PAPER ASSIGNMENT

IMPLEMENTATION OF ENTERPRISE RESOURCE PLANNING (ERP)

BEING ABLE TO DRIVE IN THE BUSINESS PROCESS IMPROVEMENT
CHANGES AND CULTURE
Arranged by:
Lina Dianati Fathimahhayati
10/306097 / PTK / 6867
INDUSTRIAL ENGINEERING GRADUATE STUDIES PROGRAM
DEPARTMENT OF MECHANICAL ENGINEERING AND INDUSTRY
FACULTY OF ENGINEERING GADJAH MADA
YOGYAKARTA
2010
1.

NTRODUCTION
Information systems and technology has become a very important component to the

success of businesses and organizations. Information technology can help all kinds of businesses
improve efficiency and effectiveness of their business processes. One of the emerging
information technologies discussed today is the ERP (Enterprise Resource Planning).
Large enterprises around the world began installing ERP system in 1990 as a conceptual
framework and a catalyst to reengineer their business processes [O'Brien 2006]. ERP is one of
the information technology system capable of managing routine activity in the company from the
function of production, logistics, distribution, accounting, finance, and human resources [Turban,
2006]. ERP integrates the information flow between departments within the company to support
the company's internal business processes basis.
However, on the other hand, an ERP system that manages the entire routine activities
within the company, can indirectly bring a new work culture in the company for ERP took over
the routine tasks of the operator level personnel to functional managers.

From the above description, the purpose of the preparation of this paper is to know in depth
how the ERP implementation can be a driving force in the improvement of business processes
which then indirectly change the culture within a company.
2.

DEFINITIONS ERP (E Nterprise RESOURCE PLANNING)

According to Turban (2006), Enterprise Resource Planning (ERP) is software that

integrates all departments and functional information flow across the enterprise into a computer
system that can serve all the needs of companies ranging from planning, management to the use
of resources.
ERP emerged in the 1960s when IBM and JI Case work together to integrate the
manufacturing process using Material Requirements Planning (MRP) [Vanover and Shorter,
2006]. MRP

evolved

into Closed-Loop MRP

which

then

evolved

again

into

MRP

II. Furthermore, in the late 1990s MRP II evolved into ERP by expanding some business
processes. Furthermore, in 2000 the ERP evolved into more complex than the previous ERP
[Wallace and Kremzar, 2001].
Figure 1. Basic Concepts ERP by Davenport [Islamiyah 2009]
Based on the picture above, it appears that the ERP system integrates all the functional
parts of the company consisting of several sub-systems (modules) that the financial system,
distribution systems, manufacturing systems, inventory systems, and human resource
systems. Each module used in different departments within a company. All modules are
interconnected with each other in a coherent system with a centralized database that stores the
information needed by each module. Existing databases can allow every department within the
company to store and retrieve information in real-time [Gunson and De Blasis, 2002; O'Brien,
2006; and Turban, 2006].

There are a wide variety of ERP software that is already on the market, such as BAAN of
the Netherlands, the Oracle of America, Peoplesoft of America, of the German SAP, JDEdwards
of America and others.
3.

ERP EFFECT ON BUSINESS PROCESS IMPROVEMENT COMPANY

The business processes in the company is divided into several parts of the business

process. According to Bodnar, the business process is a sales, logistics, operations, procurement
and infrastructure company [Islamiyah, 2009]. For example, when there is an order from a
customer, the business organizations should be noted in the sales department and the warehouse
should automatically know when to send the order to the customer which has been approved by
sales. Once the goods are delivered by the warehouse of course the financial part must know
when to carry out the billing of the customer. In this part of its own production, sales to
customers will affect the stock of goods in warehouses. After the production planning approve it,
the information will flow to the purchase, which allows contact suppliers to negotiate prices and
delivery. At the same time, the purchasing department should also get a variety of information
regarding the performance of its suppliers. Once the agreement is obtained, a purchase order is
created and update the planned arrival of goods have arrived at the reception of
goods. Meanwhile, the finance department will obtain information on the amount of money that
should be prepared for a purchase order, and so on business processes running in a company.
In the traditional approach, each department to process the information itself, as can be
seen in Figure 2, the accounting department store data accounting department itself, where the
data is processed in the existing system in the accounting department, so it makes a report given
in each department will has a different format and will certainly be more difficult to make
decisions because there is no integration between departments of information between one
another. This will have an impact on the slow flow of information within business organizations.

Figure 2. Comparison of Flow of Information on Traditional System and Enterprise Systems by

Laudon [Tarin (a) 2007]
Unlike the case with enterprise systems. With the ERP, the flow of information
occurs. Once an order is entered, all departments have access to information and the computer
immediately began forecasting adjustments to raw material orders, scheduling, delivery, billing,
and other processes. Each time the information can be accessed by each department so that the
status of orders also known immediately, even if there is no change orders even if [Vanover and
Shorter, 2006]. In addition to the ERP system has added value in the form of the elimination
processes unnecessary, simplification of complex processes or rambling, unification processes
separately, and automating manual processes. Therefore, with this ERP system, business process
flows that there is to be efficient and effective [O'Leary, 2004].
In addition, ERP also supports the basic internal business processes [O'Brien 2006]. For
example, ERP software for manufacturing companies will include modules that incorporate
activity production scheduling, inventory management, sales order entry, shipping coordination,
and the provision of after-sales service. This software will process the data and track the status of
sales, inventory, shipping, and invoicing, as well as estimates of raw materials and human
resource needs.
ERP systems explore business resources (such as cash, raw materials, and production
capacity), as well as the status of the various commitments made by a company (such as
customer orders, purchase orders, and employee payroll, etc.) no matter which department which
has incorporated data into the system. Examples of supported ERP production system is the raw
material requirements planning, production planning and capacity planning. Some of the sales
and marketing processes supported by ERP system supports multiple processes payroll and
benefits administration, as well as be able to complete most of the applications of financial and
managerial accounting registration required [O'Brien 2006].
ERP program, petrified companies that have extensive business process as it happens in the
Colgate-Palmolive Company. Before ERP, need one to five days for the company to get an order,

one or two more days to process the order and four days for distribution planning and
decision. Now, the order acquisition and processing takes about four hours, no longer up to seven
days. Distribution planning and decision takes 14 hours. In total, the time it takes from order to
delivery has been cut by half [O'Brien 2006].
The examples disclose the fact that ERP software supports the efficient operation of
business processes by means mengintegrasiakan and automate the activities of the entire process
including the functions of production, logistics, distribution, accounting, finance, and human
resources. This causes the business process to be faster [Tarin (b) 2007]. Similarly, the opinion of
O'Brien (2006) and Turban (2006), that the ERP, the business can be run with the level of service
and high productivity, making lower costs and inventory, and a decision can be taken quickly.
But on the other hand, is not always the implementation of ERP can improve business
processes. Based on research conducted by Wieder, et al (2006) found that there were no
significant differences in the level of business processes between companies that implement ERP
by not implementing ERP. Similarly, according to O'Brien (2006), that many companies are
experiencing failures and huge losses after implementing ERP systems. In many cases, lost
orders and shipments, inventory changes were not recorded properly and inventory levels are not
reliably lead to stock-outs occur for weeks or months.Companies like Hersley Foods, Nike, ADEC, and Connecticut General continue to have several hundred million dollars in some cases
[O'Brien 2006]. According to him, a common cause of failure of implementing ERP systems
dalah these companies underestimate the complexity of planning and development of this ERP
system.
4.

ERP EFFECT OF CHANGE IN CORPORATE CULTURE

Environmental organizations constantly change with the passage of time there. In a change

of the existing environment, information technology is an element that greatly affect the
environmental changes, especially organizational work culture in a company. Information
technology like ERP has eliminated various monotonous tasks or undesirable in the office and

the factory that used to be done by the people [O'Brien 2006]. ERP is not directly affected by
changes in the corporate culture as a whole ERP system to handle business processes within the
company that took over the routine tasks of the operator level personnel to functional
managers. ERP also removes processes unnecessary, simplifying the complex processes or
rambling, unify processes separately, and automate manual processes.
The application of the concept of ERP is to empowerement the management and
employees. That is, in question no longer need to waste a lot of time to perform the processes of
an administrative nature (non-value added activities), but can spend more time to concentrate in
handling critical issues and long-term impact.
On the other hand, ERP implementation can produce adverse effects on the attitudes of
staff for the corporate culture changed from that originally oriented functionality into a processoriented as illustrated in Figure 3 [Skok and Doringer, 2001]. This makes the problems in the
implementation of ERP. Staff tend to be comfortable with the process perspective, because it
does not provide intimacy and togetherness working in the work environment department [Skok
and Doringer, 2001].
Figure 3. The view of the Company according to Keller, et al [Skok and Doringer, 2001]
In addition, according to Fan, et al in Tarin (b) (2007) gains ERP causing communications
to be better because the data is stored in a single database where each department can easily
access them.Obstacle that had a spot differences, language differences and cultural differences,
can be undermined [Gunson and De Blasis, 2002]. This causes the staff so rarely met.
ERP also provides general data with a particular format and standard business processes so
that employees become less free and creative. Additionally, to adjust those standards, employees
need to learn more. Education should be given to individuals and groups [De Blasis and Gunson,
2002]. Education of individuals like to learn how ERP modules work and how to use
them. Collective education for example learn how to integrate ERP in each department.

But on the other hand, O'Brien (2006) revealed that ERP implementation will improve
business agility. ERP systems can break down the walls of departments and functions of various
business processes. This results in the organizational structure, managerial responsibilities, and
the role of flexible working, and therefore, produce and labor organizations more agile and
adaptive, which can more easily take advantage of new business opportunities.
5.

CONCLUSION
ERP is a software that can be a driving force in the improvement of business

processes. ERP is able to manage and integrate regular activity in the company from the function
of production, logistics, distribution, accounting, finance, and human resources [Turban,
2006]. In addition to the ERP system has added value in the form of the elimination processes
unnecessary, simplification of complex processes or rambling, unification processes separately,
and automating manual processes. Therefore, with this ERP system, business process flows that
there be better for business process becomes faster, efficient and effective [O'Brien,
2006; O'Leary, 2004; and Tarin (b) 2007].
On the other hand, an ERP system that handles all activities within the company, indirectly
bring a new work culture in the company for ERP took over the routine tasks of the operator
level personnel to functional managers. The impact of changing work culture among others, is
the changed view of the company that originally oriented functionality into a process-oriented,
lack of intimacy and togetherness within the company, as well as employees become less free
and creative. But on the other hand, made a motion ERP companies to be more flexible so as to
produce the organization and workforce more agile and adaptive, which can more easily take
advantage of new business opportunities [Gunson and De Blasis, 2002; and O'Brien, 2006].
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ATTACHMEN
T
TABLE OF CONTENTS
Cover page ................................................ .................................................. .............................. i
Table of
contents ................................................ .................................................. ...........................................
ii
1.

Introduction ....... ................................ .................. .................................................. ............... ...

1
2.

The definition of

ERP (Enterprise Resource Planning) ...................... .. ............... .... ........................ ..... 1

3.

ERP influence on Business Process Improvement Company ..... ................................... ... ...... 2

4.

Effect of ERP to Change Corporate Culture ......................................... ... ...... ....... 7

5.

Conclusion ........................... ...................... .................................................. ........ ............... ... 9

Reference ................................................. .................................................. ....................................... 10

Appendix ................................................. .................................................. ....................................... 12