Roadmap of Enterprise Resource Planning (ERP) Research for Small and Medium Enterprises (SMEs) in Indonesia J.W. Saputro, Putu Wuri Handayani, A. Nizar Hidayanto, Indra Budi Laboratory of E-government and ERP Faculty of Computer Science, University of Indonesia Email:
[email protected],
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[email protected] Abstract— Small and Medium Enterprises (SMEs) in Indonesia contribute around 53% of the GDP. To increase their market competitiveness, SMEs need to be able to integrate and automate their business processes at least to a certain extent. An ERP system can be a solution for SMEs because of its advantages i.e. quickened information response time, increased interaction across the enterprise, improved order management/cycle, etc. Among the critical issues of SMEs are limited funds availability and lack of Information and Communication Technology (ICT) capability. In order to better understand the need of ERP services for SMEs and to provide guidelines for Indonesian SMEs and to address the void of ERP researches in Indonesia, this paper presents the roadmap of ERP research agenda for SMEs in Indonesia. I. INTRODUCTION
P
ursuant to the Central Bureau of Statistics
and the Ministry of Cooperative and SME, in 2006, number of SMEs has reached 48.9 millions. SMEs in Indonesia have proven to provide 85.4 millions employment opportunities and contributed 1,778.75 billion rupiahs or 53.3% of the Gross Domestic Product (GDP) [15]. This percentage tends to remain constant since 2004 [4]. However, it is expected to increase in the next year due to the impact of the economic crisis. World wide data also shows the significant contribution of SMEs: on average 95% of the economy of most countries relies on SMEs [16]. Considering the tight competition among SMEs and large companies, SMEs must seek competitive advantages that enable them to minimize cost and maximize profit. One major issue of SMEs is the lack of human and financial
resources. In addition, most of SMEs’ business processes are still conducted manually. Only a very small number of SMEs can afford business software and most of them operate in silos. This situation may not yet pose a big problem as the numbers of transactions in SMEs businesses are relatively small and the volume of data is still manageable. However, the challenge of globalization necessitates a condition for SMEs to equip themselves with necessary tools to support growth and to maintain competitiveness. An ERP system could be one of the solutions to help SMEs for simplifying, integrating and automating their business processes. Practically, by utilizing an ERP system in an appropriate manner, SMEs could reduce operating costs and improve their performances e.g. giving better customer service, reduce lead time, etc. In other words, ERP enables and facilitates strong interaction between operations, sales, finance and marketing as everyone is ‘on the same page’ or using ‘one version of the truth. Furthermore, using ERP fosters an understanding on how different business processes are integrated: that is, where they each own a piece of the system but affect each other [5]. In Indonesia, the awareness of the ERP concept among SMEs is less than 20% [9], which implies a large untapped market for ERP. Based on Cindy Jutras’s study in 2010, many SMEs didn’t implement an ERP system because of [5]: • limited funds availability • SMEs have been able to function effectively without it in the past • (internal) effort to implement • cost of software and services • SMEs will be able to continue to function effectively without it in the foreseeable future • ERP systems are too complicated
To date, many ERP vendors have been developed an ERP systems both proprietary and open source software for SMEs. Typically, these ERP systems are priced to make it affordable by SMEs and stress on ease of use. This trend has lowered the obstacle for ERP adoption among SMEs. However, prior to implementing an ERP system, SMEs also need to consider and plan for the prerequisite infrastructure (e.g. server, network, etc). This paper discusses the study on how to implement the ERP for SMEs in Indonesia in research approach. The rest of the paper is organized as follow. Next section explains the previous works, while the background theoretical on ERP is explained in section 3. The roadmap of ERP for SMEs in Indonesia is explained in section 4 and final section discusses the conclusions and future works of this research.
II. PREVIOUS WORKS
In 2010, Cindy Jutras in collaboration with Abeerden Group provides an in-depth and comprehensive look into ERP advantages and strategies that are necessary needed by SMEs [5]. In addition, required actions that are needed for the success of ERP implementation in SMEs are defined in this study. Yuanqiang Xia, Peter Lok, and Song Yang in 2009 discussed the characters of ERP marketing and SMEs in China, as well the critical success factors (CSFs) of ERP implementation [10]. Because of each country has different culture, several studies have been conducted to identify the critical success factors of ERP implementation. Based on Handayani, Puspita Kencana, Rein Nusa, and Budi Yuwono in 2009 in analyzing the implementation of ERP in state owned companies with case studies on PT. Timah (Persero) and PT PLN (Persero), there are several critical success factors in implementing ERP i.e. high commitment from top management, minimize ERP customization, good ERP project planning (e.g. choosing the right methodologies and good planning of migration data), organizational change management (e.g. transformation of work culture), communication and ownership strategy [11]. Based on Ampairatana Nattawee and Rotchanakitumnuai Siriluck in 2008, top management support, good coordination and communication between the project team, and change management are the most critical factors for ERP implementation in Thai SMEs [12]. In 2009, Siti Shafrah Shahawai and Rosnah Idrus have defined research
methodology for assessing Malaysian SMEs perspective on ERP [13]. III. BACKGROUND
III.1. ENTERPRISE RESOURCE PLANNING (ERP) Businesses include complex processes and a lot of actors in those activities. Business process is a collection of activities that takes one or more kinds of input and creates an output that is of value to customer [2]. In order to simplify, integrate and automate business processes, a company needs an ERP system which is a packaged business software system to automate and integrate the majority of business processes, share common data and practices in one database, and produce and access information in a realtime environment. In addition, an ERP system introduces “best practices” which are defined as simply the best way to perform a process [2]. There are several business benefits of ERP such as [3]: • quickened information response time • increased interaction across the enterprise • improved order management/cycle • reduced financial closing cycle time • improved customer relationship management • improved on-time delivery • improved interaction with suppliers, reduced direct operating cost • lowered inventory level Beside the advantages of ERP system, there are other motivations to implement ERP such as [3]: • Replace legacy systems • Simplify and standardize systems • Ease of upgrading systems • Link to global activities • Restructure company organization • Pressure to keep up with competitors In implementing an ERP system, a company should also conduct change management to their personnel and better re-engineer their business processes. When a company chooses to implement an ERP system, they should prepare for several cost components such as software, hardware, consulting, training, and implementation team. In addition, because of ERP implementation investment is high, they should consider three main components such as people (knowledge, skill and behaviour), process (e.g. business events, Standard Operating Procedure (SOP),
process workflow, etc) and technology (hardware and software). To implement an ERP system, a company could choose several options as follow [3]: • vanilla ERP implementation that adopt vendor’s best practices. The disadvantages of this technique are competitors have access to the same system and disruption of operations over 3-5 years • partial ERP implementation (e.g. selected modules) that will impact on partial changes in business processes • in-house development (customdesigned ERP system which will be unique from competitors. The disadvantages of this technique are long-term analysis and design process, and high expenses If a company chooses to implement ERP using vanilla or partial implementation technique, they could buy an ERP system from vendor (e.g. SAP, Oracle PeopleSoft, etc) or use an open source ERP system (e.g. OpenBravo, OpenERP, etc). III.2 INDONESIAN SMES AND IT ADOPTION In order to increase SMEs’ competitive advantages, SMEs need to utilize information technology. However, not all organizations particularly SMEs consider it is important for supporting their business, particularly in small to medium organization. Study from Fathul Wahid and Lizda Iswari [17] on 146 SMEs in Yogyakarta showed that there only a small portion of those SMEs that have adopted information technology. The barriers of this adoption are mainly due to financial constraint and the needs for IT to support their business are still low. Similar findings are also shown by Budi Triono and Yan Rianto [18]. Survey on 151 SMEs showed that only 71% of those SMEs that already used computers and these computers are mainly used to support office or administrative purpose only. E-commerce adoption by Indonesian SMEs also did not show an encouraging figure as shown by Vidi Arini Yulimar, Asia Foundation and Yadi [19][20][21]. These studies also showed that the use of e-commerce raising the
level of sales in SMEs and improving the performance of organization. Compatibility, top management support, organizational readiness, external pressure, and perceived benefits are among of factors that have significant positive effect to E-commerce adoption. Some efforts have been done to increase the use of IT in SMEs. For example, PT Zahir Internasional has developed an accounting software package for SMEs. They offer various price scheme and specification to suit the financial capability of the SMEs. In 2008, Zahir launched a special prepaid service package called Zahir Merdeka which enables SMEs to rent their system, thus allowing the SMEs to save on IT investments expenditure. Other international vendors such SAP also provide a cheaper version of their ERP packages. It is expected by having various payment and pricing schemes, the SMEs have higher possibility to adopt IT for improving the performance of their organization. III.3. SMES AND THEIR NEEDS FOR ERP Pursuant to the Indonesian Law Number 9 of 1995, Small and Medium Enterprise (SME) is defined as a people economic activities having maximum annual sales of 1 billion rupiah and having maximum net asset excluding land and building of 200 millions rupiah. Hence, based on the Central Bureau of Statistic (BPS), a small business is identical to small industry and home industry. BPS classified the type of industry based on the number of employees • Home industry: 1-4 employees; revenue ≤ 1 billion Rupiah/year • Small industry: 5-19 employees; revenue ≤ 1 billion Rupiah/year • Medium industry: 20-99 employees; revenue 1-100 billion Rupiah/year • Big industry: > 100 employees; revenue ≥ 100 billion Rupiah/year Figure 1 describes the distribution of SMEs in year 2006 based on industry type or economic sectors in Indonesia according to the Ministry of Cooperative and SME.
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Figure 1. Distribution of Indonesian SMEs in Year 2006 Based on Industry Type
IV. ROADMAP OF ERP RESEARCH FOR SMES IN INDONESIA
Considering the needs of SMEs and lack of ERP research for SMEs in Indonesia, the egovernment and ERP Lab at the Faculty of Computer Science University of Indonesia has defined a roadmap of ERP research (Figure 2). We defined three ERP sub topics i.e. development of ERP simulation, studies on the state of ERP in Indonesia which includes the best practices of business processes, and analysis of ERP prerequisite infrastructure for SMEs. The result of this research is ERP services for SMEs. Before we conduct this ERP research, firstly, we will evaluate current works of ERP research and ERP implementation for SMEs which have been done by academics, industries and government (e.g. Ministry of Research and Technology, Ministry of Communication and Information, Ministry of Industry and other related government institutions). In this research, we start to focus more in the retail industry which are the second biggest line industry in Indonesia (Figure 1). Each SME has different business processes and lesson learned, because of that reason we start our preliminary activities to conduct comparison analysis between SMEs and generally acceptable best practices so that we could define the generalization of business
processes and business needs/requirements which fits the retail industry SMEs. In this stage, we also need to address the issues in ERP adoption among SMEs and main characteristics of Indonesian SMEs. Next, we analyze and define the maturity model in collaboration with Copenhagen school of IT. Next, based on our preliminary activities’ results, we will start to develop a prototype of ERP software for SMEs by customizing the existing open source ERP software such as OpenBravo, OpenERP, etc. The selected open source ERP software will be analyzed by observing the functionalities/modules and architecture of each software. In addition, we also plan to study to understand the ERP prerequisite infrastructure such as architecture (e.g. two/three-tier architecture, service oriented architecture, etc), hardware (e.g. server) and network. The most important thing that we will analyze in this research is the identification of tipping point when and in what conditions SMEs should implement ERP system considering the high level of investment for ERP implementation. In order to get better understanding of ERP concept to the company’s top level management and personnels, an ERP simulation software could be executed. A study from PierreMajorique Leger in 2006 shown that the simulation game approach has proven to be quite
an effective and appropriate pedagogical strategy for teaching ERP-related concept [14].
Figure 2. Classification of ERP Research V. CONCLUSION AND FUTURE WORKS
SMEs have given higher contribution to the growth of Indonesian economy. In order to have competitive advantages amongst other companies, SMEs needs to manage their resources effectively and efficiently. An ERP system could help SMEs to speed up their performances. A systematic roadmap needs to be defined to provide ERP services for Indonesian SMEs. Several researches topics could be raised up such as the current state of ERP in Indonesia, ERP software development, ERP prerequisite infrastructure for SME and ERP simulation. The future works of this research will be identification of the state of ERP in Indonesia specifically for SMEs, ERP software development using open source software, definition of ERP prerequisite infrastructure for SMEs and development of ERP simulation environment to introduce ERP concepts to SMEs. REFERENCES [1] Magal and Word. Essentials of Business Processes and Information Systems. Wiley, 2009 [2] E.F.Monk and B.J. Wagner. Concepts in Enterprise Resource Planning, 3rd edition. Thomson, 2008 [3] Sumner, Mary. Enterprise Resource Planning. Prentice Hall, 2005 [4] Majalah Pusat Informasi Perkoperasian. Dewan Koperasi Indonesia. Edisi 281/Januari/Th. XXIV/2007. 2007. Available at http://www.majalahpip.com/majalah/treeBuilder.php?pID=11&tID= 856# [5] Aberdeen Research. ERP in SME: Fueling Growth and Profits. 2010. Available at http://www.aberdeen.com/aberdeen-
library/6526/RA-enterprise-resourceplanning.aspx [6] Shahawai and Idrus. Research Methodology for Assessing Malaysian SMEs Perspective on ERP. 2009. Available at http://www.computer.org/portal/web/csdl/doi/10. 1109/AMS.2009.122 [7] Brent Snider3, Giovani J.C. da Silveira and Jaydeep Balakrishnan. ERP implementation at SMEs: analysis of five Canadian cases. 2009. Available at http://www.bluelinkerp.com/newsroom/newslett ers/ERP_implementation_study.pdf [8] ERPSim Lab HEC Montreal Website. http://www.erpsim.net/ [9] Koran Tempo. 80 Persen UKM Belum Implementasikan ERP. 2002. Available at http://arsip.net/id/link.php?lh=XQZVWwcEA1V T [10] Yuanqiang Xia, Peter Lok , and Song Yang. The ERP Implementation of SME in China. 2009. Available at http://ieeexplore.ieee.org/stamp/stamp.jsp?arnum ber=05174870 [11] Handayani, Puspita Kencana, Rein Nusa, and Budi Yuwono. Implementasi Aplikasi Enterprise Dalam Mendukung Tata Kelola TI BUMN Di Indonesia Studi Kasus: Pt Timah, Tbk Dan PLN. Jurnal Sistem Informasi Fasilkom UI, 2009 [12] Ampairatana Nattawee and Rotchanakitumnuai Siriluck. Developing ERP implementation success factors of Thai SMEs. 2008. Available at http://dl.gmseenet.org/bitstream/handle/1234567 89/889/GMSARN08-DP04.pdf?sequence=1 [13] Siti Shafrah Shahawai and Rosnah Idrus. Research Methodology for Assessing Malaysian SMEs perspective on ERP. 2009. Available at http://portal.acm.org/citation.cfm?id=1578410. [14] Pierre-Majorique Leger. Using a Simulation Game Approach to Teach ERP Concepts. 2006. Available at http://www2.hec.ca/gresi/documents/cahier0602. pdf [15] Sukandar, Sidik, Kontribusi UKM terhadap PDB Capai 53,3%, Media Indonesia Online, 2007. www.mediaindonesia.com. [16] Kotelnikov, Vadim, “Small and Medium Enterprises and ICT”, Asia-Pacific Development Information Programme-UNDP, 2007 [17] Fathul Wahid and Lizda Iswari. Adopsi TI oleh Usaha Kecil Menengah di Indonesia. Seminar Nasional Aplikasi Teknologi Informasi (SNATI), Yogyakarta, 2007.
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