erpii – inter-firm collaboration

ERPII – Inter-firm CollaborationProfessor SC Lenny Koh

The University of SheffieldLogistics and Supply Chain Management (LSCM) Research Group

[email protected]/lscm

mailto:[email protected]

http://www.sheffield.ac.uk/lscm

ERPII – The Concept• ERP II is an evolution from ERP that extends

business processes, opens application architectures, provides vertical-specific functionality and is capable of supporting global enterprise-processing requirements (Zrimsek, 2003).

• ERP II is a business strategy and a set of industry domain-specific applications that build customer and shareholder value by enabling and optimizing enterprise and inter-enterprise, collaborative operational and financial processes (GRG, 2000).

The evolution of enterprise systems

Adapted from Gartner Research, 2000

Drivers for ERPII

1. The motivation of integration with suppliers to develop a 21st century supplier network via linking ERP system with selected vendors that aimed to enable improved Supply Chain Management (SCM).

2. The motivation of integration with customers to develop a 21st century customer network via linking ERP system with customers that aimed to enable improved Customer Relationship Management (CRM).

ERP vs. ERPII

ERP II Core

Adapted from Leon, 2003; Moller, 2004

The ERPII architecture

Source: Loh et al, 2006

Current development by implementer

Some examples of ERPII software, BISON Solution, CINCOM

Reactions to ERPII• Optimistic - new business drivers, speed,

adaptability, flexibility, and responsiveness would usher in ERPII.

• Major driver of ERP upgrades in the years to come and a critical qualifier for vendor selection with new customers.

• C-commerce - Firms whose applications, processes, and data are interoperable and collaborative will be accustomed to a world where demand identified is demand realized, in a matter of nanoseconds.

Reactions to ERPII• Zrimsek (2003) advocates vendors to provide products that are

neutral regarding language, currency and statutory requirements and further suggest that from the monolithic architectures of ERP, [users] will create ERP II deployment strategies that best fit the needs of the enterprise without relying on a single vendor to deliver all application components.

• Other argument centres on one principal theme – standardisation ‘fantasy’, and suggests that ERP does not acknowledge diversity and imposes commonality where it does not make sense, and on this basis, the ERP II reimplementation needs are questioned.

• The author contorts the traditional 80:20 rule by suggesting that earlier, the principle advocated that nearly 80 percent of any custom development effort focused on overcoming problems related to core technologies, data access, security, query, and user interface. Only the remaining 20 percent is spent on actually developing the business-end of the solution. ERP II compliant systems reverse this principle so that 80 percent of the development effort can be focused on developing the business solution (Wheller, 2004b).

Recommendations for ERPII adopters

• Zrimsek (2003) warns that the path to ERPII will be more complicated and involved than that for ERP and suggest the following recommendations: Users seeking to adopt an ERPII strategy should:• Focus application deployment on the management of

critical relationships and key performance metrics. • Deploy internal processes and enterprise systems that

are capable of connecting with other virtual enterprise participants in a seamless, near-real-time manner.

• Combine a business intelligence framework with their transactional systems to manage and monitor various levels of corporate performance.

• Again, stress is on collaborating from both a managerial and informational perspective (Step 1 & 2) and using corporate business intelligence systems (Step 3).

IFC

• Inter-firm collaboration (IFC) is referred to when an alliance or network has formally been agreed to between two or more (autonomous) organisations. The IFC for this purpose can take the shape of either competing organisations that co-operate (Soekijad and Andriessen, 2003) or alliances that consist of suppliers or customers (Huang et al., 2002).

Firm benefits through IFC measures

Author(s) IFC/Alliance Rationale IFC/Alliance Value Creation

Bronder and Pritzl, 1992

Increasing complexity of value chains

Time and Speed Gains Cost advantages Broaden competencies

Dwyer and Oh, 1988

Coordination essential to survival in some channels

Elimination of redundancies Shared responsibility, communication and control

John and Weitz, 1988

Alliances can help form match between supplier needs and channel dynamics

Using alliances in direct channels can help mitigate effects of transaction specific assets, channel uncertainty, performance variability, production costs

Powell, 1990

Mutual Interest and Benefit

Acknowledged interdependence leaves partners free to focus on core capabilities

Teece, 1992Link developers to users

and customers to better overall experience

Relational Exchanges Facilitate horizontal movement of information

IFC classification methods Structure Author(s) 1

Johnson and Scholes, 2003

Author(s) 2 Reid et al., 2001

Author(s) 3 Barringer and Harrison, 2000

Networks Loose Tightly Coupled Non-Equity Alliance

Opportunistic Alliances Loose Loosely Coupled Non-Equity Alliance

Licensing Contractual NA Equity Alliance

Franchising Contractual NA Equity Alliance

Subcontracting Contractual NA Equity Alliance

Consortia Ownership Tightly Coupled Joint Ventures

Joint Ventures Ownership Tightly Coupled Joint Ventures

Trade Association NA Loosely Coupled Non-Equity Alliance

Interlocking Directorate NA Loosely Coupled Non-Equity Alliance

Federations NA NA NA

Keiretsu NA NA NA

Barriers to IFC• New and Burnes (1997) conducted an empirical study of the

benefits gained from such relationships and found the distribution of the costs of improvement activities was biased towards suppliers, rather than customers.

• McIvor et al. (2000) present evidence to suggest that procurement personnel have found it difficult to adapt to the new ethos of ‘collaborative’ openness with suppliers.

• Benton and Maloni (2005) further find that because trust plays such a vital role in forming IFCs (especially for knowledge and information sharing purposes) other problems emanate. As an example, lack of trust could manifest into fear over the degree of sensitive information sharing such as for pricing, sales promotions and product sales.

Barriers to IFC• Systems and process incompatibility of the partners

(Johnson and Scholes, 2003) and systems security (McIvor et al., 2003).

• Supply chains with customers and suppliers are not homogeneous. Participants often have different communication infrastructures, with language, currency and cultural barriers, and legislative differences.

• Lee et al. (2003) summarise that there exists the problem of the forced need of the ‘bandwagon effect’. Thus, the initiating company might even have to extend considerable resources to get everyone ‘on board’.

Managing Collaboration• Soekijad and Andriessen (2003) consider effective

collaboration to be the resultant of three pre-conditions that firms must either arrive at, or know beforehand:

• Organisational characteristics, wherein each organisation must be prepared for receiving added value by opening its ‘informational doors’ for collaborators.

• Characteristics of the (mutual) relationship, these include the strength of the tie or relation, and the underlying trust prevalent in the tie.

• Characteristics of the knowledge/information shared, tacit knowledge is less easy to exchange than knowledge that is codifiable and hence teachable.

Spekman et al (1998)’s IFC approach

• Propagate a far more pro-active methodology to manage IFCs based on the temporal stage of the alliance i.e. management functions vary with the life cycle stage of the alliance.

• They contend that management in the early stages is visioning and sponsoring;

• Then it involves advocating the alliance to important stakeholders and networking across companies to secure commitment and partnerships.

• Management focus finally shifts to micro-managing and mediation as the alliance grows and matures.

• They also suggest certain characteristics of alliance managers such as cross-competency and interpersonal skills.

Johnson and Scholes (2003)’s IFC approach • IFCs as a function of defining and meeting

certain critical success factors (CSFs) such as establishing:• Trust• Senior management support• Defining and meeting performance expectations• Establishing clear goals and organisational

arrangements• Allowing the alliance to evolve and change rather

than prescribing it too parochially at the outset.

Research methodology• A questionnaire survey was administered through easy to read

HTML based web pages, sourced from a survey hosting company (http://www.surveymonkey.com).

• Respondents were selected from four countries – India, Sri-Lanka, UK, and USA and 44 responses were selected (46 in total, two were rejected for incomplete response).

• Of the many sample selection options available under probability and non-probability sampling, the present sample was selected as per the guidelines and requirements of the purposive or judgemental sampling of which the homogeneous sampling strategy (Saunders et al., 2003) was chosen.

• ERP (Integrators/ERP Consultants/Software houses were one category – Implementers, functional users from parent companies – Functional (parent) users, functional users from suppliers/subsidiary companies – Suppliers.

http://www.surveymonkey.com/

http://www.surveymonkey.com/

Respondents profile

27.27%27.27%

45.45%

Co

un

t

20

15

10

5

Industry Type

SuppliersFunctional(Parent)Users

0Implementers

27.27%27.27%

45.45%

Co

un

t

20

15

10

5

Industry Type

SuppliersFunctional(Parent)Users

0Implementers

ERP Initiation responsibility

2.27%2.27%

20.45%

75.0%Co

un

t

40

30

20

10

Who initiates ERP implementations within yourcompany (or the companies you consult for)?

Others(Please

Specify)*

FinanceDepartment

Systems/ITDepartment

0Top

Management* Head Office (1 respondent)

2.27%2.27%

20.45%

75.0%Co

un

t

40

30

20

10

Who initiates ERP implementations within yourcompany (or the companies you consult for)?

Others(Please

Specify)*

FinanceDepartment

Systems/ITDepartment

0Top

Management* Head Office (1 respondent)

Collaborative information exchange trends

No - But it mightin the future

NoYes

Does your company (or the companies you consultfor) collaborate/talk to its/their partners/suppliers

electronically?

30

25

20

15

10

5

0

Co

un

t

11.36%

0.0%

15.91%

9.09%0.0%

18.18%

4.55%6.82%

34.09%

Suppliers

Functional (Parent)Users

ImplementersIndustry Type

Perceived benefits of ERPII implementation

Operational, managerial, strategic, IT infrastructure, organisational

Frequency distribution for operational benefits Industry Type

Implementers Functional

(Parent) Users Suppliers Total

Strongly Agree 3 0 0 3 Agree 15 10 5 30 Neither Agree or Disagree 2 1 3 6 Disagree 0 1 3 4

Cost Reduction

Strongly Disagree 0 0 1 1 Total 20 12 12 44


Cycle Time Reduction


Strongly Agree 10 3 0 13 Agree 8 2 3 13 Neither Agree or Disagree 2 5 1 8

Productivity improvement

Disagree 0 2 8 10 Total 20 12 12 44


Quality improvement

Disagree 0 1 5 6 Total 20 12 12 44


Customer service improvement


ANOVA results for operational benefits

ANOVA TEST (p≤0.05, deciding point of significance)

Sum of Squares df Mean Square F Sig.(p)

Cost Reduction Between Groups 8.345 2 4.173 8.070 0.001*

Within Groups 21.200 41 0.517

Total 29.545 43

Cycle Time Reduction Between Groups 21.770 2 10.885 19.517 0.000*


Total 44.636 43

Productivity improvement Between Groups 25.170 2 12.585 16.798 0.000*


Total 55.886 43

Quality improvement Between Groups 10.861 2 5.430 9.232 0.000*


Total 34.977 43

Customer service improvement Between Groups 6.533 2 3.267 3.394 0.043*


Total 46.000 43

Key: * p<0.05

F statistic vs. Welch statistic• If the number of cases within groups are unequal, the

data for each group needs to have the same variance. The test of homogeneity calculates the Levene statistic to establish difference/similarity in variance. Unfortunately, the test revealed differences in inter-group variances for almost all the sub-questions.

• The SPSS software’s help files provided an alternative to the standard F statistic used in ANOVA when this happens. “The Welch statistic is more powerful than the standard F or Brown-Forsythe statistics when sample sizes and variances are unequal” (SPSS help files, 2004).

• Thus instead of evaluating the p value associated with the standard F test, the p value from the Welch statistic was used as it is more robust if both the variance and number of inter-group cases are heterogeneous. The variation between the groups is highlighted first (for each logical grouping of sub-questions) before moving on to a detailed analysis for each sub-question.

Welch statistics for operational benefits

ROBUST TESTS OF EQUALITY OF MEANS (p≤0.05, deciding point of significance)

Statistic(a) df1 df2 Sig.(p)

Cost Reduction Welch5.450 2 20.349 0.013*

Cycle Time Reduction16.279 2 21.256 0.000*

Productivity improvement18.422 2 20.737 0.000*

Quality improvement9.867 2 22.336 0.001*

Customer service improvement2.741 2 21.452 0.087

Key: * p<0.05

Frequency distribution for managerial benefits

Industry Type




Better resource management

Disagree 0 3 6 9 Total 20 12 12 44


Improved decision making and planning

Disagree 0 3 7 10 Total 20 12 12 44


Performance improvement

Disagree 0 4 5 9

Total 20 12 12 44

ANOVA results for managerial benefits



Better resource management

Between Groups 16.879 2 8.439 11.283 0.000*


Total 47.545 43


Between Groups 16.103 2 8.052 9.771 0.000*


Total 49.886 43


Between Groups 14.679 2 7.339 8.630 0.001*


Total 49.545 43

Key: * p<0.05

Welch statistics for managerial benefits


Statistic(a) Df1 df2 Sig.(p)

Better resource management Welch

12.467 2 21.384 0.000*


9.722 2 18.655 0.001*


9.462 2 17.192 0.002*

Key: * p<0.05

Frequency distribution for strategic benefits Industry Type




Support for business growth

Disagree 0 2 4 6 Total 20 12 12 44


Support for business alliance

Disagree 1 4 3 8 Total 20 12 12 44


Building business innovations

Disagree 0 0 3 3 Total 20 12 12 44


Building cost leadership

Disagree 1 4 7 12 Total 20 12 12 44


Generating product differentiation



Building external linkages /Extending the value-chain

Disagree 0 3 2 5 Total 20 12 12 44

ANOVA results for strategic benefits ANOVA TEST (p≤0.05, deciding point of significance)


Support for business growth

Between Groups 10.012 2 5.006 6.261 0.004*


Total 42.795 43

Support for business alliance

Between Groups 6.776 2 3.388 2.757 0.075


Total 57.159 43

Building business innovations

Between Groups 8.242 2 4.121 8.176 0.001*


Total 28.909 43

Building cost leadership Between Groups 13.215 2 6.608 10.046 0.000*


Total 40.182 43

Generating product differentiation

Between Groups 4.094 2 2.047 2.406 0.103


Total 38.977 43

Building external linkages /Extending the value-chain

Between Groups 4.012 2 2.006 2.080 0.138


Total 43.545 43

Key: * p<0.05

Welch statistics for strategic benefits



Support for business growth Welch7.430 2 19.408 0.004*

Support for business alliance2.843 2 21.997 0.080

Building business innovations7.622 2 24.174 0.003*

Building cost leadership11.871 2 20.932 0.000*

Generating product differentiation2.400 2 23.082 0.113

Building external linkages /Extending the value-chain 1.637 2 18.363 0.222

Key: * p<0.05

Frequency distribution for IT infrastructural benefits Industry Type

Implementers Functional (Parent)

Users Suppliers Total


Building business flexibility for current and future changes Disagree 0 3 3 6 Total 20 12 12 44


Disagree 5 2 3 10

IT cost reduction

Strongly Disagree 0 2 8 10

Total 20 12 12 44

Strongly Agree 4 1 0 5 Agree 15 6 6 27

Neither Agree or Disagree 0 1 1 2

Increased IT infrastructure capability

Disagree 1 4 5 10 Total 20 12 12 44

ANOVA results for IT infrastructural benefits



Building business flexibility for current and future changes

Between Groups 6.879 2 3.439 4.189 0.022*


Total 40.545 43

IT cost reduction Between Groups 30.545 2 15.273 13.045 0.000*


Total 78.545 43


Between Groups 9.048 2 4.524 5.911 0.006*


Total 40.432 43

Key: * p<0.05

Welch statistics for IT infrastructural benefits



Building business flexibility for current and future changes

Welch

4.279 2 20.709 0.028*

IT cost reduction16.211 2 23.577 0.000*


6.215 2 19.874 0.008*

Key: * p<0.05

Frequency distribution for organisational benefits

Industry Type Implementers Functional (Parent) Users Suppliers Total



Changing work patterns

Disagree 0 3 2 5 Total 20 12 12 44


Facilitating organisational learning

Disagree 0 3 2 5 Total 20 12 12 44


Disagree 0 1 2 3

Empowerment


Total 20 12 12 44


Neither Agree or Disagree 1 3 3 7 Disagree 0 2 3 5

Building common vision


ANOVA results for organisational benefits



Changing work patterns Between Groups 9.003 2 4.502 7.417 0.002*


Total 33.886 43

Facilitating organisational learning

Between Groups 6.315 2 3.158 5.005 0.011*


Total 32.182 43

Empowerment Between Groups 2.912 2 1.456 1.664 0.202


Total 38.795 43

Building common vision Between Groups 11.836 2 5.918 6.731 0.003*


Total 47.886 43

Key: * p<0.05

Welch statistics for organisational benefits



Changing work patterns Welch9.065 2 20.650 0.001*

Facilitating organisational learning5.403 2 21.981 0.012*

Empowerment2.130 2 20.587 0.144

Building common vision7.102 2 18.614 0.005*

Key: * p<0.05

Perceived impediments to ERPII success

Operational, managerial, strategic, financial, technological, organisational, legal

Frequency distribution for operational impediments

Industry Type




The changes in work/process pattern necessitated

Disagree 1 0 0 1 Total 20 12 12 44

ANOVA results for operational impediments




Between Groups2.376 2 1.188 2.593 0.087

Within Groups18.783 41 0.458

Total21.159 43

Key: * p<0.05

Welch statistics for operational impediments




Welch

2.354 2 26.547 0.115

Key: * p<0.05

Frequency distribution for managerial impediments

Industry Type




Disagree 2 0 0 2

Difficult to manage within and outside the firm’s boundaries


Total 20 12 12 44

ANOVA results for managerial impediments


Sum of Square

s dfMean

Square F Sig.(p)


Between Groups

3.394 2 1.697 1.955 0.154

Within Groups

35.583 41 0.868

Total

38.977 43

Key: * p<0.05

Welch statistics for managerial impediments




Welch 2.748 2 23.732 0.084

Key: * p<0.05

Frequency distribution for strategic impediments

Industry Type




Convincing partners i.e. suppliers/ customers in joining the collaborative process Disagree 3 1 0 4 Total 20 12 12 44


Disagree 3 0 0 3

External/inter-firm politics outside the company


Total 20 12 12 44



Disagree 7 1 2 10

Competitors may interfere/influence other trading partners


Total 20 12 12 44



Process changes within the collaborative community would be prohibiting


ANOVA results for strategic impediments



Convincing partners i.e. suppliers/customers in joining the collaborative process

Between Groups 7.367 2 3.683 4.930 0.012*


Total 38.000 43

External/inter-firm politics outside the company

Between Groups 3.715 2 1.858 1.930 0.158


Total 43.182 43

Competitors may interfere/influence other trading partner

Between Groups 3.215 2 1.608 1.403 0.257


Total 50.182 43


Between Groups 11.003 2 5.502 6.912 0.003*


Total 43.636 43

Key: * p<0.05

Welch statistics for strategic impediments



Convincing partners i.e. suppliers/customers in joining the collaborative process

Welch

6.806 2 24.868 0.004*

External/inter-firm politics outside the company 2.996 2 23.950 0.069

Competitors may interfere/influence other trading partners 1.440 2 23.173 0.257


8.965 2 23.846 0.001*

Key: * p<0.05

Frequency distribution for financial impediments

Industry Type



Strongly Agree 4 2 2 8 Agree 5 6 5 16 Neither Agree or Disagree

5 3 4 12

Huge (re)-investment return on investment not forthcoming

Disagree 6 1 1 8

Total 20 12 12 44

ANOVA results for financial impediments




Between Groups

1.442 2 0.721 0.713 0.496

Within Groups

41.467 41 1.011

Total

42.909 43

Key: * p<0.05

Welch statistics for financial impediments




Welch

0.678 2 25.613 0.517

Key: * p<0.05

Frequency distribution for technological impediments

Industry Type

Implementers

Functional (Parent) Users Suppliers Total


Disagree 10 2 1 13

ERP II ‘packages’ not available



Technological incompetence within trading partners is a barrier

Disagree 4 2 0 6 Total 20 12 12 44


Infrastructural issues (electricity/internet/ networking availability)


Total 20 12 12 44

ANOVA results for technological impediments


Sum of Squares df

Mean Squa

re F Sig.(p)

ERP II ‘packages’ not available Between Groups 3.245 2 1.623 1.343 0.272


Total 52.795 43


Between Groups 5.345 2 2.673 3.301 0.047*


Total 38.545 43

Infrastructural issues (electricity/internet/ networking availability)

Between Groups 3.442 2 1.721 0.932 0.402


Total 79.159 43

Key: * p<0.05

Welch statistics for technological impediments



ERP II ‘packages’ not available Welch1.574 2 22.527 0.229


5.050 2 23.392 0.015*

Infrastructural issues (electricity /internet/networking availability)

0.925 2 22.899 0.411

Key: * p<0.05

Frequency distribution for organisational impediments



Internal/inter-departmental politics within the company




Problems such as culture and change management


ANOVA results for organisational impediments




Between Groups2.770 2 1.385 0.981 0.383


Total60.636 43


Between Groups2.715 2 1.358 1.447 0.247


Total41.182 43

Key: * p<0.05

Welch statistics for organisational impediments




Welch

1.059 2 25.321 0.362


1.332 2 26.724 0.281

Key: * p<0.05

Frequency distribution for legal impediments



Disagree 4 2 4 10

Legal issues such as monopolies/ industrial domination


Total 20 12 12 44


Issues of information secrecy (i.e. how much to ‘share’ and how much ‘withhold’)

Disagree 4 0 1 5

Total 20 12 12 44

ANOVA results for legal impediments


Sum of Square

s dfMean

Square F Sig.(p)

Legal issues such as monopolies/industrial domination

Between Groups0.076 2 0.038 0.025 0.975


Total61.909 43


Between Groups8.548 2 4.274 5.172 0.010*


Total42.432 43

Key: * p<0.05

Welch statistics for legal impediments



Legal issues such as monopolies/industrial domination Welch

0.025 2 21.979 0.975


4.583 2 25.508 0.020*

Key: * p<0.05

Collaboration structure recommendation

• Joint Ventures (JVs): These are defined as “arrangements where organisations remain independent but set up a newly created organisation jointly owned by the parents” (Johnson and Scholes, 2003). Barringer and Harrison (2000) note a particular type of JV called ‘scale’ JV wherein the partners collaborate at a single point in the value chain to gain economies of scale in production or distribution or to combine their expertise. This seems to suggest that a ‘scale’ joint venture could be formed by the various companies in the value chain that then becomes the responsible agent for conducting information interchange between the companies.

Collaborative structure recommendation

• Networks: These are defined as “constellations of businesses that organise through the establishment of social, rather than legally binding, contracts” (Barringer and Harrison, 2000). Jones et al. (1997) have observed that network structures tend to emerge when complex, inter-dependent tasks must be completed under time pressure. Task complexity and pressures of time, they contend, makes the sequential production of a product or service through a traditional industry value chain unfeasible. The same authors assert that a network of firms tied together by a hub organisation, social norms, and clearly aligned interests can move quickly to bring products to the market. This could be adopted, as the hub organisation might be a possible dominant player in a value chain that ties its dedicated suppliers/customers together through an ‘informational network’.

Collaborative structure recommendation

• Japanese style ‘Purchasing Partnership’: Dyer and Ouchi (1993) define the Japanese style partnership as an exclusive buyer–supplier relationship that focuses on maximising the efficiency of the entire business system (value chain). Due to the success attributed to Japanese style partnerships, western companies have become interested in adopting many of the features of partnership sourcing. Ellram (1991) defines a purchasing partnership as an agreement between a buyer and a supplier that involves a commitment over an extended period, and includes the sharing of information along with a sharing of the risks and rewards of the relationship. Thus for our purpose of effective information exchange, a Japanese style ‘purchasing partnership’ could also be looked at.

Reference: Koh, SCL, Gunasekaran, A and Rajkumar, D, (2008) ERPII: The involvement, benefits and impediments of collaborative information sharing, International Journal of Production Economics, 113, pp. 245-268.

erpii – inter-firm collaboration

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