Improvement in Operational Efficiency due to ERP Systems Implementation
IDEA GROUP PUBLISHING
701 E. Chocolate Avenue, Suite 200, Hershey PA 17033-1240, USA Tel: 717/533-8845; Fax 717/533-8661; URL-http://www.idea-group.com 18 Information Resources Management Journal, 19(2), 18-36, April-June 2006
This paper appears in the publication, Information Resources Management Journal, Volume 19, Issue 2 edited by Mehdi Khosrow-Pour © 2006, Idea Group Inc.
ITJ3122
Improvement in Operational Efficiency Due to ERP Systems Implementation:
Truth or Myth?
Vijay K. Vemuri, Long Island University, USA Shailendra C. Palvia, Long Island University, USA
ABSTRACT
ERP systems are expected to provide many benefits, including improved business efficiency. However, they are also blamed for several business problems and failures. Past studies have analyzed investments in ERP systems based on net income, return on investment, new present value or change in market value of a firm. We argue that an analysis of more direct measures — intangible or tangible — would enhance confidence in the efficacy of ERP systems. We investigate the impact of ERP systems implementation on operational efficiency of medium sized firms in the pharmaceutical and chemicals industry. Our analysis of the data indicates that for a majority of the firms improvement of operational performance expected due to ERP systems did not materialize. Keywords: business effectiveness; cash management; ERP systems; inventory levels; IT investment; operational efficiency
INTRODUCTION
Since 1990, the information era has exploded, witnessing many new information technology (IT) initiatives, including Y2K compliance; e-commerce; IT-enabled mega mergers of information-intensive companies such as AOL and Time Warner, WorldCom, and MCI; global outsourcing of IT and IT-enabled services; sup-
IT Investments
ply chain integration; and euro conversion. Many IT landmarks have been achieved during this period: more than 4 billion Web pages on the Internet; creation of software to combat
701 E. Chocolate Avenue, Suite 200, Hershey PA 17033-1240, USA Tel: 717/533-8845; Fax 717/533-8661; URL-http://www.idea-group.com 18 Information Resources Management Journal, 19(2), 18-36, April-June 2006
This paper appears in the publication, Information Resources Management Journal, Volume 19, Issue 2 edited by Mehdi Khosrow-Pour © 2006, Idea Group Inc.
ITJ3122
Improvement in Operational Efficiency Due to ERP Systems Implementation:
Truth or Myth?
Vijay K. Vemuri, Long Island University, USA Shailendra C. Palvia, Long Island University, USA
ABSTRACT
ERP systems are expected to provide many benefits, including improved business efficiency. However, they are also blamed for several business problems and failures. Past studies have analyzed investments in ERP systems based on net income, return on investment, new present value or change in market value of a firm. We argue that an analysis of more direct measures — intangible or tangible — would enhance confidence in the efficacy of ERP systems. We investigate the impact of ERP systems implementation on operational efficiency of medium sized firms in the pharmaceutical and chemicals industry. Our analysis of the data indicates that for a majority of the firms improvement of operational performance expected due to ERP systems did not materialize. Keywords: business effectiveness; cash management; ERP systems; inventory levels; IT investment; operational efficiency
INTRODUCTION
Since 1990, the information era has exploded, witnessing many new information technology (IT) initiatives, including Y2K compliance; e-commerce; IT-enabled mega mergers of information-intensive companies such as AOL and Time Warner, WorldCom, and MCI; global outsourcing of IT and IT-enabled services; sup-
IT Investments
ply chain integration; and euro conversion. Many IT landmarks have been achieved during this period: more than 4 billion Web pages on the Internet; creation of software to combat