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Integration of Internal and External Information Systems and Their Effect on the Supply Chain

Essay by   •  July 29, 2015  •  Research Paper  •  1,780 Words (8 Pages)  •  645 Views

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Introduction

As business competition evolves from local to global and from business against business to that of supply chain against another supply chain, companies are searching for ways of increasing customer value. In order to create value, businesses engage in a series of primary (inbound and outbound logistics, marketing and sales, etc) and secondary (firm infrastructure, human resource management, procurement, etc) activities; once the value to the customer receiving the product or services exceeds the cost of these activities, value is created (Jimbalvo, 2010). In past years, the job function of a purchasing professional was predictable and stable. When the business wanted something, buyers sent request to suppliers for competitive bids and awarded contracts based on lowest price. Today with the explosion of technological advances and the pressure for businesses to create a global footprint, business leaders are forced to improve the organizations internal processes to stay competitive by looking at implementing internal information system such as enterprise resource management (ERP) and external information systems like supply chain management (SCM) and customer relationship management (CRM).These information systems allow businesses to integrate all business components, process transactional information quicker, track product orders and inventory, increase profitability and enhance competitiveness of the company (Hwang & Min, 2013). Integration between ERP, SCM, and CRM systems are integral to today’s business, enabling companies to improve their performance as the supply chain function evolves into a more global, strategic business partner in today’s business environment.

Internal Information Systems – Enterprise Resource Planning (ERP)

An enormous amount of time was spent by managers and decision makers in evaluating business performance using various performance measurements. In the late 1980s and early 1990s companies were suffering from an enormous IT integration problem (Shatat & Udin, 2012). Enterprise resource management (ERP) systems were introduced to replace these legacy system which allowed integration between different functional components while at the same time allow functional areas to share data from a single and centralized database without inconsistency problems (Shatat & Udin, 2012). The strength of ERP systems has traditionally rested in routine decision making and transaction processing focusing primarily on internal business operations. In addition to providing a centralized database, ERP systems became the uber-tool of finance and accounting by providing highly transparent way to collect, manage, track, and analyze business wide data in a post Sarbanes-Oxley Act era.

External Information Systems – Supply Chain Management (SCM) & Customer Relationship Management (CRM)

While ERP systems served to integrate data about core business processes into one one central database; supply chain management systems (SCM) monitors the flow of materials, information, and financials from where businesses source materials till where they deliver final product or service to the end customer (Mekawie & Elragal, 2013). Supply chain management goal is to have the right product in the right place, at the right price, at the right time, and in the right condition. Therefore companies need not only to flow information within the company but also they need to share the right information with the right supply chain partners in the right time (Shatat & Udin, 2012). Traditional interaction between businesses and suppliers required a lengthy sequential process of multiple steps to fulfill an order. These interactions often times increased transaction time, laid groundwork for human errors due to data handling errors, and wasted resources. SCM systems allowed the integration with suppliers, partners and customers improving end to end visibility across the supply chain (Folinas & Daniel, 2012).

Another external information system that businesses have utilized in order to achieve a competitive advantage over another is customer relationship management (CRM) system. During the past two decades, the rapid acceptance and growth of these systems has provided business decision maker, structured data to provide tactical guidance for managing customers and sale opportunities (Stein, Smith, & Lancioni, 2013). Businesses aim to engage their suppliers in agreements that require the least amount of commitment on their part but with maximum performance returned while supplier seek a diametrically opposite solution, with the highest commitment from the business that provide them great flexibility. This dimension of the client-supplier relationship often prevail to intense negotiation which is why it is imperative for those who analysis information analysis output be well versed in not only the CRM data but also the market and relationship dynamics that influence the business. Consistent application of the data derived from CRM systems in business decision making can transform the business’s value creation from initial customer interaction through contract renewal negotiations (Smith et al., 2013).

Comparison & Limitations

Advances in information technology have a critical impact on the tools, businesses utilize as they realize the necessity of information to flow up and down the business’s value chain and between the company and its suppliers. The core of business information systems began with the implementation of ERP systems which primary focus was on inter-business components and then moved on to their intra-business functions which required integration with external information systems such as SCM and ERM (Mekawie & Elragal, 2013).

It is important to understand the actual effects of ERP systems on all the business functions within a business in addition to its supply chain. Despite the benefits these system integrations provide the business, they had many shortcomings. Although ERP systems attend to the “nuts and bolts” of accounting by verifying the journal entries, subledger tie-outs, and other complex transactional information, they fall short on the most crucial need of validating the balances for compliance purposes (Parcells, 2014). For example, if the ERP system verifies perfect alignment in the accounts payable sub ledger and the gender ledger, it will not be able to identify if the subledger included a fraudulent payment on the account of employee fraud. Accounting malpractice such as embezzlement, is missed the data provided by ERP systems which is not designed for the purpose of account validation; this function would fall on finance and accounting who would need to address the

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