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ERP IMPLEMENTATION IN THAI TEXTILE INDUSTRY: A CASE STUDY

by Pisit Chanvarasuth*1A Ekkprawatt Phong-arjarn*A, Chawalit Jeenanunta*A, *A School of Management Technology, Sirindhorn International Institute of Technology, Thammasat University, Thailand and Kornthip Watcharapanyawong*B, *B Department of Textile Science, Kasetsart University, Thailand 1 Corresponding author, Tel: (662) 501-3505-20 Ext 2105, Fax: (662) 501-3507 Ext 2101 Email: pisit@siit.tu.ac.th

ABSTRACT Enterprise Resource Planning (ERP) systems are important for all kinds of firms including firms in Textile industry. The implementation of such systems is very difficult and many projects do not meet their expectations. While firms in other industries have technology and human resources to engage in such a project, the situation for textile industry is different. They have only limited technology and human resources. This paper presents the case study used evidence from several Thai textile companies which are pilot firms to implement ERP systems. After ERP implementation, the results were mixed. Some companies have achieved significant reductions in inventory and operation cycle time, improvements in reliability and flexibility due to improved information flows across all units. On the other hand, some companies have not. The findings are beneficial to all enterprises in terms of deploying enterprise systems across their value chain. They need not only to re-engineer business processes, but also to generate new business policies while deploying enterprise systems in order to create value out of IT investment. KEYWORDS Case Study, Textile Industry, ERP, Implementation, BPR, Firm Performance

INTRODUCTION Enterprise resource planning (ERP) systems have become common in companies operating in changing environments. The main goal is to provide the means to integrate business units and functions across an organization. By automating many of tasks involved in business processes and standardizing the processes themselves, the ERP system can provide substantial payback to a company if the system is implemented properly. The history of ERP implementation contains both successes and failures. Yusuf et al. (2006) reported some difficulties in the implementation process and also provide solutions to implementation ERP successfully. Buckhout et al. (1999) examined several ERP implementation projects worth more than $500 million in revenues. They found that the average cost overrun was 179 percent, and the average schedule overrun was 230 percent. Despite these overruns, the desired functionally was 59 percent below expectations, on average. Some of the failures can be attributed to factors common to other IS projects, such as the systems large size and complexity. However, ERP systems differ in a significant way from other systems. Since ERP systems are designed to integrate and streamline numerous business units, they have significant implications for the way the company is organized and operates (Laudon and Laudon, 2009). This paper describes an implementation success and failure of ERP software, in conjunction with re-engineering efforts, at textile plants in Thailand. The reported case in this paper represents a complementary study to a major research project on the new technology implementation to improve business and operation performance. The objective of this case study is to explore the ERP implementation process in Textile manufacturer and illustrate the longitudinal outcome of new ERP software created by Thailand Textile Institute (THTI).

RESEARCH METHODOLOGY In general, a qualitative case study technique was used for data collection to gain insights into the topic being investigated. Interviews, observations, and documents related to changes were the main sources used for data collection. Following the contact with key informants in the company, interview schedules were agreed on. More than one appointment was needed to finish interviewing all subjects. Follow-up phone calls were also made to seek clarification or further information. All data taken from the main sources were consolidated and linked together to create a full picture of the entire process and outcome of changes. In an attempt to analyze the data further and facilitate explanations and comparisons, several secondary case studies of leading organizations were chosen from the literature and analyzed for the success elements of their ERP implementation efforts.

A CASE STUDY 1. Thai Garment Industry Overview

Textile-Apparel (T/A) is one of the major manufacturing sectors in Thailand. It contributes approximately 4% of Thailands total GDP. The export value of this industry is approximately US$6,000 million per year. There are more than 4,000 T/A establishments that employ over a million Thai workers (THTI, 2007; THTI, 2009). Since garment industry is labor-intensive, it is currently facing an intensify competition from other developing countries with lower labor cost, such as China, Bangladesh, and Vietnam. As a result, Thai garment industry really need an improvement in both product development and business management. Thailand Textile Institute (THTI) suggested that implementation of IT technology, especially ERP system, is important for increasing the efficiency of the garment companies and supply chain management (SCM) (Sirisoponsilp et al., 2007). 2. The Study of ERP Implementation in Garment Companies

THTI collaborated with several garment companies to launch the ERP development project in order to support business processes and over all supply chain in the garment companies. There were four garment companies participated in this project. The information on these companies is shown in Table 1. We are examining the result by comparing our survey results with the best practice company in the same industry that uses ERP systems. TABLE 1 DETAILS OF THE CASE STUDY COMPANIES Companies Type of manufacturing Total fixed asset (not included land) Number employees A OEM,ODM,OB M 50-200 million baht 200-500 persons More than 10 years Domestic and Export B OEM Less than 50 million baht 200-500 persons More than 10 years Domestic and Export C OEM,ODM,OB M 50-200 million baht 200-500 persons More than 10 years Domestic and Export D OEM,ODM,OB M 50-200 million baht 200-500 persons More than 10 years Domestic and Export E OEM More than 200 million baht More than 1,000 persons More than 10 years Export only

Operation duration Main market

Note: A, B, C, and D are companies implementing ERP systems; E is the best practice company.

2.1 IT-Infrastructure before the ERP implementation and goal of the ERP implementation project These garment companies expected that the ERP system would help them in the following issues; A quality improvement in order to provide cost-effective, flexible, reliable, and timely products and services to clients. Cost reduction through the elimination of overlapping activities, inefficiencies, and handoffs. An improvement of outdated IT infrastructure in order to improve their communication and decision making processes. Gaining more competitive advantages TABLE 2 DETAILS OF COMPANIES IN THE CASE STUDY Readiness IT development policy Supply chain management development policy IT development budget IT training budget IT resources Quality standard Companies C 2 1 2 2 2 3

1. 2. 3. 4.

A 2 1 2 2 2 3

B 2 1 2 2 2 1

D 2 1 2 2 2 3

E 3 1 2 2 2 3

Note: 1= Not have, 2 = Partly have, 3 = Clearly have 2.2 Readiness of implementing ERP We surveyed the readiness for ERP implementing in the companies in the issues of IT development policy, SCM development policy, IT development budget, IT training budget, IT resources, human resource, and quality management system (see Table 2). All companies except company E did not have the solid IT policy in place. Furthermore, all companies did not have both SCM development policy and a tangible budget for IT development and training. Company E has spent the most in IT development. A number of computer hardware is not a major problem of all companies, but they are lacking in software and skilled workers. The average IT competency of officers at company E is higher than other companies. In addition, every company excluding company B earned at least one international quality standard, such as ISO9001. TABLE 3 A SUMMARY OF KEY FINDINGS OF COMPANIES SHORTCOMING BEFORE THTIS ERP IMPLEMENTATION Main Areas Organization IT Policy Network and IT Platforms Application and data Problems Limited IT skills of employees Lack of IT policy Several platforms of servers, PCs, and operating systems Lack of flexibility in current applications Lack of support to some required business functionalities Limited integration of application and systems

2.3 ERP Implementation Obstacles The major obstacle in ERP implementation was the resistance to change from employees due to the lack of clear understanding of advantages obtained from using new systems. In addition, during the ERP implementation stage, the new systems were running parallel with the existing systems. As a result, employees work loads were double. Another major problem was a difficulty in software development process. Development teams had very limited experiences on ERP software development. Since the ERP software was very complicated in nature, sometimes it did not align well with business processes.

The training courses were set to clarify ERP understanding and decrease user resistance. The ERP developing team frequently met users to solve ERP utilizing problems. An ERP at company E was set to align with organizational KPIs and being used for employees personal assessment. 2.4 Results of ERP implementation At company A and D, the owners considered the change efforts to be successful. For example, the day-to-day managers who worked on the ERP implementation project suggested that by using new ERP systems they were able to change some outdated functional operations to modern processes. The efforts were able to bring about dramatic improvement and fundamental changes in business processes of company A and D. Consequently, employees have a very positive perception of re-engineering. Company B and C did not succeed after ERP implementation. At present, company B is in the software development process. The developing ERP system was still unable to support its routine processes. The major problems were the complexity of their business procedures and software developers incapability. However, company Bs ERP development project is sustained, while company Ds is discontinued. Company D is currently plan to use other system. FIGURE 1 FACTORS INFLUENCING ERP IMPLEMENTATION

3.

Discussion

There are many factors influencing the ERP implementation. Before ERP implementation, the companies should examine thoroughly the benefits and risks of ERP implementation, the readiness of implementation, such as expenses and budgets, human resources, organizational structure and culture, companys infrastructure and IT resources, and business processes. ERP system is very difficult to implement when there are complexity, uncertainty, and variances involving with the working system. Attitude and commitment of the Top management are factors highly affect organizational development; therefore, ERP implementation can not succeed without the sufficient support from the Top management. According to our findings, we show factors impacting ERP implementation as follows:

CONCLUSION The benefits of ERP system have been well documented, and so were the theories on performance improving by utilizing ERP. In this study we selected five Thai garment companies as the case study of ERP implementation, four of them joined the THTIs ERP development project and the other was the best practice. After two years of ERP development and implementation, only two companies succeeded. Our research findings suggested that ERP implementation was influenced by factors, such as vision and attitude of top management, organizational readiness, ERP selection, implementing team and process, and organizational commitment. The major obstacles are the misunderstanding and resistance from the users and the complexity of the working system. The findings are beneficial to all enterprises in terms of deploying enterprise systems across their value chain. For further study, more empirical study of ERP implementation and selection in Thai T/A industry should be made. They need not only to re-engineer business processes, but also to generate new business policies while deploying enterprise systems in order to create value out of IT investment.

REFERENCES Buckhout, S., Frey, E., and Nemec, Jr., J. (1999), Making ERP Succeed: Turning Fear into Promise, Journal of Strategy and Business, Vol.15, pp. 60-72. Laudon, K.C. and Laudon, J.P. (2009), Management Information Systems: Managing the Digital Firms, 11th Edition, Prentice Hall. Sirisoponsilp, S., Kritchanchai, D., Wasusri, T. and Watcharapanyawong, K. (2007), Basic Concept of Supply Chain Management in Textile Industry, 1st Ed., Thailand Textile Institute (THTI). THTI, T. T. I. (2007), Thai Textile Statistics 2006/2007, 1st Ed., Bangkok, Thailand Textile Institute. THTI, T. T. I. (2009), "Thai Textile & Clothing Statistics (January - December 2008)", Thailand Textile Institute, [Online] Available: http://www.thaitextile.org, Accessed: Sep. 2009. Yusuf, Y., Gunasekaran, A., and Wu, C. (2006), Implementation of Enterprise Resource Planning in china, Technovation, Vol.26, pp. 1324-1336.