Impacts of ERP Systems on the Integrated-Interaction Performance of Manufacturing and Marketing

Impacts of ERP Systems on the Integrated-Interaction Performance of Manufacturing and Marketing Li-Ling Hsu National Kaohsiung First University of Science and Technology, Taiwan, R.O.C Minder Chen George Mason University, U.S.A Keywords Situational Variables, Interface Congruence, Resource Sharing, ERP Benefits, IntegratedInteraction Performance Abstract interaction between manufacturing and marketing and reducing their gap that results in performance improvement ERP systems facilitate the integrated-interaction performance between manufacturing and marketing This study provides a new perspective of the factors that impacts the effectiveness of ERP systems The effectiveness of interactions The role of the consumer is being transformed from passive buyer to active participant in creating added values The ability to provide between manufacturing and marketing departments often Industrial Management & determines the competitiveness and Data System flexibility manufacturing capability to enable mass customization while still profitability of a firm Enterprise being able to reduce costs resource planning (ERP) systems and improve quality is a address integration issues of critical element for many business functions including manufacturing firms to manufacturing and marketing Many benefits contributed by collaboration (TSMC, 2002) ERP implementation found in literature are similar to the benefits and objectives achieved through the integration of manufacturing and marketing functions This research model based on contingency theory and sociotechnical theory is used to study the effects of ERP implementation to marketing and manufacturing integration An multiple-cases study of four companies in the electronic industry that have implemented ERP systems was conducted The study shows that internal organizational and external factors affect the Introduction compete in the marketplace The Internet economy is a (Armacost et al., 1994; customer-oriented Murakoshi, 1994; Whybark, marketplace Consumers are 1994; Parente, 1996； increasingly engaged in an Hsu；2000) active and explicit dialogue To respond quickly to with companies, its customer demands and marketing department or market changes requires even its manufacturing better integration of internal department The eFoundry functions and processes In system from TSMC is an the early 90s, business example of such close process reengineering is the approach taken by many better integration among enterprises to achieve business functions and dramatic performance improve the integrated- improvement, often through interaction performance process integration and performed jointly by these applications of some departments are not enabling information addressed by existing technology widely (Chen, research in ERP 1999) Many BPR projects have encountered an insurmountable difficulty in bring down the stovepipelike business processes and the associated legacy systems often referred to as "islands of automation." ERP systems emerging in the mid90s are becoming a possible solution to integrate physical production systems with business processes via an integration information system ERP systems often consist of many modules support business functions such as manufacturing, inventory management, marketing, order processing, etc These modules are integrated via a common data model and database system which indirectly supporting the interactions among various business functions Whether implementing ERP systems really facilitate Li-Ling Hsu and implementations Our research goals include the Minder Chen This research is designed to study of the relationships Impacts of ERP address the impacts of of majors constructs Systems on the information technologies, to the defined in our research Integrated-Interaction integration business functions model: Performance of Since the integration between Manufacturing and manufacturing and marketing external situational variables Marketing processes are the key elements of and their relationships to the Industrial Management many firms' core business gap in interaction process & Data Systems processes Our research is focus (a) study the internal and (b) examine the relationship on the effects of ERP systems to between gap in interaction the interactions and integration process and integrated- between manufacturing interaction performance department and marketing (c) Study the effect of ERP department Implementing ERP implementation to the systems are very costly and time- relationship between gap in consuming, our research finding the interaction process and may help researchers and the integrated-interaction practitioners to gain insights of performance how and why ERP systems in improving firms' performances Four case studies have been conducted to verify the research model proposed in this paper The literature supporting the formulation of the research model and the data collected from the case studies are reported in this paper The analysis of the case studies against the research models and the implications of the research results are discussed in detailed in this paper Literature Review Organizational integration is a major challenge in modern enterprises Contingency theory argues that the degree for corporations among these Li-Ling Hsu and of organizational departments (Woodward, 1965; Minder Chen integration is a function Thompson, 1967; Perrow, 1970) Impacts of ERP Systems on the of environmental Socio-technical theory suggests Integrated-Interaction uncertainty and that organizational characteristics Performance of Manufacturing complexity A resource- of various functional departments and Marketing based view would may affect how they interact with Industrial Management & Data suggest that the degree each other (Lorsch, 1965; of organizational Lawrence and Lorsch, integration depends on 1967,1986) Geser (1992) the costs associated conceptualized organizations as with integration and social actors capable of resources availability interacting with each other as well Contingency theory as with individual actors and socio-technical Organization units (e.g., different theory are bases that functional departments) are form the research differentiated actors that model of this study participate simultaneously in Contingency theory many different interaction addresses the impacts processes and they often have of environmental contradictory values and rules factors to an Marketing department focuses on organization and its meeting customer demands while structures Socio- manufacturing department is technical theory studies concerned with control the costs the impacts of and schedule of the production technologies to process and inventory The organizations and the interdependencies and interactions effects of based on different objectives are organizational process, the source of task conflicts culture, and works to technology implementations (Bostrom and Hensen, 1987a, 1987b) The specializations of functional departments may become barriers Systems between manufacturing department and marketing department Contingency Theory and Interaction process The interactions and interaction process that includes interface congruence gap and resource sharing gap (Barclay, Above statements, this dependencies among departments 1991; Kahn, 1994; Parente, 1996) study considers the in an organization are contingent Organizational Climate and ERP implementation upon internal and external factors Interaction Process will be a useful such as departmental structure, integrated tool to solve task structure, specialization, employees feel to work in an some tough problems production structure, and organization It is a set of Organization climate is the way of existing IS- islands department objectives measurable characteristics of the in many companies As (Ruekert and Walker, work environment, based on the Vosburg and Kumar 1987; Kahn, 1994; collective perceptions of the (2001) also pointed out Parente, 1996) Kahn people who work there that ERP implementation in (1994) used socio- influence their motivation, company replaced a technical and contingency behavior, and performance number of independent theory to interpret the (Wilkins and Ouchi, 1983) The mainframe legacy interaction and corporation characteristics of organization systems performance among related to the fostering of departments Parente organizational climate include: (1996) also used socio- leadership style, job variability, technical and contingency degree of decentralized decision theory to develop a making and management, research model to study individual's commitment to the cross-functional organization (Tyagi, 1985) interactions Barclay (1991) found that lack of Organization Structure and common culture among Interaction Process departments makes these Literature on the interactions departments to negotiate with between marketing department each others and has a positive and manufacturing department correlation to the gap in often measure the organizational interaction process Although structure based on degree of Parente (1996) also suggested that formalization, centralization, and a more friendly organizational specialization (Barclay, 1991; culture has a positive effect on Kahn, 1994; Parente, 1996) We achieving enterprise-wide found that these three constructs objectives and sharing common of organization structure are values because the reduced gap in highly correlated to gap in the interaction process should reduce conflicts between interaction between Li-Ling Hsu and manufacturing and manufacturing and marketing Minder Chen marketing However, However, Parente (1996) pointed Impacts of ERP Systems on the according to Robbins that in order to serve customers Integrated-Interaction (1998) perspective of better in a more turbulent market, Performance of Manufacturing conflict management, manufacturing and Marketing Industrial Management & Data Hsu (2000) found that Systems certain degree of conflicts may in fact reduce the gap in the interaction process between manufacturing and marketing Market Turbulence and Interaction Process Market turbulence can be measured by customer loyalty, changes in the environments, and the ability to forecast market demand (Kahn, 1994) Parente (1996) used a customeroriented definition of market turbulence and defined it as the changing composition of customers and their preference towards various products Kahn (1994) found that more turbulent market contributes to high degree of uncertainty in market information and hence hinders the and marketing performance of the whole department department need to (Lawrence and Lorsch, 1967; The indicators used to measuring interact more Bourgeois, 1980, 1985; Dess, performance of the interaction frequently in order to 1987; Hrebiniak and Snow, 1982; activities between manufacturing share information and Ruekert and Walker, 1987; St and marketing are quite different rescrouces, hence John and Rue, 1991; St John, based on our literature review reduce the gap in 1991; St John and Hall, 1991; For example, Ruekert and resource sharing Hsu Bondra and Davis, 1996; St John, Walker；1987；use quality (2000) also found both 1999; Kumar et al., 2000) management viewpoint to gaps in resource Researchers using this approach measure the performance of sharing and interface are assuming that the ultimate manufacturing and marketing congruence are reduced goal for manufacturing and interactions and use Functional under more turbulence marketing to work together is to Outcomes and Psycho-social market Therefore, we maximizing the profit of the firm Outcomes as indicators assume negative However, there are many external Functional outcomes include the correlation between factors that may affect the firm degree of accomplishment of market turbulence and profit and internal factors among manufacturing goals and gap in interaction employees and functional units marketing goals, as well the joint process may also affect the profit of a goals of the two departments Gap in Interaction firm Therefore, we prefer the Psycho-social Outcomes include Process and second approach that uses the the perceived effectiveness the Integrated- outcomes of the manufacturing relationships and degree of Interaction and marketing interaction as conflicts between employees from Performance performance indicators These manufacturing and marketing outcomes include product quality, deapretment Deaneet et al manufacturing and timeliness of order delivery, (1990) used Return On marketing interaction reliability, product line flexibility, Investment, Return On Sales, research measures the pricing, and customer services Sales Growth, and Market Share performance of the (Hill, 1989) The activities to measure the interaction interaction in the involve manufacturing and performance Hill (1989) following two marketing as well as interactions suggested the use of quality, approaches The first between the two departments are delivery cycle time, reliability, approach is measured considered an import part of the product line design, pricing, and the performance of primary activities in a firm's value customer service level as the interaction between chain In our search, we only indicators for interaction manufacturing and measured the performance of the performance Kohliand and marketing by integrated interaction between Jaworski (1990, 1993) adapted a measuring the manufacturing and marketing transaction process concept to Literature in measure interaction Li-Ling Hsu and quality management standards, performance to include Minder Chen handling of customer complaints, indicators such as Impacts of ERP Systems on the new product development, cost customer responses, Integrated-Interaction control, and inventory control as business performance, Performance of Manufacturing performance indicators of joint and employee and Marketing decisions by manufacturing and responses St Industrial Management & Data marketing Pinto et al., (1993) John；1991；reviewed Systems used task outcomes and social many literature and outcomes to measure the proposed eleven performance of the cross- indicators such as functional task force Task lower price, product outcomes are related to the coverage, flexibility in execution of project tasks and product design, product social outcomes are related to line performance, and perceived satisfaction and values after-sales service, etc by people involved in the task St John and Hall force Karmarkar (1996) (1991) used market concluded that flexible share and sales, profit combination of quantity (i.e., margin, product quality, cycle time, quality, and and production costs as flexibility), risk, and involved in indicators of individual decision department's marketing etc as performance performance while indicators Kahn and McDonough emphasized (1997) studied the interactions customizability in among production, marketing, and production scheduling, R&D department and used total performance outcomes due to interactions among departments as indicators These joint performance outcomes include: individual department level performance, enterprise-level performance, performance of product development, product pre-launch management, and postlaunch management, as well as satisfaction of interactions among departments ERP Benefits manufacturing, inventory systems have become a major management, financial and enabler to transform an enterprise accounting, human resource into an integrated, process- enterprise-wide management (Tarn et al., 2002) oriented, information-driven and application packages Gupta (2000) also described ERP real-time organization that are designed to allows companies to integrate provide information various departmental information ERP systems are systems integrated Common databases and data supports to various models as well as consistent business functions such cross-functional information flow as in ERP systems should assist various departments to coordinate their activities more (Hicks, 1997) Firms that implement ERP systems would have built more integrated value chain processes ERP solutions seek to integrate and streamline business processes and their associated information and work flows (Al-Mashari, 2002) These integrated internal processes are often integrated with external systems from trading partners to form an industry-wide supply chain Information about supply and demand of products and services can be made shared with suppliers and customers timely, accurately, and consistently Firms that implement ERP can select appropriate ERP features by configuring systems parameters differently to customize the systems to support core business functions to improve customer services (Kumar and Hillegersberg, 1999) ERP Li-Ling Hsu and Minder Chen Impacts of ERP Systems on the Integrated-Interaction Performance of Manufacturing and Marketing Industrial Management & Data Systems Table Benefits of ERP Tangible Support production capacity planning; provide more accurate market demand Benefits forecast; facilitate mass customization and improve manufacturing flexibility; increase inventory turnover rate; decrease inventory level and cost; control and improve product quality; speed up new product development cycle and time-tomarket; reduce the cycle time of order fulfillment; achieve operational excellence Intangible Allocate enterprise resource better; increase communications among departments; Benefits Integrate information across the enterprise; Increase the available of critical operational and decision support information to provide visibility of enterprise planning activities; Access to real-time business intelligent; Improve information flow among departments; Increase response time to customer order and inquiries; Improve service quality; Improve customer satisfaction and loyalty; growing purchase from customers Source: this study Firms' strategic objectives to tangible and intangible benefits implement ERP are different The summary of these benefits (Shang and Seddon, 2000), based on our literature review are therefore, the perceived and shown in Table 1, (Davenport, realized benefits of ERP 1998; Jeanne, 1999; Jeson and implementation are different and Johnson, 1999; SAP INFO, 1999; difficult to define In this research, BCG, 2000; Davenport, 2000; we classify ERP benefits into Poston and Grabski, 2001) 10 Company Company A Company B Company C Company D IC packaging Notebook Power supplies Computer Peripherals SAP/R3 TIP TOP Oracle Applications 6~16 million 1.5 million 1.5 million 1997/12 1999/07 2000/05 2001/01 ERP Team Process MIS Department MIS Department Background Main Products computer ERP System SAP/R3 Implementation Costs 6~16 million Implementation Starting Time Unit in charge of implementation Reengineering Department No of MIS Level* 30Employees 70 40 * Level: Level is referring to the level of the unit in charge of implementation in the organization hierarchy The formal interviews were instruments used in the structured conducted in March and April questionnaire is summarized in 2002 MIS directors from four Appendix A Table summarized case study firms are interviewed the result of the survey results of for about three hours The interaction process gap in regard backgrounds of these four firms to the internal and external factors are summarized in Table We from the four cases studied The paired Company A and B as well propositions P1~p8 derived from as Company C and D in our the operational model are analysis because of their similar discussed in the following: Except in size (large vs medium size for P7 and P8 that are not enterprise) and resources We will supported by data from Company be analysis propositions derived C and D, all propositions are from operational model and then supported We believe that the analysis propositions derived reason that case study firm D just from conceptual model based on finished implementing ERP for data collected three months, there were steep Analysis of Propositions from the learning curve for marketing and Operational Model The survey questionnaire used a Likert-type scale from to The validity of operational Li-Ling Hsu and manufacturing department This may increase the gap in the Minder Chen employees to learn how to use the interaction process between Impacts of ERP information about both marketing manufacturing and marketing Systems on the and manufacturing functions The impacts of ERP will be Integrated-Interaction provided by the ERP systems discussed in the analysis of the conceptual model Performance of Manufacturing and Marketing Industrial Management & Data Systems Table 3: Verification of Operational Model Propositions Internal and Interface Resource Verifi- Internal and Interface Resource VerifiExternal Congruence External Congruence Sharing Gap cation Sharing Gap cation Factors Gap Factors Gap P1 A > B A D V C>D P2 A< B V P C