The Enterprise Resource Planning Software on ICI Paints - Research Paper Example

Table of Contents Introduction 2 Aims and scope 2 Method of enquiry 3 Company Profile 4 Literature Review 6 Industry Analysis 8 IS for competitive advantage 10 Consequence Analysis 10 Issues in IS development 12 Feasibility: 12 Analysis: 13 Design aspects: 13 Conclusion 15 Introduction The study presented in this case examines the enterprise resource planning software (ERP) on ICI paints. Multinational companies are increasing day by day and so is the global competition among them. To survive in such a competitive environment managers must play a vital role in all departments. Unlike the recent past when lower efficiencies could be ignored as long as the plant produces income, today you need to be efficient at all levels of the corporation to keep or gain a competitive edge. The role of IT is eminent to gain this competitive edge. If we look for better and more efficient operations management, our answer lies with the ERP (Enterprise Resource Planning) software. These Systems are offer comprehensive and tremendous benefits. In this paper one of such multinational company ICI Paints enjoying the benefits of enterprise resource planning software has been studied. In this study efforts have been made to provide evidence on the impact of ERP systems for companies adopting them, with particular emphasis on their competitive edge as part of business processes. The effect of ERP on OM has been studied in terms of increase in sales and decrease in time and cost of operations. This research has tried to study the extent to which ERP systems have helped companies in achieving that, focusing attention on integration of work. Aims and scope The aim of this study was to provide evidence on the impact of ERP systems for companies adopting them, with particular emphasis on their competitive edge as part of business processes. The focus was on determining the extent to which ERP systems have helped companies in achieving this competitive edge, focusing attention on integration of work. The aim was also to understand the underlying reasons for ERP systems success or otherwise, the benefits accrued and thence, establish the best way forward in fully exploiting ERP systems potential in this highly competitive business environment. This study has also examined the underlying reasons why companies choose to convert from unadventurous or conventional information systems (IS) to ERP systems. The main challenges that a company might face have also been analyzed. This was however not a relevant task as MRP has already been developed, thus the implantation phase is over. More emphasis is thus on the increase in efficiency in operations and how that could lead to a competitive advantage in the industry. Method of enquiry The data has been collected for this research consists of both primary and secondary data. The extensive literature review has been carried out through papers, articles, books and from internet. Most of the information regarding this topic has been collected from ICI Company itself. Figures about cost, sales and time (three variables of competitive advantage) were provided by ICI Paints statements. The analysis of data has been carried out on the basis of primary data obtained from ICI paints head office. Both operational and IT strategy of a company are usually strategic assets and information is classified. Thus a combined analysis of indirect Interviews and open ended questions was done. Company Profile Recent changes in the business environment namely deregulation, privatization, globalization and consequently increased competition have transformed large organizations into giant multinational corporations.A Multinational Corporation is a corporation or enterprise that manages production establishments or delivers services in at least two countries. ICI being a multinational company is one of the worlds major specialty chemicals and paints businesses with products and ingredients developed for a wide range of markets. It has a heritage of innovation and a reputation of making science work for the benefit of society. Imperial Chemical Industries was established in 1926 from the merger of four British chemical companies to challenge the rest of the world’s chemical producers. The principal products of the new company include chemicals, explosives and accessories, fertilisers, insecticides, dyestuffs, non-ferrous metals and paints. ICI operates its business world wide. ICI paint is one of the industries of ICI Company and is an integral part of the businesses which has a separate set up. ICI Paints has the aim of delighting and inspiring customers to ‘transform their surroundings at home and work with performance products and colors’. The business makes products to prepare and care for many building materials and provides coatings for cans and packaging. ICI Paints has its headquarters in the UK with manufacturing in 24 countries. ICI’s has the vision to be the leader in formulation science. ICI continues to build a number of businesses that are leaders in their own respective industries, by bringing together comprehensive knowledge about customer needs with state of the art technology; creating and delivering products that provide best performance. As a result sustained performance over decades, ICI is one of the leading creators of shareholder return in industry, without compromising on its commitment to the environment and the communities. In order to achieve their vision that is ‘to be the leader in formulation science’ it is striving to build a portfolio of businesses that are leaders in their respective industries with state of the art technology to provide a distinctive, competitive advantage for its customers. The changing business environment of world has implied the need for ICI to search for new ways to survive and succeed. One of the successful ways that ICI has differentiated it self from its competitors is an ERP. Over the last decade, companies have neglected legacy or traditional systems in order to adapt a new class of broad packaged application software which is designed to integrate the core business activities of an organization. These are called Enterprise Resource Planning (ERP) systems, enterprise-wide systems, or enterprise systems. ERP systems are the software tools used to manage all the enterprises data, and to provide information to those who need it. These systems help organizations to deal with their supply chain, inventory management, customer order management, production planning and managing, shipping, accounting, human resource management, and all other activities that take place in a modern business (Arik and Toni, 2002). ERP system is a generic term for an integrated enterprise-wide computing system. It includes a set of business applications (modules) used to carry out common business functions such as supply chain, customer relation management, accounting, stock control, logistics etc. The essence of a complete ERP system is to automate business processes, share common data across the organization but most importantly, to produce real-time data. These in turn result in higher effectiveness and efficiency in operations and consequently improved customer satisfaction which leads to its competitive edge. Quality of products and services and innovation has been the foundations of ICI Paints. Critical success factors of growth for ICI Paints are the deployment of new technology, innovation and the successful marketing and promotion of key brands. Technology and innovation are important factors for ICI Paints. Success is enhanced by being first to the market with innovative, value-adding products and services that meet market needs. Literature Review The extraordinary increase in the number of organizations has led to internationalize the operations of organizations in the last two decades. A growing body of literature has suggested that international businesses need to create conditions for efficient knowledge sharing between their headquarters and subsidiaries as well as between subsidiaries themselves in order to build competitive advantage both at home and then abroad also (Patton,2001). Barney (1991) has come to closest to a formal definition of competitive advantage. According to him a firm is said to have a competitive advantage when it is implementing a value creating strategy not currently being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy. Day and Wesley (1988) focused on two definite sources involved in creating a competitive advantage one is superior skills and other is superior resources. Similarly Hunt and Morgan (1995) further proposed that potential resources can be most usefully categorized as financial, physical, legal, human, organizational, informational, and relational. Prahalad and Hamel (1990) provided a practical and detailed approach of operations that Multinationals should combine their resources and skills into their core competencies in order to become a unique one in relation to competitors. Therefore, firms may succeed in establishing Competitive advantage by combining skills and resources in unique and stable ways. By combining resources in this manner, Multinationals can focus on collectively learning how coordination should be done between all the employees in order to facilitate or increase the growth of their specific core competencies. Mostly and often the primary motive of every Multinationals is to acquire the distinctive knowledge so that it tends and help to establish themselves as centers of excellence (Moore and Birkenshaw, 1998). Whether it is the matter of distinct knowledge base of the Head quarters or of the subsidiaries of Multinationals, it has been widely observed that enterprise messaging system is a key managerial function necessary for achieving competitive advantage (Grant, 1996). During the past 30 years the overall business environment and the information technology embedded within it have seen a lot of tremendous changes (Huber, 1984). Bretschneider (1997) further argues that according to practical observation of management no other technology affects day to day activities of managers than do recent advances in computer technology however it was also done by the telephone and calculator in the past years. According to Parrish (2006) the globally integrated enterprise has emerged when companies have realized that they must strengthen their global processes and operate as a single, global business if they want to continue to grow and succeed in the twenty-first century. The benefits of doing this include improved business management, greater efficiency into processes, as well as increased customer loyalty, real-time information for improved decision making, and lower IT support costs. The increased concentration on enterprise resource planning as a business enabler is leading the way for the globally integrated enterprise. Establishing the globally integrated enterprise requires fundamental change in the way a Multinationals runs its business. The business planning control system (BPCS) solution as ERP vendors contains all the solutions and applications needed to start a company on its way. Industry Analysis If we look at the product life cycle of paints it will be classified in the category of mature. A look at the Exhibit 1 will reveal that maturity stage exits when the sales have achieved almost their maximum capacity. This happens because there is no more room in the market for more people who do not know about the product or are not familiar with its use already. Other examples of mature industries include, airline industry, clothing industry. Organizations can adopt a number of strategies in a mature industry. This includes cost competition, differentiations etc. At any time in big industries such as ICI all of these different strategies co exist. This is why because number of competitors can range from small firms with low quality and large firms with economies of scale, thus in such a market price wars occur to gain maximum market share. A detailed SWOT analysis or PESTEL analysis would not be relevant in the discussion of ICI ERP implementation. We will therefore go through strategies being adopted in the industry. The per unit manufacturing cost of paint industry is low; this is due to a number of reasons. As the industry is in the maturity stage, R&D costs are not very high as basic research has already been done. Furthermore as is the nature of mature industries, there is usually a large number of existing market players. This means as number of industries are high so is the number of suppliers and supporting industries. A high concentration of suppliers especially when the raw material is standardized such as this, buyers get a bargaining power which leads to availability of cheap raw material. Sales volumes for know brands such as ICI, Asian paints are very high. The growth however in these sales figures is very low. This leads to vigorous competition because the only route to increasing sales is by gaining a bigger chunk in the market share. Over time such vigorous competition eliminates weak and low quality competitors and leaves behind only a few high quality products such as in Paint industry. This however doesn’t stop new entrants from emerging. Forward integration and backward integration is a norm in the industry. This is again because operating margins are low; for both suppliers and manufacturers. Therefore in order to maximize profits, integration is a viable option. Another way to increase profits in the current paint industry is by brand differentiation. This increase the promotion expenditures, further driving down the operating margins. Firms such as ICI and Berger however, can enjoy the luxury of premium pricing because of their established brands. This is primarily because they have spent heavily of brand awareness, in terms of promotions and marketing. IS for competitive advantage International corporations such as ICI are witnessing accelerated and enhanced globalization, in both rate and magnitude. Consequently globalization factors forces many firms, multinational corporations and local players, to re-evaluate their competitive strategy and consciously create, renew, and hopefully sustain their competitive advantages in the global market place. Along with globalization they are also witnessing a growth of information accumulated within almost all type of organizations. Independent storage areas that store different types of digital data in multiple formats are becoming available for use on the fast-evolving global information systems infrastructure. Thus the question for any multinational is how they can turn this window of opportunity into a competitive edge? This can only be done through utilization of global information system especially enterprise resource planning. Consequence Analysis The current ERP programs suffer from a number of shortcomings which make it especially difficult for especially globally operated organizations to enjoy the tremendous benefits of ERP. First of all choosing the correct software is a difficult decision because off the shelf software are usually unable to fully meet the particulars needs of the company. ERP systems can be very expensive to install for multinational companies. Secondly implementation of an ERP project is a long process wasting precious time. Training of employees in case of ERP is a very sensitive issue and is very costly as well. If proper training is not imparted, it can lead to adverse affects, a bad ERP can be much worse than no ERP at all. ERP trainers usually cost a lot, and work on contract basis as hiring is a continuous process so training needs to be imparted to new employees. ICI however operates its own IS training programs which increases the ease, decreasing cost at the same time, but is a compromise on quality For ICI acquisition of this software has been expensive but after implementation it has offered such types of advantages which exceed the cost of implementation. Similarly during the research it has been observed that ICI employees are carefully trained therefore it can never ever cause harms from misuse technology. Training can be done on the job. It does not require separate training rooms for this software. From this research it is clear that both the users and the company itself are satisfied with the current software and it would not like to switch to even more competent software, at least for the time being considering the huge capital expenditure they have already made. It’s easy to operate and without any hesitation; is thus user friendly. It has resulted in both reduction of cost and efficiency as in time of operations. Studying ICI’s operations we can say that ERP functions are being used to implement completely new ways of performing business processes. Of course, competitors may follow along and use the same approach. But intuitive management has already given ICI a first mover advantage and competitive edge at least for the time being. Not all competitors have the ability to compete on another playing field, such as on information technology. The companies that build up competence in this area may therefore get an important strategic or competitive advantage. Thus it is concluded that enterprise Resource Planning is back bone of competitive advantage of ICI paints. Issues in IS development SSM or soft system methodology was developed by Peter Checkland from system engineering approaches. The aim of a SSM analysis is to analyze to problem when there are different and conflicting opinions. The initial key components of an SSM as applied to ICI are the following: Feasibility: The external environment has a sizeable impact on the development of an IS. In order to compete in the world market ICI has aim to be better, to make processes more efficient and to improve the quality of their products. For many years, IT has been seen as a tool for achieving all these aims. ICI paint also took the advantage of the IT. As a starting point, the management and administration had used word processing and accounting systems. While successful in this approach, ICI Paint realized that there is a need for integration of isolated systems like manufacturing, sales etc. The company realized that more sophisticated systems are needed to solve problems of handling and disseminating complex information, to automate processes within procurement, to get an overview of production, to optimize production, etc. To avoid duplication and to utilize data as best as possible, to make more advancement in the sales processing system like customers order processing etc the integrated system was required. Analysis: The system before the implementation of integrated software was partially manual. The software used was inventory sales receiving system (ISRC). This software was in-house developed. This software could not fully meet the high demands of Company work processes like inventory, warehousing and specially the customer sales processing. So Company decided to switch from the present system to more sophisticated ERP system. The particular software implemented as ERP was BPCS offered by SSA. BPCS is an acronym for Business Planning and Control System, pronounced as "Bee picks." BPCS was developed by System Software Associates (SSA), which later became SSA Global Technologies (which was then acquired by Global Solutions), and is used to control the operations of manufacturing companies. BPCS is in the category of Enterprise Resource Planning (ERP) software. Many of the BPCS applications are somewhat stand-alone. Companies can choose to implement only the financial applications or of the manufacturing applications or both. BPCS has a competitive strength over other ERP vendor competition because of its manufacturing and planning applications. BPCS is one of the most popular AS/400 software packages that address the core system needs of industrial sector companies. Design aspects: BPCS was originally released on the IBM® System/34 in the early 1980’s; BPCS has evolved to a client server version 6.0 for the AS/400 and UNIX. AS/400 is called Application System/400. It is the earlier generation and original name of IBM Company. They are also called as minicomputers. UNIX is a computer operating system. It is one of the most important operating system currently used in the world. Normally the BPCS Application suite includes Financial (Cost Accounting, Accounts Payable, Accounts Receivable , Billing , General Ledger , Cash Management , Multiple Currencies , Currency Translation , Financial Assistant , Fixed Assets , Payroll , Business Modeling, Data Mining ) Planning (Forecasting, Master Scheduling , Material Requirements Planning, Capacity Planning , Distribution Resource Planning) Distribution such as ( Inventory, Purchasing , Customer Order Processing , Billing , Sales Analysis , Promotions and Deals PRO, Performance Measurement such as supplier quality and on-time, company performance in supplying customers, internal quality control, Multiple Environments, Companies, Divisions, Facilities, Warehouses, Locations) Manufacturing (Manufacturing Data Management, Inventory , Shop Floor Control , Master Scheduling , Material Requirements Planning , Capacity Planning , Laboratory Management , Just In Time , Quality Control) etc. ICI is also getting benefits from the financial, manufacturing and distribution modules of BPCS. The applications of BPCS are dependent on the version released. ICI paint is using the BPCS 4.0 5cd version offered by SSA. BPCS was first implemented in ICI paints in the year 1993. However in 1993 the some applications were adapted by the company. After the successful implementation and working results of the software in 1998 it was decided to fully implement the BPCS software. The applications of ERP are deployed on client server basis. The client/server software architecture is a versatile, message-based infrastructure that is intended to improve usability and flexibility. A client is defined as a requester of services and a server is defined as the provider of services. A single machine can be both a client and a server depending on the software configuration. The operating system in ICI paints running the BPCS is OS/400 R5v3. OS/400 is the operating system IBM uses for their AS/400 (now called series) computers. The server platforms used in ICI paints are DB/2. DB/2 is a data base management system in which data is stored in the form of tables and the relationship among the data is also stored in the form of tables. Conclusion In today’s intense race of competition time it is very necessary to be up to par with the dynamic trends and situation. Today is the time of taking the immediate decision and steps. For these types of companies more sophisticated systems are needed to solve problems of handling and disseminating complex information, to automate processes within procurement, to get an overview of production, to optimize production and to do all other type of different types of tasks. For these reasons businesses all around the world are increasing their reliance on ERP because ERP programs act as a cost efficient alternative to their current manual or partially computerized procedures as it can be seen in case of ICI paints chosen for this research. As having data in many different systems, perhaps stored with many formats and accessible by different user interfaces is a hazardous thing. It is therefore natural that almost all of the multinational companies go for the one solution, i.e. installing a company-wide ERP system. There are many computer programs available to convert data into information, usually for a specific purpose or function but ERP is the way to bring many divergent requirements under a single like an umbrella. What ERP tries to do is to combine the needed or required functions of every application which a company requires to do its job and than integrate them all together. Similarly ERP allows organizations to balance customer demands affected by multiple interrelated items and multiple warehouse locations of manufacturing company as the ICI paints is experiencing. Similarly during the carrying out of this research it has also come to know that ERP provides applications for financials, supply chain, and distribution and requirements planning for multiple projects carried out by a company. Similarly it also facilitates intelligent resource planning as a solution of problems of rapidly increasing and changing constraints such as materials availability, market speed, and business costs per location. Similarly an ERP system also allows decision makers to become an intelligent and responsive organization in the global marketplace. References Arik, R. and Tony, M.S 2002, “Special Section: Enterprise Resource Planning”, Journal of Management Information Systems, Vol. 34, pp. 11-16. Barney, J 1991, “Firm Resources and Sustained Competitive Advantage”, Journal of Management, Vol.17, pp. 99-120. Bretschneider, I.S 1997, “Symposium: Introduction to a symposium”, Journal of Public Administration Research & Methodology, Vol. 64, pp. 85-87. 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M. 1995, The Comparative Advantage Theory of Competition. Journal of Marketing, Vol.59, pp. 1-14. Moore, K and Birkenshaw, J. 1998, “Managing knowledge in global service firms: centers of excellence”, Academy of Management Executive, Vol. 12, pp. 81-92. Parrish, D 2006, The Competitive Advantage of the Globally Integrated Enterprise, www.sap.com/industries. Patton, S 2001, The Truth About CRM” Report From CIO Magazine, pp. 23. Prahalad, C.K , and Hamel, G 1990, “The Core Competence of the Corporation”. Harvard Business Review, pp.79. Exhibits Exhibit 1 Read More