1. Introduction The most complete current definition of Enterprise Resource Planning (ERP) is stated by Wallace and Kremzar [1]: An enterprise-wide se

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1 Enterprise Resource Planning (ERP) fitting in a Make-To-Order (MTO) Small-Medium Enterprise (SME) A. Bianchini*, D. Peta*, C. Saccani*, P. Simeoni** * Department of Industrial Engineering, University of Bologna, Viale Risorgimento 2, 40136, Bologna Italy (augusto.bianchini@unibo.it, d.peta@alice.it, cesare.saccani@unibo.it) ** Department of Electrical, Management and Mechanical Engineering,, University of Udine, via delle Scienze, Udine Italy (patrizia.simeoni@uniud.it) Abstract Purpose The paper starts with a comprehensive state of the art that describes the main Make-To-Order (MTO) Small- Medium-sized Enterprises (SME) characteristics and requirements and the widely available Enterprise Resource Planning (ERP) software solutions. The paper develops identifying possible gaps or misalignments between them. Subsequently it focuses on the specific needs of the case study company and on the current ERP solutions implemented, assessing their concrete adoption and effectiveness and suggesting possible developments or alternative solutions, such as integration with existing Product Lifecycle Management proprietary software. The main goal of this paper is to show how an ERP could be fitted in a MTO small enterprise, operating in a niche context. In general ERP system represents a rigid solution for standardized production process that has to be customized to manage SME production flexibility and to guarantee an adequate operation management. A case study of a small enterprise, operating in fashion market, is shown. Design/methodology/approach Despite the literature is quite scarce in determining the applicability of ERP to a MTO company, available publications show a substantial misalignment between MTO requirements and ERP functionality, which is confirmed by the case study examined. However a further research is required, especially on new modules and add-ons of ERP systems (e.g. CEM, PLM, APS), seen by literature as potentially helpful tools but often offered as extra solutions which may be too expensive and risky for small-medium companies with limited IT budgets. Since even excellent systems may give bad results if they are applied to situations where they are not suited, developing an ERP system based on its specific business model could be a solution for a niche company to remain flexible and dynamic and to conform to the customer needs at any time. Originality/value The paper offers a contribution to a growing field of research, related to applicability of ERP systems to MTO companies, with a concrete case study of a niche company. This research is potentially aimed at being useful to other MTO niche companies adopting an ERP system for the first time or developing new solutions on existing one. Keywords: Enterprise Resource Planning, Make-To-Order, Small-Medium Enterprise 274

2 1. Introduction The most complete current definition of Enterprise Resource Planning (ERP) is stated by Wallace and Kremzar [1]: An enterprise-wide set of management tools that balances demand and supply, containing the ability to link customers and suppliers into a complete supply chain, employing proven business processes for decision making, and providing high degrees of cross-functional integration among sales, marketing, manufacturing, operations, logistics, purchasing, finance, new product development, and human resources, thereby enabling people to run their business with high levels of customer service and productivity, and simultaneously lower costs and inventories; and providing the foundation for effective e- commerce. When implemented effectively, ERP systems can provide business benefits such as real-time data availability, improved visibility, and increased task automation [2-4]. ERP systems are offered by vendors as all-in-one solutions, customizable to meet the needs of any business. This is achieved both by a modular approach, allowing the customer to choose the modules required, and by extensive system parameterization. MTO companies produce tailored and customized products to particular customer specifications not repeated in a predictable manner. Manufacturing, typically characterized by high variety and low volume, takes place only after the customer order confirmation stage, therefore production planning and control result more difficult compared with Make-to-Stock (MTS) environment. The literature suggests that MTO companies present particular challenges in ERP adoption [5-7] and at present, most of the widely available ERP features conceptually fail to match these specific requirements [8]. The paper contributes to this field of research initially presenting MTO decision support requirements and ERP module functionalities, as described by literature. Subsequently it focuses on a case study of ERP adoption and development in a small-medium niche company, offering alternative approaches that may be considered. 2. Methodology The research methodology used consists of two parts: a systematic literature review about ERP issues in a MTO context and an in-depth case study of ERP adoption and development in a small-medium niche company. The second part of investigation may at best be described as action case, as defined by Braa & Vidgen [9]. They define an idealized framework for Information Systems (IS) research identified by the points prediction, understanding and change as illustrated in Figure 1. Prediction is the aim of the systematic reduction of a positivist approach, understanding the aim of an interpretive approach, and, finally, change is connected to an interventionary approach. Braa and Vidgen position action case as indicated, with both an interventionary and interpretative element. Figure 1: Information Systems (IS) research framework as defined by Braa & Vidgen [9] Action case is a hybrid of action research (change) and case study (understanding) and well describes the methodological approach of this paper. 3. MTO requirements and modern ERP systems Make-To-Order (MTO) companies, which produce highvariety and bespoke products, have particularly challenging decision support requirements and it remains unclear whether ERP systems can meet their needs. MTO decision support requirements and ERP system provision are summarized in Table 1 [8]. In particular MTO SME specific critical success factors by comparing successful and unsuccessful ERP implementations are: part-time dedication of the employees to the implementation project, the lack of a formal implementation strategy, a low level of software customization and poor communication amongst team members [10]. A very important aspect in introducing an ERP within a SME is that, in most cases, the medium enterprise derives from the growth of a small one. This growth is often entrusted to the management ability of entrepreneur and its employees, but it is not designed in a strategic way, normally focusing on the product manufacturing and not on information system development. The usual situation of a small growing company is characterized by a patched information system that strongly reduces the opportunity of integration with an ERP. The first step is therefore to check if the production function is suitable for the real manufacturing procedure 275

3 and if running data-base has the characteristics to be integrated within an ERP structure and can provide desired business benefits, such as real-time data availability, improved visibility and increased task automation. Caution should be exercised when deciding the introduction of an ERP system in a medium-sized company and especially a detailed design must be elaborated, starting from MTO requirements [8]. Through well-defined steps, the company should be leaded to the full use of the system through dedicated staff training. assembly packaging. The ABC or Pareto s analysis of turnover is shown in Figure The case study The company is a small-medium enterprise with about 100 employees and 15 million of turnover. It operates at the beginning of the supply chain of the fashion footwear industry, according to an Engineer/Make to Order scheme. In relation to specific customer orders it provides the design and manufacturing of aluminum molds and the subsequent molding by plastic injection of heels, heellayer, wedges, platforms, clogs and soles, in different combinations of size-color variants. The production is articulated on two plants, for a total of 3 molding departments and 2 manual departments (painting and packaging). After the development of new molds, in case of order confirmation by the customer, the possible processing stages are in sequence: plastic injection molding polishing and brushing plating painting Figure 2: Pareto s analysis of turnover The 80% of turnover is generated by less than 10% of customers (group/class A customers), while the remaining 20% is due to a myriad of minor customers (90% of customers are in group/class B and C ). The major challenge that company has to face is the production flexibility required by customers, typical of SME operating on a MTO basis. To measure the degree of flexibility required, it may be useful to analyze the annual distribution of the quantities in pairs ordered by each customer order line. 276

4 n of order lines ,5 79,0 178,0 277,0 378,0 479,0 587,0 710,0 n of ordered pairs Figure 3: ordered pairs by customer order line in a year The Figure 3 illustrates the number of order lines as a function of numbered of ordered pairs. In particular it is a zoom, with a maximum around 600 on ordinate and around 4000 on abscissa, to show better the distribution. Real maximums are around on ordinate and on abscissa. If we analysed better the fact that this company is organised to satisfy contemporary (on the same production machinery) order lines/year of 1 pair and 1 order line/year of pairs, it is more evident what means flexibility. Figure 4: % of order lines and % of total production as function of three batches of ordered pairs The Figure 4 shows what means flexibility in relation to production capacity constraints. The 94% of order lines (about in one year) have quantities less than 200 pairs and represent about 38% of total production. These kinds of orders (less than 200 pairs) can be made completely at once without splitting production by batches in different times. Batch division is necessary to manage production capacity constraints: this procedure is used for order lines with more than pairs, equal to 866, , , , ,0 1% of total lines (700 order lines), representing 22% of total production. The remaining 5% of order lines have quantities between 200 and pairs, equal to 40% of total production, and can be fulfilled by one-shot production or by batches in different times, according to temporary priorities and urgencies. Actually production management is working manually without the support of the installed ERP system. The main tool of production office is a customized print of customer orders, grouped by item code, with the quantities divided by color-size grid, in which the parent code is also exploded on child code immediately below in Bill Of Materials. These prints are processed and modified manually and released as production orders for molding departments and as picking lists for packaging departments. The ERP is substantially used for creating items, Bill Of Materials (neutral and with variants) and production cycles, but MRP elaborations are not considered. A deep analysis of the ERP has highlighted a high number of mismatches between the database and the company's operational procedures, as well as a lack of technical staff dedicated to the professional use and maintenance of the system. The major criticalities of the system are the actual impossibility to release production orders grouped by size, due to the actual database configuration, and the structure of BOMs and production cycles, that don t allow proper progress and closing of production orders. To solve these problems, it could be reversed the sequence of the sizecolor variants into color-size, and it could be introduced a new variant called for example sale, to manage semifinished products that can also be sold as finished products, using different variant production cycles, without creating new levels in Bill Of Materials. These are critical system customizations that could require the closure of actual database and the opening of a new one, like a migration onto a new information system, and therefore should be planned carefully with the company s management. Future ERP system developments could be the integration with the Product Lifecycle Management proprietary software actually used by the technical office and the purchase of an additional module of Capacity Requirement Planning. However these implementations require further analysis. 5. Discussion and conclusion ERP should be considered a key investment for a SME, but the system should be customized according to the business context in which it is installed, because off the shelf solutions generally don t work properly with dynamic, flexible and unstructured companies. ERP can be considered effectively implemented when it supports company to plan the production requirements within the capacity constraints. 277

5 A structured and controlled approach to operation management, keeping manufacturing flexibility, in a small medium enterprise running in a MTO context, even if it will not lead to a full use of ERP system, introduces positive side effects like taking charge of actual customer service level (on-time delivery lower than 30% in the case study). References [1] T.F. Wallace, M.H. Kremzar, ERP: Making it Happen (The Implementers Guide to Success with Enterprise Resource Planning), Wiley, New York (2001) p. 5 [2] M. Gupta, A. Kohli, Enterprise resource planning systems and its implications for operations function, Technovation 26 (5 6) (2006) pp [3] T.H. Davenport, Putting the enterprise into the enterprise system, Harvard Business Review 76 (4) (1998) pp [4] S.C.L. Koh, A. Gunasekaran, D. Rajkumar, ERP II. The involvement, benefits and impediments of collaborative information sharing, International Journal of Production Economics 113 (1) (2008) pp [5] W.M. Bertrand, D.R. Muntslag, Production control in engineer-to-order firms, International Journal of Production Economics 30 (31) (1993) pp [6] M. Stevenson, L.C. Hendry, B.G. Kingsman, A review of production planning and control: the applicability of key concepts to the make-to-order industry, International Journal of Production Research 43 (5) (2005) pp [7] A. Deep, P. Guttridge, S. Dani, N. Burns, Investigating factors affecting ERP selection in made-to-order SME sector, Journal of Manufacturing Technology Management 19 (4) (2008) pp [8] Bulut Aslan, Mark Stevenson, Linda C. Hendry, Enterprise Resource Planning systems: An assessment of applicability to Make-To-Order companies, Computers in Industry, Volume 63, Issue 7 (2012) pp [9] Braa, K. & Vidgen, R., Interpretation, intervention, and reduction in the organizational laboratory: a framework for in-context information systems research, Accounting, Management and Information Technology 9 (1999) pp [10] B. Snider, G.J.C. da Silveira, J. Balakrishnan, ERP implementation at SMEs: analysis of five Canadian cases, International Journal of Operations & Production Management 29 (1) (2009)