UNIVERSITAS INDONESIA

CASE STUDY 3
ERP HELPS PRODUCTIVITY AT NORTHERN DIGITAL INC.

SISTEM INFORMASI DAN PENGENDALIAN INTERNAL

Chitarani Kartikadewi - 1406524682

Desi Susanti
Karina Ayu Ditriani - 1406524713

FAKULTAS EKONOMI
PROGRAM MAKSI-PPAK

SEPTEMBER 2014
1

CHAPTER I
INTRODUCTION
Northern Digital Inc. (NDI) in Ontario, Canada, is a supplier of 3D/6D measurement products.
The relatively small company employs 90 people and generates over $20 million in annual
revenue.
The Problem
NDI faced a challenge when rapid growth and aging technology threatened to stand in the way of
company goals. Instead of enabling operational improvements, NDI's existing systems were
impeding progress. Existing technology was causing problems, such as:
1. Missed deliveries and creating a high number of back orders
2. Inventory control was poor and the planning was inaccurate
3. Customer satisfaction was at risk and internal morale was slipping
With some customers expecting shipment in as much as nine months and others expecting
shipment in as little as nine days or even less, more sophisticated and accurate planning has been
critical. With almost twenty years in business, NDIs well-established reputation for high-quality,
high-performance products was at risk.
The Solution
NDI selected an ERP (from Intuitive Manufacturing Systems) based on factors that directly
supported corporate objectives. Intuitive ERP provided a level of system functionality that could
immediately improve inventory management and the expandability and flexibility to support
NDI's growth. The ERP includes:
1. Complete planning system
2. Automated inventory management
3. Enhanced technology infrastructure
4. The system's level of ease of implementation
5. The system's level of ease of use
2

The Results
The results of implementing Intuitive ERP systems in Northern Digital are as follows:
1. Improving inventory management
2. Doubled the inventory turns and expectations are that the company will better that in the
near future
3. Increasing revenue, from $10 million to over $20 million with little increase in inventory
value
4. Reduced order cycle time for their flagship product, from four months to four weeks
(Improved almost 80%)
5. Improved planning capabilities
6. Better service for their customers
7. Improved customer delivery
8. Able to understand what was in stock, what was needed, and what they were buying
9. Supporting the growth strategy because of the systems level of ease of use and the
systems scalability (Allowing the company to expand from 5 users to 25 users without
worrying of the constraints on their business infrastructure)
10. Increased customers value
11. Improving financial performance
Sources: Complied from: Managing Automation (2004) and from ndigital.com (accessed May
2005).

CHAPTER II
META-PERSPECTIVE OF ENTERPRISE RESOURCE PLANNING

An ERP integrates all departments and functions across an organization onto a single computer
system that aims to serve practically everyone's particular needs. It eases the exchange of data
and facilitates communication among departments. ERP systems run on client-server networks-personal computers connected to more powerful servers (including possibly mainframes) that
feed them data. Each module works separately, performing specific data-processing functions.
Examples of ERP modules include the following:

Human resource management

Financial management

Supply chain management

Procurement

Logistics and materials management

Planning and budgeting

Sales and distribution

Student administration

Many ERPs include the capability to interface data warehouses to support managerial reporting
and business intelligence requirements such as online analytical processing and data mining.
Current ERPs are structured on a client-server architecture that consists of presentation, Internetenabling, application and database layers. These layers could either be installed in one server,
e.g., an enterprise server or mainframe, or distributed among a number of servers for scalability.
Also, the heart of the ERP is a relational database management system that ensures data
consistency and integrity. Another feature is a workflow manager that supports the management
of a dynamic work process.
4

Benefits of ERP
Besides integrating organizations' activities, ERPs employ best practices that have been proven
in the real world. At least one ERP software package incorporates more than a thousand best
practices. ERPs also enable organizational standardization. The user interface, the sequence of
operations for a process and system maintenance procedures can become common standards
across the organization. ERPs improve information management by having a single database as
opposed to multiple, often duplicative systems. Because of this centralized data source, ERPs
provide online and real-time information and facilitate intra- and inter-organization
communication and collaboration.
Implementation Strategies
Implementation steps are summarized below, using, as a guideline, the accelerated
implementation techniques used by SAP consultants. They include:

Project preparationDetermine the implementation strategy, organize the project team,

define the system landscape, identify technical demands, select the hardware and
database vendors and gain consensus among stakeholders.

Business blueprint and realizationCreate the technical design and, based on this design,
configure the ERP software. Based on the requirements, test the software, install the
production system and start planning the data migration strategy from the legacy systems.

Final preparationCheck the system settings, test the system throughput for key business
processes and establish a help desk.

Go live and supportStart the production system, ensure its availability, monitor key
business processes, manage the help desk and define the long-term release strategy.

Maintenance of an ERP
ERP projects do not end with its implementation. It is a continuing effort that must address new
and/or changing requirements associated with the following:

System bugs

User assistance

Changes to system

Management of different input and output requirements

Documentation

Training

Maintenance and update of software

Budget

Future of ERPs
ERPs will enhance web interfaces to better support e-commerce, enterprise portals and
extensible markup language (XML), which facilitates data interchange over the Internet. Also,
application service providers (ASPs) will have a growing role in the outsourcing of the often
expensive ERPs.
Improvements in enterprise application integration (EAI) middleware for linking ERP with
legacy systems are expected probably in terms of CORBA and COM technologies.
"ERP II" is the term, recently coined by the Gartner Group, for the next generation of ERP tools
that "better support" internal and external collaboration, have more industry-specific
requirements and human capital management.
Conclusions
The implementation of an ERP and its associated business practices is a major business and IT
strategy for meeting an organization's vision and goals. It has the potential of high reward, but at
a price--high cost and high risk of failure. To address the risk, carefully planned change
management is a critical success factor involving the smooth transitioning of people, process and
systems to the new ERP environment. One way to accomplish this is to follow ISACA's Control
6

Objectives for Information and related Technology (COBIT) guidelines, which provides a
framework for management to understand and manage technical risks in an uncertain
environment.

CHAPTER III
PROBLEM CASE
Questions:
1. For such a small company, why is an ERP better than SCM applications?
2. Identify the supply chain segments that the ERP supports, be specific.
3. Relate this case to Porter's value chain and to its competitive model (Chapter 14). Show
the ERP's contribution.
4. Enter intuitivemfg.com and report on the capabilities of their ERP product.
5. Relate this case to business planning and strategy.
Answer for Question 1
ERP covers the overall processes of the whole organization from front-office to back-office
operations. It supports internal supply chain within an enterprise. SCM basically are processes
involving bill of materials, manufacturing, inventory, warehousing, and logistics. It support just
certain part of internal supply chain.
In certain industries, such as manufacturing, freight forwarding, and logistics providers, SCM is
a subset of ERP. Therefore, for small companies like NDI, its more efficient and effective to
implement one system, namely ERP, instead of more SCM systems. Because if a small
companies like NDI only implements SCM instead of ERP, they have to expand to another
system such as HRM (Human Resources Management), FM (Financial Management), and PB
(Planning and Budgeting), if the companys demand of business process is exceeding the system
that supports it.
Furthermore, ERP software support several functionalities for SCM, and small companies like
NDI could choose which functionalities they would like to implement, i.e. Supply Chain
Management, Human Resource Management, Financial Management, or Planning and
Budgeting. Also, unlike SCM applications, ERP system of new generation provides new
opportunities for enterprises in (near) future: to connect to their business partners, to integrate
8

new functionalities (open ERP), to use Internet capabilities, to integrate with CRM solutions, etc.
In practical sense, maintenance/servicing and training for ERP software instead of several SCMs
are better for NDI in financial and time sense.

Answer for Question 2

ERP supports inventory management that helped to:
1. Double inventory turns
2. Order cycle, which has reduced since the implementation of ERP
3. Production control, which had a direct impact on customer delivery
4. Planning system that improved significantly after using ERP and positively influenced
labor and materials.
In the case of NDI enterprise, implemented ERP system would support those activities which
produced greatest costs in previous period, putting customer satisfaction at risk and making
internal moral decreasing. Also, the ERP supports the segments in NDI as well as its
environment. First, ERP optimizes the production processes in NDI; including taking into
account the needs of its employees. Second, ERP contributes to better forecasting of demands
and, additionally, better processing of their orders. Third, ERP efficiently coordinates upstream
activities between NDI and suppliers. In other words, ERP supports the supply chain segments
like inventories, delivery timing, and flow of materials and cash in NDI.
Answer for Question 3
Activities in Porters value chain model can be divided into 2 parts: primary and support
activities. Primary activities involve purchase of materials, the processing of materials into
products, and delivery of products to customers. There are five primary activities: inbound
logistics (inputs), operations, outbound logistics, marketing and sales, services. The suppliers
provide inputs necessary to the firm and their value chains. As NDI is a supplier of 3D/6D
measurement products, it stays at the first step of value chain. Thats why the ERP contribution is
significant in this case as it helps the company to be successful at the first stage of supply chain,
9

which is very important, and to influence positively other stages and to help company to keep its
competitive position.
Answer for Question 4
Intuitive offers ERP software solutions that enable mid-market manufacturing enterprises to:

Improve productivity and reduce costs;

Keep customers satisfied;

Make better business decisions;

Enhance IT infrastructure.

Intuitive ERP addresses the following business needs: Enterprise Resource Planning (ERP),
Customer Relationship management (CRM), Supplier Collaboration, Business Intelligence, Ecommerce, Extended Enterprise, and Technology Infrastructure. By organizing information and
automating business processes the ERP software is capable to influence on ERP, CRM, supplier
collaboration, business intelligence, e-commerce, extended enterprise, technology infrastructure.
Answer for Question 5
Implementation of ERP helped to improve business processes related to inventory management,
planning system, enhanced technology infrastructure. As a result better planning capabilities
have influenced positively customer service.
ERP has also improved NDIs growth strategy. With the implementation of Intuitive ERP, NDI
has found the way to increase the value it provides to customers while also improving financial
performance.
Business planning-wise this case shows that ERP really enabled the company to plan their
activities with less uncertainty. This is due to better data transfer and communication internally
and externally. ERP also supports strategy through improved operational performance.

10