ERP Implementation Challenges in Small and Medium Enterprise: a Framework and Case Study

Keywords: Enterprise Resource Planning, Small to Medium Enterprises, Issues and Challengers, Framework.

Abstract. The Malaysian small to medium enterprises (SMEs) market has big influences in the business world which is becoming more competitive. Therefore, Enterprise Resource Planning (ERP) as a functional unit integrated system is needed to streamline the business processes to achieve greater work efficiency. However, an in depth understanding about ERP system is needed to ensure the successful system implementation. This paper seeks to explore the challenges of ERP system implementation in order to deepen the knowledge on ERP system implementation in SMEs. The research method is based on a single-case design within Malaysian SME to obtain a process model of ERP system implementation adoption by SMEs. The conceptual framework for ERP system implementation, which was validated by a number of SMEs in Malaysia, is proposed in order to attempt the minimize ERP project failure in SMEs.

Introduction

The business environment is becoming increasingly complex with functional units and it needs greater interaction between customers and manufacturers. An organization needs integrated functional units which require inter-functional data flow for decision making, efficient procurement, management of inventory, accounting, human resources and distribution of goods and services. In this context, management of organizations needs efficient information system to improve competitiveness by cost reduction and better logistics. ERP system is a great solution for these issues. This information system is designed to coordinate all the resources, information and activities needed to complete business process. ERP software encompass modules supporting functional areas such as planning, manufacturing, sales, marketing, distribution, accounting, financial, human resource management, project management, inventory management, service and maintenance, transportation and e-business [1].

SME has many influences to the world economy. One of the most important technological innovations of the last decade has been the emergence of ERP solutions. This trend in the market has been revised with the intervention of ERP system in manufacturing SMEs which holds the major beneficiary and benefactor of Malaysian market. The implementation of ERP system has increased the jobs as well as income in the country. SMEs consider the ERP system applications as strategic investment for the returns that it could yield in return. But implementation of ERP system, especially in Malaysian SMEs, is not just a technological challenge. Its a socio-technological endeavor, which mandates modifying existing applications and redesigning critical business processes to facilitate ERP implementation [2]. Most SMEs cannot afford to adopt an existing ERP system due to the extremely high cost and complex implementation of the system. This paper intends to determine the issues and challenges of ERP system implementation faced by Malaysian SME. The ERP implementation framework will be proposed to ensure the successful of ERP implementation.

Advanced Materials Research Vols. 139-141 1637

Literature Review

Adoption of ERP System by SMEs. SME sectors in Malaysia account for a large proportion of the total numbers of business in many sectors, and contribute a considerable share in terms of gross domestic product (GDP). SMEs in Malaysia are involved in various industries. One of them is SME in manufacturing sector which is involved in activities, such as the processing and production of raw materials, and manufacturing of electrical and electronics appliances and components [3]. Currently, there are several basic problems faced by Malaysian SMEs. Ability to access the market and finance, low level of technology, lack of labor and skilled manpower, and work culture still become issues for SMEs to implement ERP system. Majority of the companies do not think of long- term business strategy, but focus only on survival. The companies who survive and grow are the ones who have ability to take risks and respond to the changing circumstances [4]. Based on this research study, the company focuses only on survival.

ERP system helps SMEs to improve efficiency of their business operations. Based on previous research conducted by [5], SMEs are keen on adopting ERP systems for several reasons. First reason is pressure from larger counterparts. Majority of SMEs are clients of Multi National Companies (MNCs). These MNCs require SMEs to implement the same ERP system as them to allow for integration in their supply chain, which permits them to design and plan the production and delivery so as to reduce the turnaround time. Second reason is peer pressure. Considering the growth in ERP implementation in the SME segment, several SMEs are adopting ERP systems as their peers have done so. Third reason is to gain competitive advantage and respond quickly to the dynamic market scenario. The next section of this paper describes the conceptual framework of ERP system implementation based on the literature reviews and validation from a number of Malaysian SMEs.

Research Methodology

This study is based on a single case study in a Malaysian SME. The methodology adopted is the action research cycle. Action research provides an excellent basis for exploratory studies of contemporary information system phenomena as it enables researchers to explore the complexities and intricacies of organizationinformation technology interactions within the contexts of real-life case companies. The canonical action research used for most information systems research is based on [6] five-step process which shown in Fig. 1 below.

Fig. 1 The Action Research Cycle

ERP System Implementation Framework. Fig. 2 shows the conceptual framework for ERP system implementation which has been validated by a number of SMEs in Malaysia. It focuses on the critical factors, methodology, strategy and process modules of ERP system implementation in Malaysian SMEs.

Case Analysis and Finding

Company X is one of SMEs in Malaysia which was established in Kuala Lumpur since 1988. Company X is engaged in the precision plastic injection molding of quality and precision parts for the audio/video, electronics, computer peripherals, and automotive industries. Company X bought ERP software from vendor since 2007 and attempted to implement it. Since the first decision process, there was no IT staff involved. The General Manager appointed the Quality Management Manager to be in charge in ERP software package installation. The ERP system implementation in Company X failed, because the project team could not handle expected or unexpected issues from their plans. Based on research experience in Company X, the researcher found issues related to ERP system implementation failure. The detailed explanation of the issues is illustrated in Figure 3 below.

question: paper with a 1500 words

1. provide introduction.

2. issues related to execution of project, what specific issues occured on the project that led to the poor execution of the project?

3. effects of poor project execution, what were the specific consequences to the project's poor execution?

4. provide conclusion.

5. provides a reference list and each referenece at least once in the paper.

6. provide at least six citations.