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Impact of ERP on supply chain optimization in Malls of Nagpur region.

Introduction
For a company, supply chain refers to the sum of all the processes starting from the procurement
of the raw material from the manufacturer/producer and ending with delivery of the end-product
to the consumer (Silver, Pyke and Peterson 1998). The supply chain encompasses many
activities within it, such as production, purchase, sale and distribution. Moreover, a supply chain
is an organizational network of suppliers, shippers, production plants, distribution centres and
retailers (Hillier and Lieberman, 2005). Due to these reasons, smooth operation of the supply
chain is very important for enterprises. Otherwise, enterprises can encounter unfavourable
situations arising from supply chain issues, such as increased costs, delayed orders, wrong order
placements or wrong order quantities.

Such problems cause not only financial burden for the enterprise, but also have a negative impact
on the brand value in the eyes of the consumers. Companies have aimed to be able to minimize
the problems and risks they might encounter (Iles, 2007) and, with this aim, have in time
integrated computer software into their systems. At first, Material Requirements Planning (MRP)
software which allowed companies to keep track of their inventories started to be used. Later on,
when these programs became insufficient for the task, they turned towards ERP.

ERP is the generic term used for management software that include modules such as production,
finance, marketing and human resources and that allow companies to plan their goods and
services (Stevenson, 2007). These software, used by many enterprises, particularly by
multinational corporations, have a critical role in ensuring increased efficiency. Zhao and Fan
(2007) suggested that new generation ERP systems should be developed based on the principles
of low cost, high quality and efficiency. In the recent years, ERP software have become widely
used in almost all sectors such as production, services, finance, transportation and public utilities
(Botta-Genoulaz and Millet, 2006). To give a few examples, Berchet and Habchi (2005) used an
ERP system to arrange the supply chain activities of the telecommunications company Alcatel;

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Olson (2007) compared alternative ERP options and procurement of ERP systems as package
programs and made a list of the advantages and disadvantages of both methods; Yan et. al.
(2008) conducted a study aiming at identifying and proposing solutions to problems encountered
in ERP applications in the Chinese retail sector; Karsak and Özoğul (2009) conducted a study on
how to select the appropriate ERP software in decision-making processes; Chou and Chang
(2008) examined the effects of ERP applications on performance increase; Vandai (2008) studied
the critical success factors in ERP application; Chang et al. (2008) analyzed the performance
effects of ERP on supply chain; Bose et. al. (2008) conducted a study on application of ERP
systems in the supply chain management and inventory management of a company in the
Chinese production sector; and Mabert et. al. (2003) studied the main differences between the
ERP application approaches of companies. This study accepts that the main purpose of the ERP
software is to regulate the operation of the supply chains of companies. Companies want to
minimize the impact of any potential problems in the supply chain by using ERP software.
Holsapple and Sena (2005), analyzing 53 companies using ERP systems, attempted to identify
against which problems these systems were established and have proved successful.
Today, uncertainty seems to be a critical factor that needs to be dealt with by companies in
supply chain management. The uncertainty factor should be handled delicately, especially in
sectors such as retail where inventory planning is a critical function. The retail sector needs new
approaches that will assist in managing uncertainty in the current competitive environment and
that will ensure fast and reliable response to changing market conditions (Fisher, Raman and
McClelland, 2000). Yet, many planning systems rarely use planning methods that include the
uncertainty factors.
The purpose of this study is to draw a detailed picture of the supply chain inventory planning
systems used in the retail sector in Turkey. As a result of this analysis, an inventory of the
currently offered solutions that will respond to different needs in the retail sector and particularly
in supermarket chains will be created. To this end, the study will include a comparison of the
products of national and foreign companies producing solutions with different functionalities for
the retail sector, and an evaluation thereof in view of enterprise management.
In the first phase of the research, national ERP software companies and multinational software
companies offering software for Enterprise Resource Planning in the major countries of the
world were identified. The list was finalized by adding the open source ERP programs. Hence,

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main companies offering solutions in Enterprise Resource Planning to users were included in the
study. General information on these companies is given in detail in Annex, Annex 2 and Annex
3. Multinational software companies were kept limited to companies with enterprise resource
planning packages being used in Turkey. All companies established in Turkey and producing
software for Enterprise Resource Planning were included in the list. Lastly, all open source ERP
software were added to the list.
In the second phase of the research, companies developing ERP systems were contacted in order
to identify the contribution of current Enterprise Resource Planning software in supply chain
management and the opportunities they offer to users in terms of inventory planning. Interviews
were made using one or more of the interview techniques of electronic mail, telephone or one-to-
one interview. Through these interviews, it was attempted to determine the estimation and
planning capabilities of the existing ERP software, which are given in the findings section.

It has been two decades since the internal operations are being streamlined, manufacturing boost
up, quality of the products are being improved, the costs of manufacturing are being reduced but
now the companies are now focusing on the reduction of logistics by mean of putting right
supply chain strategies for the excellence of organizations. The statistics show that the logistics
costs in European organizations ranged between the 5% to the highest ratio of 15% of the total
budget or the turnover of the company (AT Kearney, 1993). In the USA, the businesses have
spent more than $670 billion on the supply chain related activities during the year 1993 which
was the 10.5% of the total GDP (Kurt Salmon, 1993).

The other key reason for the modifications that are regularly made in the scope and
methodologies of the supply chain management (SCM) is the advent of the network economy
(Castells, 1996; Arthur, 1996). Nowadays, there is more transparency in the markets where there
is more customization added to the demands of the customers (Jensen, 1999). However, it has
been noticed that there is always an increment in the prices for the business world (Gleick,
1999). The developments in the supply chain management (SCM) can have a great impact on the
businesses.

There is a rapid growth in the literatures that are being published about the models for new
business following the age of internet however, most of them have stressed upon the fact that

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supply chain management is also enlisted as competency element with the growing competition
in the business.

It is also interesting the Enterprise Resource Planning (ERP) is also growing in the business
pipelines where the businesses are starving to make improvements in their supply chain
management based operations. Enterprise Resource Planning is also considered as an extension
of the Market Requirement Planning (MRP) which is being launched during the 1970s and also
the manufacturing Resource Planning (MRP II) which was introduced in the next decades of
1980s.

There are two major considerations which are held responsible for this development in the
simultaneous manner. The first consideration that is noticed is marked as like the decisions
which are managerial based are considered to be the closed linking factors for the two separate
prospective. There evolution in the industry is considered as industrial (White et. Al., 1999).

Review of Literature
There are lots of definitions about ERP in the literature. Many of the definitions for ERP focus
on such properties of ERP as integrating processes, enabling optimization across the
organization, elimination of complex links between computer systems, providing a common IT
infrastructure, linking through the supply chain, adapting best industry and management
practices for providing the right product at the right place at the right cost, tracking the status of a
company‘s day-to-day activities, achieving consistency and efficiency through standardization,
enhancing of market value and firm performance through efficiency and effectiveness gains,
providing a quicker response to customer requirements and creating common measures
(Rao,2000[25]; Bendoly and Jacobs, 2004[26]; Huang, Palliers, Pan, 2003[23]; Hunton et al
2003[27]). Hsu and Chen (2004)[28] discussed the importance of ERP into an integrated,
process-oriented, information-driven and real time organization where Sarkis and Gunasekaran
(2003)[29] stressed the effects of ERP on competition.

Oliver and Room (2002)[30] emphasized the improvement in image as a factor in ERP
adoption. The other factor in ERP adoption is high percentage of failure in information system
projects which caused a shift from individual development to standardized, prepackaged

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software solutions (Scheer and Habermann, 2000). However; Sammon and Adam (2005) noted
that high rates of failure also exist in ERP project implementation due to combined effect of
inadequate organizational analysis at the beginning of the project, the complexities of ERP
market and complex implementation. Sprott (2000) discussed that market leading enterprise
applications represent some of the largest, most complex applications on the plant and explained
the reasons of complexity of ERP software as highly generalized nature of packaged applications
and the need to adapt and rapidly evolve to meet requirements in different situations. Adam and
Doherty (2000) explained the reason of complexity as requiring reliance on many different types
of expertise often sourced outside the organization.

Soh et al 2000, reports that some companies even abandon implementation of ERP projects or
achieve only some of the benefits they aim (Sammon and Adam, 2005, AlMashari et al 2003).
King and Burgess, 2006 reports that many implementations of ERP have been criticised
regarding the time, cost and disruption caused by the implementation and sometimes limited
benefits once the systems become operational. Soh et al 2000 points out about the problems
caused by the difference between functionality offered by the package and that required by the
firm in ERP projects. While trying to adjust the ERP software and the system in the enterprise,
there will be some barriers. Barriers cause firms to experience a decrease in organizational
performance instead of realizing improvements (Hirt and Swanson, 2001).

Hawking et al 2004 discusses the role of barriers in limiting the realization of benefits and
categorizes barriers as People, Processor Technology related barriers. Organizational change is
one of the most important barriers encountered in transition new systems and business processes
(Kumar et al 2003) and is an important reason for the failures (AlMashari et al 2003). The
barriers should be solved before the system goes live. If the barriers are not solved, they may act
as drivers of risks. Sumner (2000) defines a risk as a problem that has not yet happened but
which could cause some loss or threaten the success of your project if it did. Teltumbde 2000
defines risk as the measure of the degree of possible variation in the outcome or benefits of the
project. He also relates the risk of ERP projects with the size of the investment and the
complexity of the enterprise and categorizes risks as project management related risk,
technology-related risks and process-related risks.

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Luo and Strong 2004 point out those risks in ERP projects are relatively higher than they are in
traditional projects. Somers and Nelson, 2004 claim that though supplementary redesign of
business processes promises the highest return on investment, it also increases the level of
complexity, risks and costs. Aladwani (2001) explains the perceived risk as a reason for rejecting
to use an ERP system. Teltumbde (2000) relates the risks with intrinsic product design and
suggests assessing the risks and the benefits carefully during the evaluation process and
concludes that it‘s impossible to succeed in a technological application unless people have
positive attitudes about it and behave in ways that enable to get benefit from it.

Yang et al 2006 suggests that the key success factor for implementing ERP system is the people
centred, and Light, 2005 points out that the only way of achieving the perfect system is to
involve end users. Owing to the importance of people in ERP implementation, people related
measures were developed.

Tarafdar and Roy (2003) analyze the adoption of ERP systems in Indian organizations.
Tatsiopoulos et al. (2003) propose a structured risk management approach for the successful
implementation of ERP systems. The application of the proposed methodology is demonstrated
with a case study company from the oil industry. Trimmer et al. (2002) and indicate support for
the continuing use of critical success factors to help focus on the benefits of ERPs in rural health
care. Schniederjans and Kim (2003) discuss survey results on implementing ERPs with total
quality management and business process reengineering. Shang et al. (2004) examine the
relationship between organizational culture and employees‘self-efficacy for a sample of 352
subjects

Need and Rationale of the Study

ERP plays a major role in Vendor Managed Inventory. A vendor managed inventory (VMI) is a
process where the manufacturer generates order for the manufacturer based on the demand
created by the distributor using ERP. During this process the manufacturer follows mutually
agreed objectives between the manufacturer and distributor for filling rates and transaction costs.
In this regard, some ordering model in Vendor Managed Inventory (VMI) for the retail industry
will be discussed, and its effect on supply chain collaboration mechanism is reviewed, and

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finally the process cost reduction as a supplier, will be discussed as operational model and rate of
this quantities improvement is measured.

There have been numerous researches in the field of ERP and its advantages on its
implementation. Our focus is to bring out how important is to integrate ERP into the whole
system so that the system can yield long term benefits in long run. The reason we stress how
important is because ERP implementation is like a big bang effect which changes the activity of
the whole organization and proper understanding of the system and co-operation for
implementation of the system between the members of the organization are very important
because humans are prone to change but a change as big as an implementation of ERP is not very
easily acceptable. Therefore we bring out how beneficial can be ERP on a larger scale like
organizational decision making and proper management of the supply chain. Also our important
aim is to bring out the benefits of ERP in cost reduction during ordering especially regarding
VMI.

Objectives of the study


The research is being conducted following these research objectives:

1. To analyze the role of Enterprise Resource Planning (ERP) in the enhancement of


operations within the organization.
2. To analyze the role of Enterprise Resource Planning (ERP) in the enhancement of
operations being out bounded by the organization.
3. To analyze the support of Enterprise Resource Planning (ERP) towards the Supply Chain
Management (SCM) operations.
4. To analyze the role of Enterprise Resource Planning (ERP) in the decision making in
Supply Chain Management (SCM).

Scope of the Study

The purpose of this research is to continue in this field of study and solve real problems with
ERP implementation, and eventually create analytical tools for these systems. With the advent of

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globalization ERP software has emerged as a major area of interest for many business
organizations. As companies are more and more interested to implement ERP systems into the
companies, the need for proper implementation of the same has increased as well.

The very advantage of the ERP itself can be described as its main disadvantage. ERP allows easy
access to reliable integrated information but whereas its biggest disadvantage is its integration of
its system which is the basic problem in its implementation.

Some researchers indicate that ERP won’t be able to make decision by itself, and some others
say for making decisions based on information stored in ERP, the integrity of the system and
algorithm optimization is inevitable.

On the other hand the whole system processes and data integration organization is always
necessary tools for supply chain management and prerequisite for implementing its process.
Application for supply chain process modeling in analytical layer, which must interact with ERP,
will cause to implementing standard processes and supply chain collaboration. This research tries
to bring out how information transparency impact on enterprise business process and thereby
reduce operational cost. This research also aims to study about the ERP effects in supply chain
decision making, and precisely ERP’s role on implementing standard supply chain process and
SCM collaboration. This paper also study about supply chain problems and how to improve
supply chain performance indicators by implementation ERP.

Methodology of study
The research methodology comprises of the sources of data, methods adopted to collect such data,
sampling techniques, statistical tools for analysis, data interpretation etc.

Sources of Data

The data for the study have been collected from primary sources.

Primary data have been collected through

Direct Personal Interview method where interview took place with the owners of different retail
stores. Investigation through schedules at the various units for appropriate information.

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Universe of the Study

The universe consists of all the retailers situated in the Nagpur city from which a 50 retailers are
selected at random for the purpose of the study.

Sample Size and Sample Unit

For the study a sample of 50 retail stores has been selected on the basis of convenient sampling for
the purpose of the research.

Sampling Techniques

For the study convenient sampling technique method has been applied on the basis of suitability
for the availability of information and which has a substantial share in the market so as to give
more accurate picture of the impact of online shopping.

Data Collection Techniques

The data for the study has been collected through applying the following techniques: Direct
Personal Interview and Investigation through schedules

Data Representation Tools

The data collected are classified, tabulated and represented through chart and bar diagram.

Limitations of the study


In spite of all sincere efforts, the study is not foolproof in nature. It suffers from variety of
limitations due to the following reasons:

 The study is limited to Nagpur city only.

 Besides that, the detailed study has been conducted taking on 50 retail stores based upon
convenient sampling.

 Data pertaining to the study has been collected for a period of only 6 Months.

 Time is also a limiting factor as the study is conducted in a very short span of time.

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Plan of analysis

Chapter Contents

1 Executive Summary
2 Introduction
3 Research Methodology
4 Analysis and Findings of study
5 conclusion and recommendation of study
6 Key Findings and Conclusions
References, Bibliography
Appendices

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