items to be easily tracked with respect to contributes to MAE’s business performance
the basic warehousing handling activities such as improvement, as commented by the ERP project
receiving, putting away, picking and shipping. manager: “The implementation of ERP system and the
Furthermore, this module can accommodate the standardization of company’s business processes has brought
increasing complexities in warehousing activities caused about a raft of improvements that have influenced management
by, e.g., the expansion and progress of MAE. quality, cost control and customer satisfaction.”
Receiving and putting away. With the warehouse During the initial stage of project development, there
management module, in their daily receiving and putting were too many definitions of the project plans. As a
away activities, MAE posts the delivery documents as result, without a cohesive strategy at the beginning, the
received. In other words, receiving and putting away is ERP project team had to return to the previous phase to
combined in one step by posting the corresponding modify the workflow. The iterative process resulted in
documents as received. It thus helps MAE minimize the costly effects, delays, frustration and low morale which
paper work. Moreover, all actions will be recorded in the may in turn affected the entire business operation. The
system such that the buyer can check the delivery status. ERP project was able to get back on track when a
After receiving an order, the system updates the controlled planning and monitoring system was
corresponding inventory records, and the items are established and project manager have more interaction
identified as available to use after being putting away with ERP Consultancy Company. One of the factor that
into appropriate bins. The improved process of receiving lead to project delay is resistance to use ERP system
and putting away inventory items within the warehouse because employees were afraid to make any errors as one
management module is generalized as follows. (a) A single error can have significant effects on the accuracy of
purchase order (PO) is created in the warehouse the data. Consequently, employees became resistant to
management module for the replenishment of inventory the ERP system. Nevertheless, with the support of top
items. (b) When the PO is released, it serves as a signal to management and successful change management
the warehouse that the order is complete and the vendor approach, the employees quickly adapted to the system
is ready to deliver it. (c)Once the shipment arrives at the and supported its implementation.

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 International Journal of Engineering Business Management, Vol. 1, No. 1 (2009)

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