Improving Supply-Chain Information Velocity Research Paper

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Globalization has resulted in increasing competitiveness in today’s supply-chain. Such an environment called for greater integration to coordinate with national and international business partners. The term extended enterprise (ERPII) was a new concept introduced by the Gartner Group in 2000 to label the latest extensions to the enterprise resource planning (ERP) system (Classe, 2001), which includes integration and sharing of accurate information about orders and inventory across the supply-chain, enabled by the newly emerged Internet technologies. However, the ERP acronym has persisted as the most widely used term to describe this wide phenomenon (Sarpola, 2003).

This research-paper explores the value of a new form of enterprise, namely, the extended enterprise to improve supply-chain information velocity, product customization, and cost. To become an extended enterprise, an enterprise with a traditional system will need to upgrade or modify the existing system, and/or to introduce extended enterprise applications (EEA) into the system. This leads to the investigation on the potential benefits of using EEA. The results of the Loh, Koh, and Simpson (2006) study indicate that EEA and ERP vendors and users have benefited from the concepts of an extended enterprise, which include the following: (a) Manual operational tasks will be automatically managed by the EEA, and the system will even warn the enterprise if certain events did not occur or need to occur; (b) as supply-chains become more integrated and business processes are automated, the supply-chain will require less day-to-day management, and (b) the supply-chain will be driven to manage exceptions and the system will handle much of the “traditional operations.” This will mean more time to focus on improving the way the supply-chain fits together, to develop strategic alliances, to reduce inventories, and to improve productivity.

The overall conclusion is that the use of EEA is expected to increase the supply-chain information velocity, increase product customization, and lower cost of doing business. However, some concerns have been identified, such as identity theft when handling the confidential information (Ghahremani, 2003) and supply-chain failures—that is, outdated data and unclear responsibility for controls over the information flowing across to the supply-chain partners (Taylor, 2003; Ernst & Young, 2004). Nevertheless, Loh et al.’s (2006) findings suggest that the avenue of becoming an extended enterprise is worth pursuing, after considering the potential value obtained from using EEA.


In most enterprises, a critical dimension of competition is the speed of an enterprise in responding to customer demands. Therefore, having real-time information delivered between internal departments and external business partners is a vital advantage for management in undertaking any important decision making. Many researchers have looked into this aspect in manufacturing environments where fast response to product manufacture often relates to the term concurrent engineering (CE). CE has also been referred to as simultaneous engineering (SE; Zhang & Atling, 1992), life-cycle engineering, concurrent product and process de-sign, design for production, design for manufacture and assembly (DFMA; Hartley & Mortimer, 1990), integrated and cooperative design, design fusion, producibility engineering, and system engineering. Whatever it is called, CE is not a physical process or a set of procedures; it is a boardlevel responsibility to integrate the concept into effective, cohesive business units.

CE has been defined by Winner, Pennell, Bertrand, and Slusarczuk (1988) as

A systematic approach to the integrated, concurrent design of the products and their related processes, including manufacture of support. This approach is intended to cause the developers, from the outset, to consider all elements of the product life cycle from concept through to disposal, including quality, cost, schedule, and user requirements. (as cited in Loh et al., 2006, p. 49)

Rolls-Royce defines SE/CE in terms of the objective rather than the process (De Meyer, 1990) as an approach to optimize the design of the product and the manufacturing process to achieve reduced lead times and improved quality and reduced cost by the integration of design and manufacturing activities and by maximizing parallelism in working practices. These definitions indicate that the lead time should be significantly reduced as a result of CE.

The idea behind CE is acknowledged as a concept that integrates all the departments within an enterprise. The competitiveness between supplier and customer partly relies on how effectively and efficiently the parties in the supply-chain handle the order and information. This can be assisted by the use of an integrated, enterprisewide information system such as an ERP system. Mabert et al. (2003) highlighted that ERP-type systems will provide precise information and better performance in manufacturing and logistics.

In today’s dynamic economic climate and global marketplace, the pace of change is ever increasing, which demands that organizations develop integrated management systems that can cope with these changes. This means that the required changes in performance or organizational objectives are incorporated within well-planned and integrated subsystem requirements. Accordingly, successful business-wide integration has been recognized by Bititci (1995) as an important factor for competitiveness of a manufacturing business.

Karapetrovic and Willborn (1998), in discussing system integration, stated, “A system is a set of processes and resources that are designed and performed in order to achieve a desired objective, such as a product” (p. 205).

ERP is referred to as a business management system that integrates all facets of a business, including planning, manufacturing, sales, and marketing. However, ERP is inward looking, and this limits its role in today’s increasingly competitive supply network, which requires seamless communication between each partner in a supply-chain. To truly prosper in today’s increasingly competitive business environments that rely heavily on information and communication technology (ICT), the enterprise must look for a way that enables integration with a network of suppliers and customers. A new concept—namely, the extended enterprise—that fits this purpose has emerged. An extended enterprise is referred to as a form of enterprise that integrates suppliers, manufacturers, and customers in a supply-chain through the effective use of ICT in order to improve information flow and communication between partners, with the ultimate goal of satisfying customers’ needs in terms of speed and information accuracy (Weston, 2003).

A review of the literature and case studies evidence suggests that as the ERP methodology has become more popular, software applications have emerged to help business managers implement ERP in business activities such as inventory control, order tracking, customer service, finance, and human resources (Bendoly & Jacobs, 2004). This has led to the development of a new application—namely, the EEA. EEA supports the ideas of supply-chain integration, enterprise application integration (EAI), business process optimization, and customer relationship management (CRM), which collectively aim to offer modern industries with an architecture that could link suppliers and customers with an enterprise’s internal business processes. EEA is a tool to help an enterprise to become an extended enterprise.

One of the biggest value-added features of ERP is being able to talk to other software applications. This is supported by EAI to integrate modules internally to an enterprise and by Web services, point-to-point communication using some form of extensible markup language (XML) or other agreed form of information exchange externally to an enterprise. With such an advanced ICT to support the use of EEA, it is likely that its integration with ERP could lead to the formation of an extended enterprise (Loh et al., 2006). Nevertheless, it is not clear whether industrialists would welcome the idea of transformation to an extended enterprise, and it is projected that issues related to security and compromises of private and confidential information with and between suppliers, manufacturers, distributors, retailers, and customers will be debated.

Evolution Of ERP And ERPII

At the strategic level, an ERP system is defined as an integrated application program for enterprise business organization, management, and supervision (Davenport, 1998). ERP collects all the functionalities of stand-alone applications using standard software, making it compatible with different business processes. At the operational level, ERP is a game plan for planning and monitoring the resources of a manufacturing enterprise, including the functions of manufacturing, marketing, finance, and engineering.

ERP evolved from a material requirements planning (MRP) and manufacturing resource planning (MRPII) system (Chung & Snyder, 2000). ERP represents the application of the latest IT to MRPII systems, and it is related to the fundamental techniques of MRP in that if they are used as a production planning and control tool, they follow the same MRP release logic (Miltenburg, 2001). Therefore, the outputs (i.e., planned order release [POR] schedules) generated from such a tool are identical. Within an ERP system, this will be generated from the production planning (PP) module. ERP’s planning capability could offer substantial gains in productivity, dramatic increases in customer service, much higher inventory turns, and a greater reduction in material costs, if it is used efficiently and is facilitated by necessary support. One of the main functions of ERP is to gather fragmented departmental information into a single, integrated software program that runs off of a single database so that a number of departments can easily share information and communicate with each other. In short, ERP is replacing early MRP and MRPII systems. Using the MRP metaphor, it consists of software that integrates front- and back-office information systems within the enterprise.

The ERP software market has been growing at a very fast pace from the year 1993 to 1997, and it has been predicted that the current growth rates of 35% to 40% will be sustained in the long term (Bingi, Sharma, & Godla, 1999). Many large enterprises have already utilized ERP systems to support their business-to-business (B2B) and business-to-consumer (B2C) activities. According to an ARC Advisory Group (Business Wire, 2004) study, the large ERP system vendors are SAP, BaaN, and ORACLE, and the worldwide market for ERP was US$9.10 billion in 2003 and is forecast to be over US$12 billion in 2008, growing at a compounded annual growth rate (CAGR) of 5.7% over the next 5 years. In parallel to using ERP, some enterprises have also used other and more advanced scheduling tools to support their planning activities—for example, advanced production scheduling (APS; Tinham, 2002)—and added a decision support system to ease reuse of standard software components (Worley, Castillo, Geneste, & Grabot, 2002).

Johnston (2002) stated that the U.S. enterprise system software market in 2001 was approximately US$47 billion, of which 40%, or about US$19 billion (growth was about 6%), was attributable to ERP applications. It was suggested that due to the size of this market, ERP would dominate the future of enterprise systems. However, we must be able to recognize the importance of differentiated solutions, in this study we consider ERPII. To simplify this somewhat, some software applications and implementations are more important than others are. For example, software investments in enterprise applications with return on investment (ROI) potential such as implementations that would contribute to a gain in market share or market advantage (e.g., first to market) or contribute to major cost reductions should have a higher priority than applications that do not generate revenue or customer impact. Similarly, applications that offer speed to market, design for production, DFMA, enhanced product quality, reliability of delivery date commitments, or after sales customer response advantages must have priority over applications that pertain to human resources (HR), personalization, or internal systems that do not influence revenue, costs, or customer satisfaction. Enterprises must also quickly learn to differentiate and prioritize those applications and implementations that possess the potential for bottom-line impact. For example, personalization portals, thought interesting because of the focus on employees and their ability to access HR-type information quickly, do not possess the ROI potential when compared to applications such as extranet-based portals designed for high-priority customers or critical vendors.

To enable integration and linkage with external suppliers and customers, today, a new concept called ERPII, which represents an extended version of ERP, has emerged (Weston, 2003). ERPII supports the concept of an extended enterprise through

  • the integration with suppliers to develop a 21st-century supplier network via linking the ERP system with selected vendors to enable improved supply-chain management (SCM); and
  • the integration with customers to develop a 21st-century customer network via linking the ERP system with customers to enable improved customer relationship management (CRM).

Any enterprises that have already implemented and used ERP and that are aiming to stimulate stronger SCM and CRM would be the ideal potential beneficiaries of this concept of becoming an extended enterprise via upgrading their ERP system into an ERPII system.

ERPII fully utilizes real-time information flow, also known as information integration. Bowersox, Closs, and Cooper (2002) highlighted that the information integration makes customer demands, inventory, and production visible throughout the supply-chain, which creates a basis for collaborative planning and forecasting. Such information integration aims to reduce uncertainty faced by supply-chain members, reduce inventory buffers by postponing costly value-added operations, and may provide better customer service with more flexible response to customer demand. This allows supply-chain partners to attain significant productivity gains. The fruits of information integration such as reduced cycle time from order to delivery, increased visibility of transactions, better tracing and tracking, reduced transaction costs, and enhanced customer service offer greater competitive advantages for all participants in the supply-chain (Christopher, 1998). Figure 42.1 shows the difference between ERP and ERPII.

improving-supply-chain-information-velocity-product-customization-and-cost-through-extended-enterprise-applications-research-paper-f1Figure 42.1      The Difference Between ERP and ERPII SOURCE: Adapted from Loh et al., 2006.

Weill, Subramani, and Broadbent (2002) reported that on average, an enterprise spends more than 4.2% of annual revenue on IT, accounting for more than 50% of its capital expenditure budget. It is clear that these businesses expect a high return from these ongoing investments. It was also concluded that these billion of pounds and dollars invested in technology that are used to generate huge volumes of transaction data can be misspent if the investments fail to convert data into knowledge, followed by business results (Davenport, Harris, De Long, & Jacobson, 2001). Hence, it is important to understand the value of becoming an extended enterprise and its potential business return.

The ERPII Architecture And Supply-Chain Integration

This section discusses the roles of EEA and EAI in ERPII architecture to support supply-chain integration. EEA supports the ideas of supply-chain integration, enterprise application integration, business process optimization and CRM, which collectively aims to offer modern industries with architecture that could link with—and extend to—supplier networks and customers the internal business processes within an enterprise. Figure 42.2 shows the role of EEA as a tool to help an enterprise to become an extended enterprise. It also shows how EAI serves as a bridge between two different platforms. EAI aims to standardize and integrate heterogeneous systems within an enterprise before considering an external integration with suppliers and customers to become an extended enterprise.

Bowersox et al. (1999) noted that the objectives of supply-chain integration can be formulated along six different lines—namely, (a) customer integration, (b) internal integration, (c) material and service supplier integration, (d) technology and planning integration, (e) measurement integration, and (f) relationship integration. They also derived an idea of integrated management, which has three features—namely, (a) to establish collaboration within a competitive framework, (b) to develop enterprise extension as the central thrust of expanded managerial influence and control beyond the ownership boundaries of a single enterprise, and (c) to use an integrated service provider due to the increasing outsourcing activities within supply-chains.

Likewise, Lee (2000) outlined three dimensions of supply-chain integration: (a) information integration, (b) coordination and resource sharing, and (c) organizational relationship linkages. Information integration refers to the sharing of information and knowledge among the members in the supply-chain, including sales forecasts, production plans, inventory status, and promotion plans. Coordination and resource sharing refers to the realignment of decisions and responsibility in the supply-chain. Organizational relationship linkages include communication channels between the members in the supply-chain, performance measurement, and sharing of common visions and objectives. Hence, it is clear that true electronic-based supply-chain integration requires the support of an ERPII architecture.

improving-supply-chain-information-velocity-product-customization-and-cost-through-extended-enterprise-applications-research-paper-f2Figure 42.2 The Roles of EEA and EAI in ERPII Architecture SOURCE: Adapted from Loh et al., 2006.

Enterprises can deploy ERPII to reduce the business risk such as outdated data that leads to wrong decision making. This is because various business functions ranging from placing orders to making purchases and receiving payments are now being carried out electronically and with a minimum of human input. In order to achieve that, EEA and EAI were there to support and facilitate the upgrading process of current ERP system. Generally speaking, many researchers have pointed to information system fragmentation as the primary culprit for information delays and distortions along the supply-chain (McAfee, 1998).

As a result, in today’s competitive market, ERPII will potentially generate more benefits to enterprises in a supply-chain if more collaboration between enterprises is targeted and achieved.

Many benefits could be expected from using EEA. For example, rekeying data will become a thing of the past, and the need to print purchase orders, acknowledgments, and so on will disappear as the system automatically manages these tasks and warns the enterprise if certain events did not occur or need to occur. As supply-chains become more integrated and business processes are automated, the supply-chain will require less day-to-day management.

The use of EEA is expected to increase the supply-chain information velocity, to allow greater product customization, and to lower the cost of doing business. Some concerns are also identified in addition to those included in the questionnaire for the interviews. Overall, the findings suggest that the objective of becoming an extended enterprise is worth pursuing after consideration of the potential value that could be gained from using EEA.

Most enterprises with similar objectives decided to collaborate on inventory management, new product development, or marketing activities, to mention just a few examples. Due to goal commonality and the kind of information shared, this relationship typically presents a medium- to long-term commitment. Such a commitment and collaboration often leads to strategic benefits for both partners. With regard to this kind of relationship, one of the main and most critical themes debated in the literature is trust between enterprises. Obviously, it means some sort of confidentiality compromise or that an agreement exists between enterprises. The choice between these different kinds of relationships depends on both the supply strategies of the enterprises involved and the characteristics of the purchased items. Williamson (1979) argued that the use of the Internet leads to reduced transaction costs, that products are easier to describe, that specificity of assets has been reduced, and that information transfer on the markets is far more efficient. These conditions lead to the so-called frictionless commerce paradigm (Brynjolfsson & Smith, 2000).

One of the main issues affecting the future of ERPII systems is the role of IT-based standards organizations such as the World Wide Web Consortium (W3C). A major role of these organizations is to serve the function of determining an agreed set of standards and protocols for communicating over the Net both within and between enterprises. Clearly, a unified set of standards independent of hardware and software vendors and individual products is in the best interest of enterprises that are expanding global businesses and expediting business communications. Clearinghouses dealing with functionality, such as digital signatures, have a similar function to facilitate and expedite business communications between enterprises. Based on global communication standards, business processes will quickly be brought onto the Internet. Differences in processes from enterprise to enterprise will become largely transparent, but not unimportant. What is important is the ability to quickly and seamlessly communicate process results, details, events, and outcomes between enterprises in a common and consistent format and independent of language or location.

Loh et al. (2006) suggested that many enterprises are willing to embark on ERPII system and the main rationales/ benefits behind this plan are generally because ERPII

  • can further enhance the transparency of the operations within the enterprise;
  • is easy to use with a single system platform;
  • will reduce the lead time between information sharing;
  • is able to share data across the departments, suppliers, and customers;
  • will reduce all aspects of waste with consolidated data;
  • can provide maximum control over the production schedule;
  • can improve the overall customer satisfaction level;
  • can enhance the usage of raw materials planning-production optimization;
  • can improve the forecasting with “what-if” flexible planning features; and
  • is able to generate real-time reports instantly, which facilitates better decision making and planning.

Nevertheless, any vision of the future of ERPII would not be complete without including the role and importance of business process reengineering (BPR) and the use of real-time supporting technologies such as radio frequency identification (RFID). For many enterprises, implementing ERPII and engaging in an analysis of business processes are synonymous. Processes may be reengineered without an ongoing ERPII implementation; however, an ERP implementation without significant BPR would be a rare and risky event. BPR has evolved from the radical restructuring of business processes originally called for by Hammer and Champy (1993) to an approach focused more on value-added activities and relabelled as business process management (BPM), as espoused by Smith and Fingar (2002). Today, terms like lean, agile, and collaborative all connote a basic theme: that processes are adaptable, flexible, responsive, and provide ongoing business value. Data relevant to both customer orders and the effectiveness of business processes will be crunched with the aid of enterprise systems in such a way that corporate decisions can be made more accurately and more cost efficiently. BPR/ BPM will increasingly take on an IT focus that continually examines internal bottlenecks and the means of managing resources in such a manner that throughput is maximized with optimal profitability.

RFID Applications For Supply-Chain Management

RFID is an automatic identification method that relies on storing and remotely retrieving data using devices called RFID tags or transponders (Kelly & Erickson, 2005). An RFID tag is a small object that can be attached to or incorporated into a product, animal, or person. RFID tags contain silicon chips and antennas to enable them to receive and respond to radio-frequency queries from an RFID transceiver. Passive tags require no internal power source, whereas active tags require a power source. Various tag classifications and radio frequency bands, with their benefits, drawbacks, and common applications, can be found in Sullivan and Happek (2005).

An RFID system may consist of several components: tags, tag readers, servers, middleware, and application software. The purpose of an RFID system is to enable data to be transmitted by a mobile device, called a tag, which is read by an RFID reader and processed according to the needs of a particular application. The data transmitted by the tag may provide identification or location information, or specifics about the product tagged such as price, color, date of purchase, and so forth.

RFID is simply an enabling technology that has the potential of helping enterprises provide the right product at the right place at the right time, thus maximizing sales and profits. RFID provides the technology to identify uniquely each container, pallet, case, and item being manufactured, shipped and sold, thus providing the building blocks for increased visibility throughout the supply-chain.

The use of RFID in tracking and access applications first appeared during the 1980s. RFID quickly gained attention because of its ability to track moving objects. In a typical RFID system, individual objects are equipped with a small, inexpensive tag. The tag contains a transponder with a digital memory chip that is given a unique electronic product code. The interrogator, an antenna packaged with a transceiver and decoder, emits a signal activating the RFID tag so it can read and write data to it. When an RFID tag passes through the electromagnetic zone, it detects the reader’s activation signal. The reader decodes the data encoded in the tag’s integrated circuit and the data is passed to the host computer (Baker, 2001). The application software on the host processes the data, often employing physical markup language (PML).

Wal-Mart and the United States Department of Defense have published requirements that their vendors place RFID tags on all shipments to improve supply-chain management (“Beaver street fisheries stands to benefit from Wal-Mart’s RFID mandate” 2004). Due to the size of these enterprises, their RFID mandates impact thousands of enterprises worldwide. The deadlines have been extended several times because many vendors face significant difficulties implementing RFID systems. In practice, the successful read rates currently run only 80%, due to radio wave attenuation caused by the products and packaging. In time, it is expected that even small enterprises will be able to place RFID tags on their outbound shipments. It can be noted from these findings that RFID impact on the supply-chain started on the high gear from the retail and defense industries.

Since January of 2005, the leader of RFID application for retail supply-chain management—Wal-Mart has required its top 100 suppliers to apply RFID labels to all shipments (Boyle, 2003). To meet this requirement, vendors use RFID printer/encoders to label cases and pallets that require EPC tags for Wal-Mart. These smart labels are produced by embedding RFID inlays inside the label material and then printing bar code and other visible information on the surface of the label.

Since then, an increased wave of RFID applications in various industries for supply-chain management can be identified, both by the academic and industry domains.

Benefits And Drivers Of Having RFID In Supply-Chain Management

While research has been conducted on RFID, it has tended to focus on the specifics of the technology (Gould, 2000; Niemeyer & Pak, 2003; Porter, Billo, & Mickle, 2004). Prater, Frazier, and Reyes (2005) claimed that the missing link in RFID research is the investigation of the market drivers pulling RFID applications for supply-chain management. As such, they studied the drivers for RFID applications for grocery retailing and developed a research framework for future applied research on RFID implementation. Despite the useful proposed theoretical framework, it suffers from the lack of diversity to include the impact of RFID applications for supply-chain management in other industries (Koh, 2006).

Today’s retailers, consumer products manufacturers, and logistic enterprises find themselves stuck between two forces (IBM, 2004b). On one side, they have a demanding consumer base willing to spend top dollar for new luxury items while simultaneously calling for economically priced basics. On the other, they have poorly structured supply-chains that focus on optimizing internal systems rather than on delivering consumer value (Koh, 2006). A primary driver of competitive advantage lies in building a supply-chain that is fast, responsive, and flexible—all while maintaining a focus on delivering value to the end consumer. To achieve this, RFID applications driven for inventory tagging, reducing cost, increasing accessibility, improving security, providing real-time data, managing a warehouse, and logistics tracking have been flying off in these sectors (Koh, 2006).

According to the IBM business case analysis, it was found that RFID applications could potentially increase data collection productivity for inventory and shipping by 10% to 20%, while maintaining virtually 100% accuracy; enhance retail store productivity by approximately 5%, redirecting labor to more crucial customer-facing activities; resolve approximately 33% of store execution issues; and reduce manufacturer shrinkage by 67% and retailer shrinkage by 47% (IBM, 2004b). This evidence shows that the benefits of using RFID have attracted many enterprises to reconsider and restructure their supply-chains.

RFID Versus Barcoding Technology

The key benefit of RFID tracking over barcodes is that the physical line of sight needed for barcode scans is not required in the case of RFID, making it generally more efficient than traditional barcoding. This enables the near simultaneous “scanning” of many pallets and cases fitted with transponders that are, for example, passing through a dock door equipped with an RFID reader system (Koh, 2006). Barcodes would require each item to be scanned individually, which takes more time and requires specific positioning of labels. There are many more touch points along the supply-chain where inventory equipped with RFID transponders could be tracked, and there are numerous ways this improved visibility could be put to good use. It has the potential to improve efficiency and visibility, reduce costs, deliver better asset utilization, produce higher quality goods, decrease shrinkage and counterfeiting, and increase sales by reducing out-of-stocks (Koh, 2006).

Real-Time Data Capture

Different tag types have a broad range of options for data content and read-write capabilities. The communication of this data could be integrated for near real-time event management and decision making. For example, RFID can be integrated with sensors to record and store changes in temperature, movement, or other environmental conditions (Koh, 2006). The data type in a supply-chain that could be captured through RFID includes order data, production data, logistic data, quality data, location data, supplier data, customer data, and so forth.

Being able to answer questions such as, “Where are the assets right now?” or “How many assets are there right now?” will allow enterprises to automate business processes and decision making. This suggests for RFID integration within enterprise architecture. Figure 42.3 shows the layers in software architecture for real-time enterprises through RFID in ERPII environment (Koh, 2006).

improving-supply-chain-information-velocity-product-customization-and-cost-through-extended-enterprise-applications-research-paper-f3Figure 42.3 Real-Time Enterprises Through RFID in ERPII Environment SOURCE: Adapted from Koh, 2006.

The lowest layer denotes the level where data is entered to the system architecture through data entry devised for RFID information. This layer connects to the RFID realtime event architecture, which is then communicated with the business applications layer, for example, ERP. Since the event information and processes are stored and processed in the middleware, outlay for system integration is kept to a minimum. Nonetheless, business processes do still need to be optimized in this layer (Bitkom, 2005).

Increased Visibility

RFID technology has the ability to track items in realtime as they move through the supply-chain with more touch points that would be possible using a conventional barcode scanning solution. By tracking items in the near real-time, users of RFID technology have greater visibility to their supply-chain, providing opportunities to lower inventory carrying costs, as well as reducing the need for storage warehouses, thereby improving cash flow, boosting productivity and reducing overheads (Koh, 2006).

Reduced Shrinkage

Shrinkage has long been a supply-chain problem, particularly for high-volume goods. RFID is expected to help pinpoint the specific spot where the problem is occurring and ultimately help prevent the problem with the availability to monitor the movement of goods throughout the supply-chain more closely with RFID tracking. This could reduce shrinkage and prevent theft (Koh, 2006).

Tags Durability

In order to function properly, barcode readers must have clean and clear optics, and the labels they are reading must be clean and free of abrasion. RFID, on the other hand, enables tag reading from greater distances—up to 100ft for active tags—even in the most challenging environments. Barcodes can be easily marred or otherwise damaged in diverse operating environments, and radio frequency tags are typically much more durable (Koh, 2006).

Cost Effectiveness

The key to delivering all these benefits is cost. The falling price of RFID tags is a driver for the technology. The price ranges from 10 cents to 50 cents per tag. Tag pricing is critical. Industry is hoping that tag manufacturers can hit 5 cents per unit, and that is being regarded as a breakthrough level. In the coming years, at least, we are likely to see RFID tags and barcodes existing side by side (Koh, 2006).

In general, RFID has been applied in diverse industries including retail, manufacturing, logistics and distributions, airport baggage tracking services, and pharmaceutical sectors, among others. It is the retail industry that drives RFID adoption. It has been estimated that the U.S. retail industry loses approximately US$30 billion annually due to product not being on the shelf (IBM, 2004a); hence, RFID applications for supply-chain management in the retail industry will continue to grow. Nevertheless, a holistic overview of RFID applications for the supply-chain management in multi-industry is still lacking (Koh, 2006).

Major Obstacles To Visions Fulfillment

There are several land mines and pitfalls that could prevent any of these visions for the future of enterprise systems from becoming a reality. Comprehensive studies on the return from large-scale enterprise systems have produced results focusing on the lack of top management support, project management implementation issues, and people/ organizational issues contrasted to technology issues. There are many common threads from all these studies (Loh & Koh, 2004). One involves issues of change management, a point Nestlé learned well, as described by Worthen (2002) in a report that includes issues of risk assessment, ROI analysis, and impacts on change management on the overall business culture. The whole issue of uncertainty that can undermine a project was the subject of a related study by Loh and Koh (2004).

Weston (2003) highlighted several additional issues that need to be carefully examined as part of any vision of the future for a large-scale extended enterprise system such as ERPII. These are

  • training to include both potential users of the system and management representing all stakeholder areas of the enterprise, plus major customers and vendors;
  • incomplete unit, integration, system, and user acceptance testing;
  • failure to take into account global stakeholders—for example, a foreign partner’s local culture impacting a large-scale enterprise project;
  • overall project size, including issues of scope/areas, buy-in from user groups. and an agreed plan for module implementation;
  • a failure to implement an effective communication system that includes the project manager and sponsor, a steering committee, and major stakeholders;
  • regular project updates with a “death march” syndrome (Yourdon, 1997) that includes unrealistic deliverables or deadlines;
  • bad data, including not understanding the magnitude of the master data problem when implementing any new ERPII-type system;
  • clinging to outmoded legacy systems; and
  • the inability and/or unwillingness to focus on business (value-added) metrics (revenue, cost, customers).

Collectively, any plan for an ERPII system outlined above must take into account numerous management and people issues that have the potential to disrupt any long-term vision of top management (Loh & Koh, 2004) and to proceed with an integrated extended enterprise planning and execution system. The future of extended enterprise systems clearly includes an IT perspective in which enterprises, customers, and vendors/suppliers are all linked electronically.

There would be risk involved for all kinds of implementations. Understanding the role and importance of resistance to change, local culture issues, training, testing, BPR/BPM, and good project management are all important for successful implementation (Loh & Koh, 2004). Any vision of future enterprise systems must recognize the role to be played by the Internet as a communication medium. However, it is the people within the enterprise seeking to implement an ERPII strategy that will determine its overall success or failure. Weston (2003) stated that people plus bad data can disrupt any well-intended extended enterprise system integration strategy.

Overall, Loh et al.’s (2006) findings support these points from the literature and the implementation of ERPII requires in-depth analysis and scrutiny studies to be done. However, it is clear that the potential benefits from using ERPII, particularly to integrate the supply-chain may outweigh the cost. Looking ahead as enterprises move through the 21st century, new technologies such as data standardization, data mining, data warehousing, connective technology, and the use of biometrics authentication requirement to support the operations of ERPII will be the future directions for both practitioners and researchers to investigate on.


Speed is of the essence in today’s fast-paced marketplace. Arriving too late is almost as bad as never getting there at all. Once again, the key to achieving speed is the ability to bring the whole workflow together from shop floor to warehouse to customer delivery. To do that, the enterprise needs an extended ERP solution that is able to integrate their operations and achieve instantaneous information exchange with their suppliers and customers.

A lot has changed in the flexibility and functionality of systems and in how these solutions can be deployed to reduce the business risk. Probably the biggest value-adding features revolve around the ERP software being able to talk to other software applications. Inside an enterprise, this is known as EAI, while outside an organization, this will involve Web services, point-to-point communication using some form of XML or other agreed form of exchange. With little effort, the communication between the various software programs can be integrated. Rekeying data will become a thing of the past, and the need to print purchase orders, acknowledgments and so on will disappear as the system manages these tasks automatically and warns if certain events did not occur or need to occur. This is all part of “business process orchestration.”

Business process orchestration will allow the firm to define business processes (within, outside, or across organizations) and to identify the transactions that make up the events in a process. For example, a machine breakdown event on the factory floor could trigger a purchase order for a replacement part. This will be automated using defined business rules. When an event occurs, ERPII can send a message to the initiator of the process—or to the fitter waiting for the part to turn up before an urgent job can recommence.

In addition, systems have become more “intelligent,” and ERPII systems are able to identify the user, what the user’s information needs are, and how the user can best utilize the information available. Users of the system can now be in-house or they could be an authorized customer or a vendor/ supplier accessing internal services through the Web, from their own offices, using either EEA or EAI. This ease of access delivers significant improvements in productivity and ease of use. As supply-chains become more integrated and as business processes are automated, the supply-chain will require less day-to-day management. Instead, it will be driven to manage exceptions, and much of the traditional manual operations will be handled by ERPII software. This will mean more time to focus on improving the way the supply-chain fits together, reducing inventories, and improving productivity.

It can be concluded that the use of EEA and RFID in ERPII is expected to increase the supply-chain information velocity, increase product customization, and lower the costs of doing business. However, we need to be made aware of the obstacles prior to implementing ERPII and becoming an extended enterprise.


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