Roadmap of Enterprise Resource Planning (ERP) Research for Small and Medium Enterprises (SMEs) in Indonesia

Transcription

1 Roadmap of Enterprise Resource Planning (ERP) Research for Small and Medium Enterprises (SMEs) in Indonesia J.W. Saputro, Putu Wuri Handayani, A. Nizar Hidayanto, Indra Budi Laborory of E-government and ERP Faculty of Computer Science, University of Indonesia Abstract Small and Medium Enterprises (SMEs) in Indonesia contribute around 53% of the GDP. To increase their market competitiveness, SMEs need to be able to integre and autome their business processes least to a certain extent. An ERP system can be a solution for SMEs because of its advantages i.e. quickened informion response time, increased interaction across the enterprise, improved order management/cycle, etc. Among the critical issues of SMEs are limited funds availability and lack of Informion and Communicion Technology (ICT) capability. In order to better understand the need of ERP services for SMEs and to provide guidelines for Indonesian SMEs and to address the void of ERP researches in Indonesia, this paper presents the roadmap of ERP research agenda for SMEs in Indonesia. I. INTRODUCTION P ursuant to the Central Bureau of Stistics and the Ministry of Cooperive and SME, in 2006, number of SMEs has reached 48.9 millions. SMEs in Indonesia have proven to provide 85.4 millions employment opportunities and contributed 1, billion rupiahs or 53.3% of the Gross Domestic Product (GDP) [15]. This percentage tends to remain constant since 2004 [4]. However, it is expected to increase in the next year due to the impact of the economic crisis. World wide da also shows the significant contribution of SMEs: on average 95% of the economy of most countries relies on SMEs [16]. Considering the tight competition among SMEs and large companies, SMEs must seek competitive advantages th enable them to minimize cost and maximize profit. One major issue of SMEs is the lack of human and financial resources. In addition, most of SMEs business processes are still conducted manually. Only a very small number of SMEs can afford business software and most of them opere in silos. This situion may not yet pose a big problem as the numbers of transactions in SMEs businesses are relively small and the volume of da is still manageable. However, the challenge of globalizion necessites a condition for SMEs to equip themselves with necessary tools to support growth and to maintain competitiveness. An ERP system could be one of the solutions to help SMEs for simplifying, integring and automing their business processes. Practically, by utilizing an ERP system in an approprie manner, SMEs could reduce opering costs and improve their performances e.g. giving better customer service, reduce lead time, etc. In other words, ERP enables and facilites strong interaction between operions, sales, finance and marketing as everyone is on the same page or using one version of the truth. Furthermore, using ERP fosters an understanding on how different business processes are integred: th is, where they each own a piece of the system but affect each other [5]. In Indonesia, the awareness of the ERP concept among SMEs is less than 20% [9], which implies a large untapped market for ERP. Based on Cindy Jutras s study in 2010, many SMEs didn t implement an ERP system because of [5]: limited funds availability SMEs have been able to function effectively without it in the past (internal) effort to implement cost of software and services SMEs will be able to continue to function effectively without it in the foreseeable future ERP systems are too compliced

2 To de, many ERP vendors have been developed an ERP systems both proprietary and open source software for SMEs. Typically, these ERP systems are priced to make it affordable by SMEs and stress on ease of use. This trend has lowered the obstacle for ERP adoption among SMEs. However, prior to implementing an ERP system, SMEs also need to consider and plan for the prerequisite infrastructure (e.g. server, network, etc). This paper discusses the study on how to implement the ERP for SMEs in Indonesia in research approach. The rest of the paper is organized as follow. Next section explains the previous works, while the background theoretical on ERP is explained in section 3. The roadmap of ERP for SMEs in Indonesia is explained in section 4 and final section discusses the conclusions and future works of this research. II. PREVIOUS WORKS In 2010, Cindy Jutras in collaborion with Abeerden Group provides an in-depth and comprehensive look into ERP advantages and stregies th are necessary needed by SMEs [5]. In addition, required actions th are needed for the success of ERP implemention in SMEs are defined in this study. Yuanqiang Xia, Peter Lok, and Song Yang in 2009 discussed the characters of ERP marketing and SMEs in China, as well the critical success factors (CSFs) of ERP implemention [10]. Because of each country has different culture, several studies have been conducted to identify the critical success factors of ERP implemention. Based on Handayani, Puspita Kencana, Rein Nusa, and Budi Yuwono in 2009 in analyzing the implemention of ERP in ste owned companies with case studies on PT. Timah (Persero) and PT PLN (Persero), there are several critical success factors in implementing ERP i.e. high commitment from top management, minimize ERP customizion, good ERP project planning (e.g. choosing the right methodologies and good planning of migrion da), organizional change management (e.g. transformion of work culture), communicion and ownership stregy [11]. Based on Ampairana Ntawee and Rotchanakitumnuai Siriluck in 2008, top management support, good coordinion and communicion between the project team, and change management are the most critical factors for ERP implemention in Thai SMEs [12]. In 2009, Siti Shafrah Shahawai and Rosnah Idrus have defined research methodology for assessing Malaysian SMEs perspective on ERP [13]. III. BACKGROUND III.1. ENTERPRISE RESOURCE PLANNING (ERP) Businesses include complex processes and a lot of actors in those activities. Business process is a collection of activities th takes one or more kinds of input and crees an output th is of value to customer [2]. In order to simplify, integre and autome business processes, a company needs an ERP system which is a packaged business software system to autome and integre the majority of business processes, share common da and practices in one dabase, and produce and access informion in a realtime environment. In addition, an ERP system introduces best practices which are defined as simply the best way to perform a process [2]. There are several business benefits of ERP such as [3]: quickened informion response time increased interaction across the enterprise improved order management/cycle reduced financial closing cycle time improved customer relionship management improved on-time delivery improved interaction with suppliers, reduced direct opering cost lowered inventory level Beside the advantages of ERP system, there are other motivions to implement ERP such as [3]: Replace legacy systems Simplify and standardize systems Ease of upgrading systems Link to global activities Restructure company organizion Pressure to keep up with competitors In implementing an ERP system, a company should also conduct change management to their personnel and better re-engineer their business processes. When a company chooses to implement an ERP system, they should prepare for several cost components such as software, hardware, consulting, training, and implemention team. In addition, because of ERP implemention investment is high, they should consider three main components such as people (knowledge, skill and behaviour), process (e.g. business events, Standard Opering Procedure (SOP),

3 process workflow, etc) and technology (hardware and software). To implement an ERP system, a company could choose several options as follow [3]: vanilla ERP implemention th adopt vendor s best practices. The disadvantages of this technique are competitors have access to the same system and disruption of operions over 3-5 years partial ERP implemention (e.g. selected modules) th will impact on partial changes in business processes in-house development (customdesigned ERP system which will be unique from competitors. The disadvantages of this technique are long-term analysis and design process, and high expenses If a company chooses to implement ERP using vanilla or partial implemention technique, they could buy an ERP system from vendor (e.g. SAP, Oracle PeopleSoft, etc) or use an open source ERP system (e.g. OpenBravo, OpenERP, etc). III.2 INDONESIAN SMES AND IT ADOPTION In order to increase SMEs competitive advantages, SMEs need to utilize informion technology. However, not all organizions particularly SMEs consider it is important for supporting their business, particularly in small to medium organizion. Study from Fhul Wahid and Lizda Iswari [17] on 146 SMEs in Yogyakarta showed th there only a small portion of those SMEs th have adopted informion technology. The barriers of this adoption are mainly due to financial constraint and the needs for IT to support their business are still low. Similar findings are also shown by Budi Triono and Yan Rianto [18]. Survey on 151 SMEs showed th only 71% of those SMEs th already used computers and these computers are mainly used to support office or administrive purpose only. E-commerce adoption by Indonesian SMEs also did not show an encouraging figure as shown by Vidi Arini Yulimar, Asia Foundion and Yadi [19][20][21]. These studies also showed th the use of e-commerce raising the level of sales in SMEs and improving the performance of organizion. Compibility, top management support, organizional readiness, external pressure, and perceived benefits are among of factors th have significant positive effect to E-commerce adoption. Some efforts have been done to increase the use of IT in SMEs. For example, PT Zahir Internasional has developed an accounting software package for SMEs. They offer various price scheme and specificion to suit the financial capability of the SMEs. In 2008, Zahir launched a special prepaid service package called Zahir Merdeka which enables SMEs to rent their system, thus allowing the SMEs to save on IT investments expenditure. Other internional vendors such SAP also provide a cheaper version of their ERP packages. It is expected by having various payment and pricing schemes, the SMEs have higher possibility to adopt IT for improving the performance of their organizion. III.3. SMES AND THEIR NEEDS FOR ERP Pursuant to the Indonesian Law Number 9 of 1995, Small and Medium Enterprise (SME) is defined as a people economic activities having maximum annual sales of 1 billion rupiah and having maximum net asset excluding land and building of 200 millions rupiah. Hence, based on the Central Bureau of Stistic (BPS), a small business is identical to small industry and home industry. BPS classified the type of industry based on the number of employees Home industry: 1-4 employees; revenue 1 billion Rupiah/year Small industry: 5-19 employees; revenue 1 billion Rupiah/year Medium industry: employees; revenue billion Rupiah/year Big industry: > 100 employees; revenue 100 billion Rupiah/year Figure 1 describes the distribution of SMEs in year 2006 based on industry type or economic sectors in Indonesia according to the Ministry of Cooperive and SME.

4 60.00% 53.57% 50.00% 40.00% 30.00% 27.19% 20.00% 10.00% 0.00% Agriculture, Husbandry, Forestry and Firshery Trading, Hotel and Restaurant Refinery Industry 6.58% 6.06% 5.52% Services Transportion and Communicion Mining and Quarry Electrical, Gas and Clean Wer 0.54% 0.03% 0.34% 0.17% Construction Financing, Leasing and Servicing Company Figure 1. Distribution of Indonesian SMEs in Year 2006 Based on Industry Type IV. ROADMAP OF ERP RESEARCH FOR SMES IN INDONESIA Considering the needs of SMEs and lack of ERP research for SMEs in Indonesia, the e- government and ERP Lab the Faculty of Computer Science University of Indonesia has defined a roadmap of ERP research (Figure 2). We defined three ERP sub topics i.e. development of ERP simulion, studies on the ste of ERP in Indonesia which includes the best practices of business processes, and analysis of ERP prerequisite infrastructure for SMEs. The result of this research is ERP services for SMEs. Before we conduct this ERP research, firstly, we will evalue current works of ERP research and ERP implemention for SMEs which have been done by academics, industries and government (e.g. Ministry of Research and Technology, Ministry of Communicion and Informion, Ministry of Industry and other reled government institutions). In this research, we start to focus more in the retail industry which are the second biggest line industry in Indonesia (Figure 1). Each SME has different business processes and lesson learned, because of th reason we start our preliminary activities to conduct comparison analysis between SMEs and generally acceptable best practices so th we could define the generalizion of business processes and business needs/requirements which fits the retail industry SMEs. In this stage, we also need to address the issues in ERP adoption among SMEs and main characteristics of Indonesian SMEs. Next, we analyze and define the murity model in collaborion with Copenhagen school of IT. Next, based on our preliminary activities results, we will start to develop a prototype of ERP software for SMEs by customizing the existing open source ERP software such as OpenBravo, OpenERP, etc. The selected open source ERP software will be analyzed by observing the functionalities/modules and architecture of each software. In addition, we also plan to study to understand the ERP prerequisite infrastructure such as architecture (e.g. two/three-tier architecture, service oriented architecture, etc), hardware (e.g. server) and network. The most important thing th we will analyze in this research is the identificion of tipping point when and in wh conditions SMEs should implement ERP system considering the high level of investment for ERP implemention. In order to get better understanding of ERP concept to the company s top level management and personnels, an ERP simulion software could be executed. A study from Pierre- Majorique Leger in 2006 shown th the simulion game approach has proven to be quite

5 an effective and approprie pedagogical stregy for teaching ERP-reled concept [14]. Figure 2. Classificion of ERP Research V. CONCLUSION AND FUTURE WORKS SMEs have given higher contribution to the growth of Indonesian economy. In order to have competitive advantages amongst other companies, SMEs needs to manage their resources effectively and efficiently. An ERP system could help SMEs to speed up their performances. A systemic roadmap needs to be defined to provide ERP services for Indonesian SMEs. Several researches topics could be raised up such as the current ste of ERP in Indonesia, ERP software development, ERP prerequisite infrastructure for SME and ERP simulion. The future works of this research will be identificion of the ste of ERP in Indonesia specifically for SMEs, ERP software development using open source software, definition of ERP prerequisite infrastructure for SMEs and development of ERP simulion environment to introduce ERP concepts to SMEs. REFERENCES [1] Magal and Word. Essentials of Business Processes and Informion Systems. Wiley, 2009 [2] E.F.Monk and B.J. Wagner. Concepts in Enterprise Resource Planning, 3rd edition. Thomson, 2008 [3] Sumner, Mary. Enterprise Resource Planning. Prentice Hall, 2005 [4] Majalah Pus Informasi Perkoperasian. Dewan Koperasi Indonesia. Edisi 281/Januari/Th. XXIV/ Available 856# [5] Aberdeen Research. ERP in SME: Fueling Growth and Profits Available library/6526/ra-enterprise-resource- planning.aspx [6] Shahawai and Idrus. Research Methodology for Assessing Malaysian SMEs Perspective on ERP Available /AMS [7] Brent Snider3, Giovani J.C. da Silveira and Jaydeep Balakrishnan. ERP implemention SMEs: analysis of five Canadian cases Available ers/erp_implemention_study.pdf [8] ERPSim Lab HEC Montreal Website. [9] Koran Tempo. 80 Persen UKM Belum Implementasikan ERP Available T [10] Yuanqiang Xia, Peter Lok, and Song Yang. The ERP Implemention of SME in China Available ber= [11] Handayani, Puspita Kencana, Rein Nusa, and Budi Yuwono. Implementasi Aplikasi Enterprise Dalam Mendukung Ta Kelola TI BUMN Di Indonesia Studi Kasus: Pt Timah, Tbk Dan PLN. Jurnal Sistem Informasi Fasilkom UI, 2009 [12] Ampairana Ntawee and Rotchanakitumnuai Siriluck. Developing ERP implemention success factors of Thai SMEs Available 89/889/GMSARN08-DP04.pdf?sequence=1 [13] Siti Shafrah Shahawai and Rosnah Idrus. Research Methodology for Assessing Malaysian SMEs perspective on ERP Available [14] Pierre-Majorique Leger. Using a Simulion Game Approach to Teach ERP Concepts Available pdf [15] Sukandar, Sidik, Kontribusi UKM terhadap PDB Capai 53,3%, Media Indonesia Online, [16] Kotelnikov, Vadim, Small and Medium Enterprises and ICT, Asia-Pacific Development Informion Programme-UNDP, 2007 [17] Fhul Wahid and Lizda Iswari. Adopsi TI oleh Usaha Kecil Menengah di Indonesia. Seminar Nasional Aplikasi Teknologi Informasi (SNATI), Yogyakarta, 2007.

6 [18] Budi Triyono, Yan Rianto, et al. Stregi Peningkan Kemampuan Adopsi Teknologi Informasi untuk Meningkkan Daya Saing UKM Available Stregi_Peningkan_kemampuan.pdf [19] Vidi Arini Yulimar. Analisis Faktor-Faktor Yang Mempengaruhi Pengadopsian E- Commerce Dan Pengaruhnya Terhadap Kinerja Perusahaan (Studi pada Perusahaan Kecil dan Menengah di Indonesia). Master Thesis, Magister Manajemen, UNDIP, [20] The Asia Foundion-Castle Asia. SMEs and E-Commerce in Indonesia Available ndo.pdf. [21] Yadi S. A. Suriadina. Penelitian Pemanfaan Teknologi Informasi dan Komunikasi oleh UKM Eksportir di Indonesia Available