Designing Localized Model of ERP Selection in Iran’s Distribution Industry
S. Rahmani [1], S. A. Amin Mousavi, and S. Emami
Abstract
Nowadays all successful organizations and companies believe that it is not possible to have sustainable development without appropriate use of IT solutions. In this respect, during the last few years’ companies in distribution industry in Iran has taken the effective advantage of types of application software including ERP. The right selection of an appropriate solution is an essential requirement for these companies. This paper has presented a localized model for selecting ERP solutions in Iran's distribution industry. This model evaluates selection of ERP solutions from three different dimensions which are identification of main & secondary phases, identification types of required executive processes and identification predictable results after executing identified processes. We have used Delphi method to confirm the model.
Key words: ERP, RFP, RFI, RFQ, Delphi method and ERP selection
Introduction
Economic globalization and business competitive environment globalization in twenty first century have changed business environment and caused that organizations search types of management solutions for successful presence in strongly comparative and challenging environment. These solutions help them to achieve sustainable development.
Successful and leading organizations know that for achieving competitive advantages they must decrease and manage types of waste through more accurate planning and reducing inventories and cost, optimization of the work process, zeroing in on waste, managing sleep capital, increasing ROI[2] and etc. they must pay attention to customer voice through shortening the delivery time, responding better and faster to customer demand, enhancing the quality and diversity of products and etc.
One of the most basic solutions to achieve above objectives and sustainable development for these organizations is effective use of technology especially solutions based on IT [3]. In this regard, right selection of ERP solutions has extremely high importance.
In the last decades IT has greatly contributed to development, change and innovation in the business environment.
ERP [4] is a management solution based on IT. If there are ERP acquisition conditions in business, then ERP will create effectiveness, value added, competitiveness, organizational maturity through standard integrated software packages and based on pre-designed best practices but ERP is flexible, adjustable also ERP have ability to plan for all organizational resources and protect all business internal processes like manufacturing, human resources, financial, marketing and sale. After implementation ERP, it leads to complete integration in database, functions, processes, management decision making and other items in all business. In this paper we have presented a localized model to select ERP solutions for distribution industry in Iran. We have used some articles and books about this subject to design the primary model. After that we have used Delphi method to confirm the model. Furthermore, Research process includes six stages which are international literature review, identification Delphi panel members, designing primary model including main & secondary phases, executive processes and predictable results after executing identified processes, designing questionnaires, gathering information, analyzing information and conclusive aggregation with Delphi panel team cooperation. We have selected Iran's distribution industry because all organizations in this industry have a lot of turnovers and they need more to use IT solutions like ERP because of data analyzing.
Literature review
Illa etal (2000) proposed SHERPA[5] methodology to help SME’s to acquire ERP software solutions. This methodology includes five phases: Study strategy and business processes and decide to acquire an ERP, Search for candidates and first filter, Dig into the candidates and second filter, Analysis and demonstration of candidates and visits to the providers, Final decision, negotiation and planning. Stefano (2000) proposed ERP selection model that consist of three phases: the first phase considers Strategic plan, the second phase consists of identify ERP business needs and translate these into technical requirements and priorities features, the third phase consists of initial software selection, site visits, send out RFQs, final software selection. Verville and Haligten (2003) presented a model for ERP software acquisition process. This model includes six distinctive but interrelated processes as; planning, information search, selection, evaluation, choice and negotiations. Wei and Wang (2004) presented a comprehensive framework for combining objective data obtained from external professional reports and subjective data obtained from internal interviews with vendors to select a suitable ERP projects. Their procedure includes 11stages. Lien and Liang (2005) proposed a three-phase ERP selection systematic framework which is containing three phases: Phase1 (Identification): Characteristic identification and criteria establishment, Phase 2 (Searching): Alternatives searching for feasible solutions, Phase 3 (Analyzing): Selecting the most adequate alternative by using FAHP. Wei etal (2005) proposed a comprehensive framework for selecting a suitable ERP system. This framework includes a 7-step selection framework. Bakås1 etal (2006) proposed a methodology that differs from existing models. This methodology includes 4 phases as: preparation (understand business strategy & functional strategies (IT, market, operations, etc.) , understand processes skills & infrastructure, understand overall ERP functionality and potential), analysis( analyze current functional strategies, analyze AS-IS processes, skills & infrastructure, analyze ERP system), evaluation( revise and define functional strategies, define TO-BE processes, skills & infrastructure, evaluate ERP systems), selection( aligned strategies, aligned processes, skills, requirement specification). Lio etal (2007) presented a new model, which is based on linguistic information processing, for dealing with such a problem. Their model include a 7-step procedure. Lien and Chen (2007) proposed a comprehensive model for ERP system selection which includes steps as: Organize the project team, identify the business model and define the particular need of project, searching the feasible alternative ERP systems, selection criteria extraction of ERP system (Product aspect, Management aspect), hierarchy establishment of ERP selection criteria, apply FAHP method to assess the alternative ERP systems and acquire the most suitable ERP system. Deep etal (2008) proposed a selection process for ERP solution which includes 4 phases as: plan (core team formation, review requirement planning, ranking priority of tasks, information flow diagrams-Functional ), identify (list of potential candidates, Software evaluation criteria, prepare ITT, vendor evaluation criteria ), evaluate (short listing of candidates (2-4), Customer site visits, Detailed demonstrations / workshops), selection (package selection, negotiation, selection). Jadhav and Sonar (2009) proposed a generic stage-based methodology for selection of any software package which consists of 7 stages. Cebeci (2009) presented an approach to select a suitable ERP system for textile industry. He proposed a methodology which includes 2 phase as: Strategic management phase, decision-making phase. Feili etal (2012) proposed a four-step approach as: Problem Definition ( Need for ERP implementation , Being in selection Phase ,Forming the Selection Team), Identification of Criteria ( Literature Review, The Experts’ and Team Members’ opinions ,The experiences of similar organizations), evaluation of Criteria ( determining the inner-dependence of the criteria ,determining the most critical criteria , clustering of the criteria), selection ( pairwise comparisons by the Experts , ranking the alternatives , choosing the best alternative. Selcuk Kilic etal (2014) proposed a three-stage hybrid methodology as: determine the criteria with respect to the requirements (needs and wants) of the company, the importance/weights of all the criteria are obtained via fuzzy AHP methodology-output of which is then used as input to the TOPSIS method, the best ERP software package is determined by utilizing TOPSIS methodology . Pitic etal (2014) proposed a roadmap for ERP evaluation and selection that includes 4 phases as: preliminary phases (preliminary phase designed to prepare the company for the selection process), analysis (an analysis phase for determining internal requirements and a short list of possible suppliers), evaluation (an evaluation phase that should point out technical strengths and weakness for each solution), negotiation (a negotiation phase for concluding the selection process).
Methodology
All research that has done in ERP selection show that phases, processes of ERP selection are different from each other, so quantitative approach is not enough in this respect because it makes ignore effective factors in phases, processes of ERP selection. Therefore, qualitative approach is the most important approach in ERP selection because selection stage of ERP software solutions (it's a stage before ERP implementation) have great importance in failure or success of these projects in all organizations. Delphi method is one of the most important manners in qualitative approach. Delphi method is used in this respect because this method can collect the most important factors which affect ERP selection.
In this paper we want to create a model in ERP selection that is including phases, processes and predictable results that cause after executing processes by some ERP experts and consultants. We have used a panel Delphi including some ERP experts and consultants in Iran. To do this paper at first, we designed primary model that is including identification of main & secondary phases, identification types of required executive processes, identification predictable results after executing identified processes by most repetition and overlapping views that have extracted from previous literature (studying some international articles and books) and interviewing some ERP experts that present or implement ERP solutions. After that we specified Delphi panel members (The number of these experts is 98 people) that consists of all ERP experts in Iran which is including ERP experts (suppliers, implementers, consultants and supervisors in ERP projects in Iran) and experts was using ERP software solutions or selecting these software solutions in Iran's distribution industry to check the primary model by interviewing Delphi panel members to validate the primary model. And we designed three questionnaires (for phases, processes and predictable results) and sent the questionnaires for Delphi panel. Then we started to analyze responses of them to pay attention to their views. Finally, we did Delphi method twice and ERP experts agree with us about the model. Finally Primary model validation is proved by ERP experts in Iran and confirmed this model by Delphi method .We used ERP experts in Iran because we want to localize this model for distribution industry in Iran.
Proposed model for ERP selection
In this section we propose our model for selecting the appropriate ERP software solutions. This model evaluates selection of ERP software solutions from three dimension which are identification of main & secondary phases, identification types of required executive processes and identification predictable results after executing identified processes. This model was inspired by Simon model about decision-making (1960) which consist of four stages as: intelligence, design, choice and implementation [Laudon, Kenneth C, 1944].
The model of this paper includes the following three main phases:
Phase 1: recognize (recognition and diagnosis)
Phase 2: analyze (analysis and identification types of requirements and alternatives
Phase 3: select (selection of the most appropriate software solution and selection of Executor Company and contraction)
For more details we need to explain this model from three different dimensions as follows:
Explain main and secondary phases and proceedings that must do in each main and secondary phases
Specify types of executive processes that must execute in different stages
Introduce types of predictable results in this model based on types of proceedings or actions in each of the processes that must do in each of main and secondary phase
Introduce main and secondary stages in the model
Phase 1: recognize (recognition and diagnosis)
This phase includes the following sub-phases:
Recognize and precise definition of the problem
In this sub-phase, we must specify all management diagnosis, and we are supposed to achieve what results after decision-making, selection and implementation of ERP software solutions.
evaluate organizational readiness and maturity to acquire these solutions
In this sub-phase, at first, we evaluate organizational readiness and maturity to acquire ERP software solutions. If organizations do not have organizational enough readiness and maturity, then they must increase it via improvement plans.
Prepare comprehensive plan of Informatics or IT strategic plan
Before any actions, (collect detailed information and identify requirement in detail) organizations must define and specify budget, project scope and main approach of the organization for selecting ERP solutions.
Phase 2: analyze (analysis and identification of types of requirements and alternatives)
This phase includes the following sub-phases:
Identify and define types of business requirement
In this sub-phase organizations must identify and define list of systems, sub-systems, modules and detailed business functions that require in the scope of project.
Improve, develop or re-engineering business processes
This sub-phase is the most essential thing in ERP software solutions selection. Organizations must improve, develop or BPR all their business process before ERP software solutions selection.
Identify types of accessible alternatives
To select Executor Company, organizations must identify in various way types of producer and implementer companies of ERP software solutions in the scope of project and industry.
Identify evaluation criteria and prioritize them
In order to prepare a method for evaluating types of alternatives must be identified and documented types of evaluation criteria (preparation of RFP [6]).
Select or define a decision-making model
This model for decision-making can be simple (like an EXEL small program) or large and complex. It can evaluate qualitatively and quantitatively types of alternatives based on defined evaluation criteria by these models.
Phase 3: select (selection of the most appropriate software solution and selection of Executor Company and contraction)
This phase includes the following sub-stages:
evaluate initially the long list of companies and prepare short list
After initial evaluation and based on collected and received information from all alternatives (the long list of companies) must be selected a limited number of alternatives (it is recommended that the number of short list companies be 3 to 7), directly negotiation with companies and seeing demos of systems are not recommended at this sub-phase).
evaluate technically and accurately of acceptable companies on the short list
Evaluate technically and accurately of capabilities of the software through holding professional and planned demos meeting in accordance with pre-prepared scenarios.
Evaluate precisely the number of Executor Company and if possible, they can visit live how to run the software at the customer site (customers).
Visiting the place (site) of Executor Company and especially evaluating standards that is taken by Executor Company.
Select Executor Company
In this sub-phase, after doing all activities in all previous phases we can select Executor Company.
Finalized negotiations and contract with Executor Company.
In this sub-phase we should negotiate and contract with the most appropriate Executor Company.
Introduce executive processes at different phases of the model
As mentioned above types of proceedings and actions must perform in each phase can be classified in terms of subject to the following executive processes:
The process of analyzing, evaluating, identifying requirements and measuring business process maturity
We can certainly say that the most important process in decision-making processes is the process of analyzing, evaluating, identifying requirements and measuring business process maturity.
The process of evaluating, collecting and cleaning information especially master data
After an ERP solution selection, one of the main and most important factors for getting success and increasing effectiveness is use of correct, complete and real time information to achieve correct and reliable results. If you give wrong information to the best ERP solutions after that you will get wrong results. As a result, this process is the most important processes in the decision-making model and this process does not have any roles in decision-making and executor company selection for this reason and companies pay attention to this process less in ERP selection. But certainly the lack of attention to this process in during implementation, both executor company and employer company will be faced with numerous difficulties.
The process of team-building and project management
At first it is necessary to consider ERP selection stage (before implementation) as an important project and the process of team-building and project management is done in accordance with budget and project size.
The process of management support
In any business, ERP solutions selection is not the main purpose of organizations but all organizations must use optimal ERP solutions to achieve their purpose as: more profit, more sales, brand development, expanding market share and etc. Therefore, appropriate ERP solutions selection is not one of the mission of IT, but it is a selection and management decision and should be done with the support of senior management.
The process of organizational change and evolution
Change and evolution are base of these projects because ERP solutions selection projects start with some changes and evolutions.
Introduce predictable results after executing all processes at the end of different phases
Predictable results at the end of first phase:
Define senior management's concerns and expectations for selecting software solutions and specify that organizations are supposed to achieve what results after ERP solutions implementation.
Evaluate organizational readiness and maturity for selecting software solutions and specify that what improvement plans must execute to increase organizational readiness.
Form a decision-making team (or person) for selecting software solutions and specify their authority level and use professional consults in accordance with the size of project.
Define the scope of project especially in terms of budget and time
Phase the project likely and define systems and sub-systems that must implement in each phase
Define qualitative level of selective software solutions as ERP (Iranian solutions or with world class (A or B))
Predictable results at the end of the second phase
Define and prepare the list of modules, systems and sub-systems in details (RFI [7])
Prepare a list of all executor companies ( Iranian companies or companies that implement international products) with general information about them
Prepare RFP[8] for offering it to executor companies and define criteria for evaluating executor companies
Define a model for scoring and final evaluation of executor companies according to criteria and indicators
Predictable results at the end of the third phase
Identify all accessible executor companies based on evaluation criteria and prepare long list among them
Select short list for companies (between 3 to 7)among the long list of companies based on collected data from the long list of companies and evaluation model (this information can be the evaluation of the site, getting brochures and public documents and in certain cases is seeing initial demos)
evaluate short-list companies based on evaluation model that was prepared at the end of second phase and score them based on all evaluation criteria
Select executor company based on evaluation model and final negotiation among short-list companies by the team of software solution selection
A graphical representation of the proposed model is presented in figure 1:
Conclusions
In this paper we have presented a new approach to help all organizations with different sizes in the selection process of a new ERP software solution in Iran's distribution industry to acquire the most appropriate ERP solutions. Our model consist of three main steps: identification of main & secondary phases, identification types of required executive processes, identification predictable results after executing identified processes.
We have selected Iran's distribution industry because all companies in the industry have a lot of turnover and they have many problems without any ERP software solutions. We confirmed our model by experts that use ERP solutions in the industry and all companies that present Iran's ERP solutions and companies that implement international ERP software solutions.
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