Role-Based ERP Systems: Impact on Manufacturing Performance

Introduction and Background

The contributions of Enterprise Resource Planning (ERP) systems continue to be problematic for many organizations globally. Continually challenged across industries to extract the greatest potential value from their significant investment in ERP systems, many organizations add incremental applications and processes. This continual addition of modules — often called ERP extensions — only serves to create a far greater level of system and integration complexity. Ironically, organizations choose to expand their use of ERP systems to reduce process, system, and integration complexity, yet the opposite often occurs.

The role of the ERP system as a central catalyst and coordination point of information throughout an organization is undergoing a fundamental change. No longer siloed and historical in its focus, ERP systems are increasingly being relied on as part of demand-driven networks. Given the severe economic conditions of recent years, organizations are relying on their ERP systems to play a greater role in supporting their business models — not merely as reporting or coordination platforms. ERP systems are being called upon to contribute to the performance of business models, not just report back information. The growth of the Demand Driven Supply Network (DDSN) and the concepts of Distributed Order Management Systems (OMS) are both cases in point. The evolution of ERP systems to encompass distributed order management (DOM)-based functionality is evaluated in this dissertation, specifically from the standpoint of how the tailoring of information to specific roles within an organization leads to greater productivity and profitability.

The critical link between ERP systems supporting greater role-based information and the resulting increase in efficiency, productivity, and profitability is the focus of the research objectives, methodology, and analysis in this dissertation. As ERP systems are more deeply integrated into the core business models of organizations that have often invested millions of dollars and thousands of man-hours to get them delivering valuable information, the need for them to become more focused on role-based contributions has emerged. The impact of role-based data and information workflows continues to be seen across manufacturing and service sectors of the global economy. This dissertation captures the key criteria that organizations use when choosing to augment and enhance the performance of their existing ERP systems to attain greater levels of performance over time.

Inherent in any ERP system redefinition is the alignment of its most critical components, systems, and reporting to the unmet needs of the organizations these systems were originally designed to serve. Over the last decade, the objectives and business models of organizations have changed significantly, with major impacts on the roles, responsibilities, and tasks of employees. ERP systems in general have not kept pace with this shift. The development of role-based ERP systems has been the primary strategy organizations have relied on to extract greater value from their investments in these systems over time. Coincident with this transition to role-based ERP systems has been an en masse adoption of analytics, business intelligence (BI), and Enterprise Performance Management (EPM). All of these areas are being integrated into role-based ERP systems so that performance can be better monitored, evaluated, and corrected over time.

Organizations taking this approach to redesigning their ERP systems are also integrating more transaction-based processes and workflows into their distributed order management (DOM) systems. This dissertation shows that those who have gone furthest in this process integration and process-centric view of their organizations are creating Service Oriented Architectures (SOA) that integrate distributed order management (DOM) systems as a key component. Early adopters are seeking to tightly integrate ordering, order management, supply chain management, pricing, and financial management into a cohesive and highly integrated SOA platform. As a result, SOA platforms and their underlying architectures are quickly becoming critically important to the future of ERP systems. This dynamic is evaluated in greater depth throughout the analysis of role-based ERP adoption, Business Process Management (BPM), Business Process Reengineering (BPR), distributed order management (DOM), and SOA platform and architecture definition. The role of Extensible Markup Language (XML) is also included in this analysis, as it is a critical integration technology for unifying disparate legacy systems into a common system of record. XML has emerged as the de facto standard and is accelerating in acceptance and use as a complementary technology in role-based ERP systems.

Background of the Problem

Enterprise Resource Planning (ERP) systems have grown in adoption and use as a result of organizations needing to realign their business models to rapidly changing and often turbulent market conditions, the rapid growth of the Internet as a viable distribution channel, and the inherent cost reductions possible from greater automation. These three factors, in addition to a myriad of company-specific forces, are in the process of redefining what an ERP system is, what its functional components are, and how its information and intelligence are used to support decision-making processes.

Organizations struggle to keep their ERP systems synchronized to their businesses. Studies indicate that organizations on average use only 30% of the functionality in their ERP systems over the long-term. As a result, the majority fail to gain the operating efficiencies necessary for ensuring the entire value chains of their corporations stay at a performance level sufficiently high enough to generate a positive Return on Investment (ROI) in the ERP system and related technologies.

ERP systems are gradually losing step with the needs of the companies and organizations they were initially designed to serve. The business value of ERP systems is therefore dropping as they lack the ability to stay aligned with the revised and often expanded roles and responsibilities of those who use these systems most. The problem is one of redefining the methods, techniques, and taxonomies ERP systems use to deliver data, insights, and intelligence that is more relevant to the rapidly changing roles in organizations. Studies indicate that simply adding more components to cover a broader range of any given organization's value chain is ineffective in delivering greater value to the enterprise. While heavily promoted by ERP vendors and consultants, this "bigger is better" approach is fraught with failure. The fact that there is even more data chasing even fewer hours of those relying on the system to do their jobs significantly reduces the chances of success of this strategy. Instead, the tailoring of an ERP system to the unique and often rapidly changing needs of an organization is critical. This forces recognition of the problem that the business value of ERP systems is decelerating much more rapidly than anticipated, as enterprises seek the critical information they need through alternative processes and systems to support the roles they rely on for their strategies to be implemented and business plans realized.

Statement of the Problem

ERP systems are failing to deliver on the promise of greater efficiency, cost reductions, and the ability to deliver greater customer satisfaction through more effective company-wide performance. Furthermore, ERP systems' core information processing functions are not staying consistent with the needs of changing organizational roles, which is leading to a significant level of dissatisfaction with their performance. Studies indicate that nearly 70% of ERP implementations fail to deliver on the initial objectives they are designed to accomplish, leading to widespread dissatisfaction. Studies of customer and user satisfaction indicate that 68% are dissatisfied with their ERP systems. One study of manufacturers using ERP systems indicates that 45% are reverting to manual processes to accomplish their business strategies. A study of organizations that rely heavily on channel management-centric systems to integrate their selling, pricing, sales, and product configuration strategies also found they are constrained by the lack of accurate data provided by ERP systems. The greater the complexity of the product configurations being resold through channels, the greater the need for integration at the process and system level.

User satisfaction with ERP systems is proportional to the level of continual realignment of analytics, business intelligence, financial data, and operating data to users' specific roles. In the long-term, the extent to which an ERP system aligns to the roles of the organization it serves is the extent to which it also contributes greater financial performance. Failing to plan for, implement, and stay vigilant about keeping ERP systems responsive to the role-based needs of enterprises has significant impacts on financial performance, customer satisfaction, and the long-term ability to stay competitive in new markets.

The problem of how to keep ERP systems continually aligned to the information needs of enterprises is encapsulated in the challenges of creating and sustaining role-based information systems. To keep ERP systems in a purely functional definition that perpetuates their use in a siloed architecture is to drastically reduce their effectiveness from a financial, internal efficiency, and customer satisfaction perspective. Role-based ERP systems are critical for making the siloed, highly inefficient architectures of legacy ERP systems more relevant, enabling greater financial performance, and leading to higher levels of overall customer satisfaction.

Purpose of the Study

The purpose of this study is to evaluate how enterprises that adopt role-based ERP system implementations are able to attain higher levels of financial and operations-based performance compared to those that rely on silo-based, more functionally defined ERP structures. Role-based ERP systems have been proven to lead to greater order accuracy, velocity, and customer satisfaction. The ability to gain greater visibility throughout supply chains, better manage pricing and discounts, implement and maintain contract management systems, and deliver consistently high customer service have all been attributed to role-based ERP systems. Conversely, siloed ERP systems managed strictly to functional areas have been shown to severely limit the ability of enterprises to be more responsive to market demands. Originally designed to maximize the performance of functional departments, these ERP systems today restrict the ability of organizations to be more market-driven.

The transition of ERP systems from being mere systems of record to being catalysts of competitive advantage has led to role-based designs becoming prevalent. Higher satisfaction levels among users, greater efficiency in supply chain management and visibility, more effective and focused channel management strategies, and many other benefits are derived when the data in an ERP system can be more effectively used. This is the central problem this dissertation seeks to address.

Research Questions

The following are the key research questions of this study, later used as part of the hypothesis and in the definition of methodology:

1. Do role-based ERP systems deliver greater levels of operational performance due to minimized data latency and maximized accuracy? In other words, are role-based ERP systems more effective at delivering the right information or analysis at the right time to make decisions more effectively and therefore reduce chances for errors?

2. Are role-based ERP systems more effective at contributing to enterprise-wide strategies — including more effective channel management, supply chain management, and service lifecycle management initiatives — compared to their functional equivalents?

3. Are role-based ERP systems more agile at providing insights into the performance of individual functional and cross-functional teams and initiatives, including the capturing of more collaboratively focused Key Performance Indicators (KPIs) and metrics?

4. Do role-based ERP systems lead to greater levels of ERP adoption than their more siloed and functionally defined counterparts?

5. Is the scalability of role-based ERP systems more effective for strategies where channel management is an integral area of a company's overall business strategy?

6. Can role-based ERP systems contribute to greater levels of performance in quoting, product configuration, and mass customization strategies for manufacturers?

7. Are the costs associated with redesigning a previous-generation ERP system to be more role-based earned back in operational efficiencies, higher levels of order accuracy cost savings, and increased Return on Investment (ROI) over time?

8. How do integration technologies — specifically XML — influence the design and performance of role-based ERP systems over time?

These are the most critical questions to be evaluated in the context of this dissertation. The focus on how to quantify the performance of role-based ERP systems as they relate to both individual contributor productivity and their impact on the broader financial performance of an organization requires greater assessment. Implicit in this dissertation's analysis is an evaluation of how the adoption rates of each generation of ERP systems impact the ability of enterprises that have standardized on them to respond to highly uncertain market conditions.

Importance of the Study

The highly turbulent nature of global economic conditions and the inherent risk they represent is today a very powerful catalyst driving the adoption of analytics, business intelligence, more real-time financial reporting and analysis, and in general a much higher level of reliance on KPIs. Risk reduction through more effective analysis of market uncertainties, better analysis of supply chain and sourcing dynamics, and the definition of contingency strategies all require process-based platforms capable of scaling to respond to strategic threats and opportunities. The growing adoption of Service Oriented Architectures (SOA) is primarily being driven by these needs for highly process-centric systems that can align quickly to the unique information requirements of individualized roles within an organization.

The SOA platforms early adopters are incorporating augment and strengthen their ERP systems to deliver greater data accuracy, more real-time analysis, and over time become critically important for the definition of customer-based strategies. The greatest adoption rate of SOA platforms is in fact specifically for redefining, augmenting, strengthening, and making more focused the customer-facing strategies companies have. In one sense, the SOA frameworks that early adopters are relying on are the transitory technology toward truly role-based ERP system implementations. Industry analysts and observers point to the fact that SOA frameworks may be short-term in duration given the rapidly changing ERP and enterprise systems landscape. However, initial studies of this specific area of adoption indicate that SOA frameworks are becoming so ingrained in the customer-based and customer-centric strategies of enterprises using them that it is doubtful they will be replaced — only expanded. The area of greatest expansion will be in the development of Web Services (Alonso, Kuno, Casati, Machiraju, 2004) that can integrate into SOA frameworks and replicate the functions of traditional, silo-based ERP systems.

With SOA frameworks emerging as catalysts of more customer-driven strategies and also being seen as reasonable substitutes for role-based ERP systems, this dynamic of Web Services adoption on SOA platforms needs to be taken into account in this analysis. For those enterprises not choosing to rip and replace their ERP systems or significantly modify them to support role-based data, business intelligence (BI), and EPM functions, the use of SOA frameworks with selective integration of Web Services is an interim platform approach that spares the cost and time of entirely becoming role-based (Alonso, Kuno, Casati, Machiraju, 2004) in ERP strategies.

The importance of the study is therefore multifaceted. The validating or refuting of role-based ERP systems delivering higher levels of financial and operational performance relative to more rigid, inflexible silo-based platforms needs to be assessed. This is critically important to the definition of ERP role-based systems and their ability to provide real-time, accurate, and relevant data to drive better decisions. Making these dynamics more difficult to clearly predict is the growing adoption of SOA frameworks and the flexibility these provide for selective adoption of Web Services. Web Services are often adopted as additions or extensions of ERP systems that have failed to scale to meet the needs of organizations over time (Amoako-Gyampah, 2004). SOA frameworks are thus becoming interim substitutes that forestall the painful and costly decision to rip and replace one ERP system for another, while also providing enterprises with the option of evaluating Web Services to support their more customer-centric strategies (Amoako-Gyampah, Salam, 2004).

Balancing between the traditional, highly siloed legacy ERP systems and the early adopters of SOA frameworks are those ERP systems that have been modified to provide for role-based use, including business intelligence (BI), data management, and EPM. While BPM and BPR strategies are more quickly accomplished using SOA frameworks given their process-centric structure, the value of role-based ERP systems lies in their ability to more precisely align with the engrained processes of how companies manage mission-critical strategies. Of the three options — staying with a functionally defined legacy ERP system, adopting an SOA framework with selective use of Web Services, or creating a role-based ERP system based on legacy and new components — the last has the greatest potential for the highest ROI and probability of success. It is the intent of this dissertation to explain why this is so.

Studies indicate that overcoming resistance to change in any ERP implementation begins when those using the system have a voice in how it is being defined. A secondary benefit of defining a role-based ERP system is that there is greater potential for those most impacted by it to have a say in its creation, design, and eventual launch and use enterprise-wide. The importance of this study therefore lies in defining and intermediating between these three critical alternatives that enterprises must contend with to ensure their ERP systems stay responsive and relevant to their ongoing business strategies. The connection between role-based ERP systems' performance and XML integration is also evaluated in this dissertation.

Scope of the Study

For purposes of clarity and brevity, this study is focused on manufacturers whose operations are primarily located in the U.S. Specifically focusing on manufacturers in the Standard Industrial Classification (SIC) code of 3571 (electronic computers), this study concentrates on their use of legacy ERP systems, adoption of SOA frameworks and Web Services, and performance gained as a result of role-based ERP systems.

Manufacturers have a myriad of processes they rely on for managing their supply chains, distribution channels, and selling relationships. The role of the ERP system as coordinator and consolidator of activity while also serving as a single system of record for these strategies is critical for the long-term viability of a business.

The focus of this specific study is on how role-based ERP systems contribute to greater channel management effectiveness and performance, specifically in the areas of quote-to-order, assemble-to-order, build-to-order, and engineer-to-order process workflows. These are the most complex of workflows in that they require tight process and information systems integration between sales channels, manufacturing centers, forecasting, pricing, and supply chain systems. The ability of any manufacturer to stay competitive is directly related to how well these systems, their accompanying processes, and the role-based distribution of data are managed.

Despite legacy and siloed ERP systems being oriented toward functional roles, Business Process Management (BPM) and Business Process Reengineering (BPR) techniques are being used to extend these systems into role-based use. SOA frameworks and Web Services are also being used specifically to address role-based data needs, yet are more focused on integrating critical business processes than on the specific data needs of individual employees. The scope of the study encompasses these three dominant types of systems used for managing the quote-to-order process throughout an organization: legacy ERP systems, early adoption of SOA frameworks and Web Services, and the mainstream adoption of role-based ERP systems.

Definition of Terms

APS — Automated Planning and Schedule: a type of application used for planning production.

Assemble-to-Order (ATO) — A manufacturing strategy where products are produced by assembling make-to-stock components.

ATP — Available to Promise: a measure of a supply chain's ability to report back when a product can be built.

Build-to-Order (BTO) — A product strategy aimed at creating customized products where approximately 30% of product content is custom.

Configurator — A software application typically included in more complex ordering systems that serves as a constraint engine, making it possible to create customized products automatically based on user selections.

Configure-to-Order (CTO) — A product strategy aimed at creating customized products where between 30% and 60% of product content is custom.

DOM — Distributed Order Management.

Electronic Data Interchange (EDI) — A standardized method for electronic exchange of business documents between organizations.

Enterprise Resource Planning (ERP) — An enterprise-wide system typically used for managing the production of products in factories and coordinating business operations.

Engineer-to-Order (ETO) — A product strategy aimed at creating customized products where 70% or more of product content is custom.

Manufacturing Resource Planning (MRP) System — The precursor to the ERP system, primarily focused on how to allocate raw materials, labor hours, manufacturing resources, and assets to the attainment of production schedules and broader business objectives.

MTS — Make-to-stock: products built specifically to mass customer requirements that constitute the majority of a company's inventory.

OMS — Order Management System: a critical area of any ERP system that coordinates transactions, workflows, and processes for the accurate and timely delivery of orders, financial reports, and the integration of forecasts into planning.

Quote-to-Order (Q-T-O) — The process that encompasses quoting through order fulfillment, typically combined with BTO and ETO processes to create quotes for customized products tailored to specific users' needs.

VMI — Vendor Managed Inventory: the coordination of inventory demand across a supplier and distributor, a method of ensuring lean manufacturing efficiencies.

Definitions of Product Customization Levels

Assemble-to-Order — A product configuration strategy focused on taking manufactured components or subassemblies and creating a finalized assembly from them. Assemble-to-order product configuration strategies are often rules-based and define the interrelationships and compatibilities between components, subassemblies, and parts of a product. Found most often in high-tech, channel assembly, and electronics industries, as well as furniture, retail, packaging, and printing.

Build-to-Order — Manufacturers using a build-to-order strategy customize smaller portions of the product for the unique requirements of customers, with the majority of product content based on made-to-stock or standardized product. Examples include auto manufacturers offering several options on engines and interiors, as well as high-tech, automotive, medical, and financial services verticals.

Configure-to-Order — Manufacturers of complex products use this strategy for customizing their products to an exacting set of specifications from their manufacturing customers. Configure-to-order products are comprised of both standardized and customized components, with the majority being customized to the customer's needs. Industries relying on configure-to-order include telecommunications, heavy industrial equipment, turbine and pump production, elevators and escalators, and complex cabling systems.

Engineer-to-Order — Where the majority, if not all, product components are specifically created to a customer's unique requirements, it is referred to as an engineer-to-order (ETO) strategy. Products manufactured using an ETO process are defined with highly specific engineering documents and often require that sales configurators have the ability to generate multi-level CAD drawings and specifications. Examples include aircraft, aerospace and defense products, power generators, HVAC equipment, and specialty use engines.

Delimitations and Limitations

A major limitation of this study is the lack of coverage of the services sector. There are many implications for role-based ERP and data management systems throughout service-based industries, as these industries are primarily focused on attaining a high level of customer satisfaction through effective interactions. A deliberate decision was made to concentrate on the more complex manufacturing processes, as they provide stronger validation of role-based ERP systems delivering significantly greater value over time.

Another limitation is the lack of analysis in the area of pricing optimization and pricing execution. This strategy is more focused on time-based services and was not included in this analysis as it is not integral to the quote-to-order and product configuration processes that are the core focus of this study. Additionally, the performance of traditional ERP systems is not included in the primary research, as the gains in productivity from role-based data are the primary focus.

Additional limitations include the stratified random sample used, based on available contacts in the high-tech industry sector. The sampling frame is not all-inclusive of the global industry and is more representative of the United States and its most frequently traded-with partners. Australian and UK-based distribution partners of high-tech manufacturers and their channel assembly programs were not specifically interviewed; however, their influence on the quote-to-order process of these manufacturers is significant and taken into account in the metrics shown. In addition, the supply chains of each of these high-tech manufacturers were not interviewed as part of the research process. While supply chain partners exert significant influence on the quote-to-order process, they are outside the scope of this study, which centers on the contributions of role-based analytics and business intelligence.