Erp Concept for Enterprise Management and Knowledge Management Era

Development of information and communication technologies has influenced the evolution of  all  kinds  of  computer  applications  in  the  organization.  At  the  same  time  external environment  and  phenomenon  of  globalisation  have  become  more  complex  with  new requires  and  conditions  for  enterprises.  In  that  context,  effective  information  system  has become  necessity  for  every  organization  in  order  to  increase  competitiveness  by  cutting down costs through better logistics. In these circumstances enterprises have two challenges: to create and implement an infrastructure for information technologies with applications for storing and sharing information and to effectively use these information for decision making process. Success for enterprises depends upon a significant flow of information and goods in the  supply  chain,  client  relationship  and  the  ability  to  perform  e-business  (Vuković  et  al.,2007). E-business is concerned specifically with information systems solution packages used by  enterprises  for  e-business  transaction  purposes  for  meeting  customer  requirements  in Business-to-Business (B2B) and Business-to-Consumer (B2C) exchanges. Popular among the e-business  applications  for  B2B  are  Supply  Chain  Management  (SCM)  and  Enterprise Resource   Planning   (ERP)   systems   and   may   include   online   purchase   or   procurement between   customer   and   supplier.  For   B2C   e-business   application   the   best   example   is Customer Relationship Management (CRM) system. Information  technology  includes  all  matters  concerned  with  the  computer  science  and technology, design, development, installation and implementation of information systems and applications.

IT is a framework for achieving strategic goals of an enterprise that incorporates a variety of commercial software packages that are related to various areas of an organisation such as finance, accounting, human resources, inventory, procurement and customer service. It is recognized that the ability to provide right information at the right time brings a great advantage to the world of complex business relationships and competitiveness.ERP  as  an  enterprise-wide  set  of  management  tools  that  balance  demand  and  supply, having the ability to link customers and suppliers into a complete supply chain, to employ proven  business  processes  for  decision-making,  and  to  provide  high  degrees  of  cross- functional   integration   among   sales,   marketing,   manufacturing,   operations,   logistics, purchasing,  finance,  new  product  development,  and  human  resources,  thereby  enabling people to run their business with high levels of customer service and productivity, and to simultaneously lower costs and inventories, while providing the foundation for effective e- commerce (Wallace & Krezmar 2001).ERP  as  an  e-business  application  for  B2B  allow  the  organisation  to  better  understand  its business,  resources  and  plan  for  the  future  (the  popular  ERP  packages  in  the  market  are: SAP, BAAN, Oracle Financials JD Edwards and People soft).The purpose of this paper is to explore ERP concept and its implementation in enterprises. The research framework examines importance of ERP concept and its implementation as a main  factor  for  competitiveness  for  large  Croatian  enterprises.  The  result  of  the  research reveals that the ERP systems are not insufficiently used in large Croatian enterprises. Details of the results, implications of the findings, and conclusions are presented and discussed. The present study provides a starting – point for further research of implementation process of ERP systems in Republic of Croatia.

ER Phistorical perspectives

The evolution of ERP systems is a reflection of added layers of functionality to its germ-cell Materials  Requirements  Planning  (MRP)  of  the  70’s.  Manufacturing  Resource  Planning (MRP  II)  emerged  in  the  80’s  and  then  followed  by  Enterprise  Resource  Planning  (ERP) systems in the 90’s and ERP II in the 2000’s (see Table 1). ERP offers one integrated solution that  aligns  information  technology  and  business  processes  into  one  repository.  The  ERP progression parallels the development of the economy,  which was considerably instituted on  the  tangible  assets  during  the  70’s.  But,  over  time  this  dependency  gradually  skewed towards the intangible assets and intellectual capital.

Phase1:Manufacturing integration(MRP)

MRP  systems  were  developed  in  the  ‘70s.  MRP  is  connected  with  simple  production operations.  It  represents  a  more  advanced  concept  of  earlier  efforts  to  process  the  bill  of materials. The inventors of MRP were looking for a better method for ordering material, and they found it in that concept. The basic concept for planning material requirements is based upon the four questions which represent its logic (Vuković et al., 2007):

•     What are we going to make?

•     What does it take to make it?

•      What do we have?

•     What do we have to get?

These four questions are called the universal manufacturing equation. It has a logic that is applied in production enterprises. MRP simulates the universal manufacturing equation. It uses  the  master  schedule  to  answer  the  question  what  are  we  going  to  make,  the  bill  of material  to  answer  the  question  what  does  it  take  to  make  it,  and  inventory  records  to answer the question what do we have, and to determine future requirements, thus answers the  question  what  do  we  have  to  get.  The  main  function  of  MRP  is  to  guarantee  the availability of a required material. MRP is used for planning the supply and production of materials for internal use, assembly, production or distribution, and it has to be available at the right time and in the right quantity. The planning process includes monitoring of stock size, automatic creation of orders for materials, intermediate production or its divisions. By functioning  in  that  way,  MRP  attempts  to  maintain  a  balance  between  the  minimum  safe inventory  size  and  the  costs.  Classic  inventory  management  treats  every  single  material, element or product separately, not taking account of the frequency of use and consumption of  one  part  or  another.  The  MRP  approach  is  different  because  a  lot  of  customers  order individual products in packages, so that demand is not entirely independent. There must be a connection between demand of nuts and bolts, paint and brushes, etc. MRP recognizes this connection and attempts to balance demand and supply (Vuković et al., 2007).

MRP  becomes  a  formal  mechanism  for  priority  management  in  changing  production surroundings. The changes in production surroundings are not possible or probable—they are inevitable. The function of MRP that is directed at keeping deadlines and on changes in the production of enterprises is called the Priority Planning. Capacity is a factor that is of equal importance when compared with the previous two factors (Wight, 1993).

Tools  for  capacity  planning  in  the  production  enterprise, as  related  to  the  MRP  computer system are:

•      Sales and operations planning,

•     Master scheduling,

•      Demand management,

•     Rough-cut capacity planning.

The total development of these tools has led to the next step of planning evolution.  Due to the above MRP shortcomings in the 1970’s, the Manufacturing Resource Planning system (MPR II) has emerged in the 1980’s. Sadagopan (1998) stated that, unlike MRP, MRP II addresses the entire manufacturing function and not just a single task. The increased functionality enabled MRP II to check the feasibility of a production schedule taking into account the constraints, and to adjust the loading of the resources, if possible, to meet the production schedule. While Siriginidi (2000) added  the possibility of the integration with other shops , MRP II has certain extensions   like   rough   cut   capacity   planning   and   capacity   requirements   planning   for production  scheduling  on  shop  floor  as  well  as  feedback  from  manufacturing  shops  on progress of fabrication. This last functionality requires a more integrated system. MRP II is more than a material management tool as indicated by Koch (2001) and within the logistic  vision,  the  technology  of  MRP  II,  manufacturing  resource  planning  offers  an interpretation of both the main problems of manufacturing as material flow, and the tools and procedures needed to solve these problems by realizing a full control system.  However, Swan et al (2000) observed that MRP II has been widely promoted by technology suppliers as  the  definitive  “best  practice”  solution  for  production  management  and  control.  But, enterprises   have   encountered   many   problems   in   implementing   MRP   II   –   including organizational not just software. However, prior to these findings, Foxlow (1994) reported that  there  is  a  need  for  new  knowledge-based  manufacturing  software,  incorporating

artificial intelligence techniques, offers benefits to companies whose products are complex, highly varied, or made-to-order. However, these are precisely the areas where conventional MRP II systems are widely perceived as having failed.

Phase2:Enterprise resource planning(ERP)

With  the  evolution  of  concepts  like  MRP  and  MRP  II,  we  arrive  at  the  currently  used concept of enterprise resource planning or ERP. The foundation for ERP is the same as in MRP  II.  ERP  has  developed  as  a  set  of  business  processes,  thanks  to  the  development  of information and communication technologies, while its conceptual development is just one step in the evolution of enterprise management (Vuković et al., 2007).The ERP systems were also faced with their own implementation and integration problems. The major difficulties with integration, however, appeared during the augmentation of core ERP systems with legacy systems.

The main reasons to implement the ERP concept are (Vuković et al., 2007):

•      Integration of financial information.

•      Integration of clients orders.

•     Standardization and speed of production processes.

•     Stock sizing.

•      Human resources information standardization.It is essential is to draw a difference between

      the   concept of ERP and the ERP system. ERP systems enable the realization of the ERP concept.

Phase3:Customer-centric ResourcePlanning(CRP)

The range of ERP functions was further expanded at the end of the 1990s to include “front office” functions such as sales, marketing and e-commerce. E-commerce applications needed to  be  connected  to  back-end  systems  and  thus  forced  many  ERP  software  providers including  SAP,  PeopleSoft  and  BAAN_  to  reinvent  themselves  as  CRP  providers.  While traditional ERP solutions were equipped to support the “make-to- stock configure-to-order business  model”,  CRP  systems  are  able  to  meet  the  e-commerce  “build-to-order  fulfil-to- order” requirement. Effective manufacturing and service delivery in the e-commerce model require customer-centric, continuous planning instead of the classic ERP assumption of long planning cycles (Bosilj-Vukšić & Spremić, 2005).

Phase4:Inter-enterprise Integration(XRP)orERPII

Since the world of the 2000s has become one of interconnected enterprises creating global information  systems,  the  scope  of  ERP  systems  comprises  the  entire  value  chain  of  the enterprise, its customers, suppliers and trading partners. The main goal of the XRP system is to  provide  intelligent  decision-support  capabilities  in  order  to  reduce  inventory,  foster strategic  pricing, improve  cycle  times  and  increase  customer  satisfaction  throughout  the supply  chain  management  and  selling  chain  management.  To  achieve  this  goal,  an  XRP model  must  support  the  integration  of  external  and  internal  business  activities  with  the suppliers  and  customer’s  information  and  processes  (Bosilj  Vukšić  &  Spremić,  2005).  ERP systems  were  also  faced  with  their  own  implementation  and  integration  problems.  The major difficulties with integration, however, appeared during the augmentation of core ERP systems with legacy systems.

Themistocleous and Irani (2001) stated that ERP systems were then   introduced   to   overcome   integration   problems.   However,   organizations   did   not abandon  their existing  systems  when  adopting  an  ERP solution,  as  ERP  systems  focus  on general   processes   and   initially   did   not   allow   much   customization.   The   problems   of integration  within  the  core  of  ERP  systems  have  resulted  in  multiple  shortcomings  as reported  by  DeSisto  (1997)  that  poor  ERP  integration  resulted  in  high  order  error  rates, incorrect billing and shipping addresses, misquoted pricing and discounts, and misquoted “out of stock” inventory.

ERP defined

There are a numerous definitions of ERP but in this paper the most popular definitions will be  presented.  Wallace  and  Krezmar  define  ERP  as  an  enterprise-wide  set  of  management tools that balance demand and supply,  having the ability to link customers and suppliers into  a  complete  supply  chain,  to  employ  proven  business  processes  for  decision-making, and   to   provide   high   degrees   of   cross-functional   integration   among   sales,   marketing, manufacturing,  operations,  logistics,  purchasing,  finance,  new  product  development,  and human resources, thereby enabling people to run their business with high levels of customer service   and   productivity,   and   to   simultaneously   lower   costs   and   inventories,   while providing the foundation for effective e-commerce. An  enterprise  resource  planning  system  is  a  business  management  system  that  comprises integrated    sets    of    comprehensive    software    that    can    be    used,    when    successfully implemented,  to  manage  and  integrate  all  business  processes  and  functions  within  an organization.  They  usually  include  a  set  of  mature  business  applications  and  tools  for financial  and  cost  accounting,  sales  and  distribution, management  of  materials,  human resources, production planning and computer integrated manufacturing, supply chain, and customer information (Žabjek et al., 2008). Klaus, Rosemann and Gable define ERP as a logical and compact software solution which strives toward the integration of all processes in an organization, in the aim of presenting a comprehensive   view   of   the   organization   through   singularity   of   information   and   IT architecture  (Roseman  &  Gable  2000),  whereas  Yen,  Chou  and  Chang  (Yen  et  al.,  2002), describe ERP as a software which can be used to integrate information through all functions of  organization  in  order  to  automate  all  business  processes.  Rao  (2000)  described  an  ERP system as a software solution to produce the right product on the right place, at the right time,  and  for  the  right  price,  containing  the  best  industrial  and  management  practice captured in those solutions. It is necessary to emphasize that ERP is not a software, software package or set of computer applications. Software packages of ERP systems, or ES, provide support  for  efficient  resource  planning  or  ERP. 

The  main  function  of  ERP  is  to  integrate operational   procedures   within   the   department,   along   with   the   MIS,   and   to   relocate organizational  resources  in  changing  surroundings.  ERP  systems  are  integrated  software solutions  which  are  used  for  resource  management  of  the  organization.  ERP  systems  are used  for  resource  planning,  and  also  for  the  concept  of  combining  unique  departments systems and utilizing the methods which are most appropriate for problem solving. The main goal of ERP is to implement the best practices for all business processes. It may be said   that   ERP   is   a   key   business   strategy   today,   and   the   greatest   advantage   of   its implementation  is  the  ability  to  fundamentally  eliminate  multiple  systems  within  an organization,  with  no  more  redundancy.   Implementing  ERP  on  platforms  is  not  always easy because of the massive re-engineering process that involves security, quality assurance, and training for members of the organization entrusted to use the ERP systems. In addition to  maximizing  the  operational  effectiveness  of  the  ERP,  IT  managers,  system  security officers,  and  system  developers  will  find  themselves  challenged  on  security  and  control issues (Vuković et al. 2007).

Characteristics of ERP systems

When most people refer to the “core” ERP applications or “modules,” they mean the back- office capabilities to manage human resources, accounting and finance, manufacturing, and project-management  functions.  However,  major  ERP  suites  from  Oracle,  PeopleSoft,  and SAP  now  provide  much  more—including  modules  for  sales  force  automation,  business intelligence,  customer  relationship  management,  and  supply  chain  management  (Musaji,2002).

There are some significant differences between ERP and non-ERP systems. These differences are (Musaji, 2002):

•    In   ERP   systems,   certain   control   procedures   leave   no   documentary   evidence   of performance.  For  some  other  procedures,  the  evidence  of  performance  is  indirect;  it may  be  included  in  the  program  logic  or  in  the  operator’s  instructions.  Therefore, compliance  tests  may  have  to  be  structured  differently  in  an  ERP  environment  and observation of the client’s procedures may become more important.

•    In ERP systems, information is often recorded in a form that cannot be read without the use of a computer.

•    Financial  and  business  information  is  often  generated  automatically  by  ERP  systems based on data previously entered, without further human instructions.

•    Errors that might be observed in non-ERP systems may go undetected because of the reduced human involvement in computerized processing. There is a danger that errors in processing may be applied to a large number of transactions without being noticed.

•    With  proper  controls,  ERP  systems  can  be  more  reliable  than  non-ERP  systems.  This  is because  ERP  systems  subject  all  data  to  the  same  procedures  and  controls.  Non-ERP systems are subject to random human error. Although computer processing will usually be consistent, errors may still occur; for example, if the computer is incorrectly programmed.

•    It is difficult to make changes after an ERP system has been implemented. Therefore, we should be aware of the organization’s plans to introduce significant new systems or to make major modifications to existing systems. It is advisable to review new systems or modifications before implementation so that a preliminary assessment can be made of the adequacy of control procedures, in order to ensure an adequate audit trail, and to plan any necessary changes in the audit approach. ERP   systems   vary   from   the   simplest,   batch-controlled   type   to   complex   integrated applications that perform a number of functions simultaneously.

Implementation of ERP systems

Parry and Graves (2008) noted that implementation of an ERP system does not end with the system “going live“ (Markus et al. 2000). It is an ongoing process where new functionality, modules,  updates,  and  corrections  need  to  be  carried  out  in  conjunction  with  changes  in organisational  processes  (Kremmergaard  &  Moller  2000).  These  software  and  process changes continue throughout the lifetime of an ERP system as it evolves in parallel with the organisation. Many publications have described the ERP lifecycle as having different phases (Markus et al. 2000, Markus & Tanis 2000, Ross & Vitale 2000, Parry & James-Moore 2005); however,  Markus  and  Tanis’s  (2000)  ERP  lifecycle  model has  been  widely  accepted.  They refer to an “enterprise systems experience cycle“, and describe four distinct phases within this  journey:  the  “Chartering”  phase  during  which  decisions  leading  to the  funding  of  an enterprise systems will be made; the “Project „phase where the ERP software is configured and  rolled  out  to  the  organisation;  the  „Shakedown“  phase  where  the  company  makes  a transition  from  go-live  to  normal  operations;  the  “Onward  and  Upward  „phase  during which  the  company  captures  the  majority  of  business  benefits  from  the  ERP  system  and plans  further  steps  of  technology  implementation  and  business  improvement.  This  final phase refers to the management of ERP systems that covers ERP operations, ERP upgrades, and  ERP  maintenance  such  as  error  fixing  and  minor  enhancements  (Markus  et  al.  2000, Markus  &  Tanis  2000,  Nah  &  Lau  2001).  Following  initial  implementation,  there  are subsequent  revisions,  re-implementations,  and  upgrades  that  transcend  what  is  normally considered as management of ERP system (Chang 2004). Management activities for software systems  are  commonly  classified  as  one  of  the  four  distinct  types: 

(1)  corrective,

(2) perfective,

(3) adaptive, and

(4) preventive (Pressman 1992).

The figure 1 below shows how ERP can support IT  process.  It shows  Modules  in an ERP based integration approach.

Knowledge management era

Knowledge has become the  most important input implemented in business organisations. Numerous  books,  articles  and  special  editions  of  journals  have  already  been  devoted  to explaining concept of knowledge and its management in organisations. It is not necessary to dwell   on   these,   except   to   iterate   that   the   key   components   of   successful   knowledge management  are  strategy,  culture,  technology,  organisation  and  people  (Drew,  S.,  2000). Different authors are bound to put different definitions of the knowledge management. For example,  Wiig  sees  knowledge  management  as  a  process  of  facilitating  and  managing knowledge-related activities such as creation, capture, transformation and use (Wiig, 1997). Brooking  understands  knowledge  management  as  an  activity,  which  is  concerned  with strategy  and  tactics  to  manage  human-centred  assets  (Brooking,  1997).  On  the  other  hand Bair  defines  it  as  a  set  of  policies,  organisational  structures,  procedures,  applications  and technologies  intended  to  improve  the  decision-making  effectiveness  of  a  group  or  a  firm (Bair,  1997).  Finally  according  to  Harris,  knowledge  management  is  a  discipline  that promotes  a  collaborative  and  integrated  approach  to  the  creation,  capture,  organisation, access and use of an enterprise’s information assets (Harris, 1998).Knowledge    management    comprises    information,    communication,    human    resources, intellectual capital, brands, etc.  Knowledge Management (KM) has tactical and operational perspectives. 

KM  is  more  detailed  and  focuses  on  facilitating  and  managing  knowledge- related  activities  such  as  creation,  captures,  transformation  and  use  (e.g.  Wiig,). Enterprises tend to pursue one or several of five basic knowledge-centred strategies (Wiig, K. M., 1997):

•    Knowledge  strategy  as  business  strategy  –  emphasises  knowledge  creation,  capture, organisation, renewal, sharing, and use in all operations;

•    Intellectual  asset  management  strategy  –  emphasises  enterprise-level  management  of specific intellectual  assets  such  as  patents, technologies,  operational  and  management practices,   customer   relations,   organisational   arrangements,   and   other   structural knowledge assets;

•    Personal  knowledge  strategy  –  emphasises  personal  responsibility  for  knowledge- related   investments,   innovations   and   competitiveness,   renewal,   effective   use   and availability to other or knowledge assets within each employee’s area of accountability;

•    Knowledge  creation  strategy  –  emphasises  organisational  learning,  basic  and  applied research and development, and motivation of employees to innovate and capture lessons learned to obtain new and better knowledge that will provide improved competitiveness;

•    Knowledge transfer strategy – emphasises systematic approaches to transfer knowledge to  points  of  action  where  it  will  be  use  to  perform  work.  This  strategy  includes knowledge sharing and adopting best practices.

Since the importance of knowledge rapidly grows, there is a growing need for knowledge  management,  especially the management of processes  in which knowledge is  created  and used (Quintas & Geoff, 1997). Most authors observe human capital as a system consisted of three elements. The first element is intellectual capital. It refers to fundamental individual attributes such as cognitive complexity and the capacity to learn, together with the tacit and explicit knowledge, skills and expertise an individual builds over time (Gratton & Ghoshal,

2003).  The  second  element  of  human  capital  is  social  capital  –  which  is  about  who  one knows, and how well one knows them.   The third element is emotional capital based on a self-esteem, courage and resilience. These three different elements are highly inter-related. Social  capital helps  individuals  to develop intellectual capital by accessing the knowledge and  skills  that  those  people  possess.  Emotional  capital  brings  the  integrity  and  self- awareness  to build  open  and  trusting  relationships,  which underpin  the creation  of social capital. As an example of the world leading company at the field of intellectual capital, it is mentioned   Swedish   insurance   company,   “Skandia”,   which   has   comprehended   the importance of knowledge and intellectual capital, ten years ago. For better insight of their business  accomplishments,  usually  observation  and  furtherance,  “Skandia”  has  developed the  scheme  for  intellectual  capital  (intellectual  capital  is  composed  of  several  important following  components):  IC  was  seen  as  the  sum  of  human  and  structural  capital.  Human capital was defined as the knowledge, skill and experience of employees. Structural capital, however, was the extension and manifestation of human capital into innovations, business processes and relationships with dealers and others (Roos, 1998). Intellectual    capital    management   (ICM)    and    knowledge    management    (KM)    are multidimensional  and  cover most  aspects  of  an enterprise operation.  There  is  overlap but there are also major differences. For example, KM has tactical and operational aspects and is more detailed. The ICM and KM role is to keep and sustain the present and future body of knowledge   in   order   to   guarantee   the   firm’s   long-term   viability   and   profitability. Management  of  knowledge  is  becoming  a  new  business  philosophy  and  is  treated  as  a source  of  power  and  together  with  Intellectual  Capital  represent  the  enterprise’s  future potential. There is considerable overlap in the scope of intellectual capital management and knowledge  management.  ICM  focuses  on  building  and  governing  intellectual  assets  from strategic and enterprise governance perspectives with some focus on tactics. Its function is to take overall care of the enterprise’s intellectual capital.

The management of intellectual capital is a strategic activity which positively modification efficiency of enterprises and means that the enterprise (Tipurić, D., 1999):

•    Apprehended  the  role  and  importance  of  employees  in  resumption  of  competitive advantages;

•     Defined its key competence in economic surroundings;

•      Developed the system for creating necessity know-how;

•      Installed the system of rewarding;

•    Developed  the  specific  culture  for  encouragement  of  experimenting  and  expanding total knowledge.

ERP concept and enterprise knowledge

ERP  packages  led  to  better  production  planning,  quality  and  inventory  control,  expense management  and  more  efficient  distribution.  The  primary  objective  of  ERP  systems  is  to seamlessly improve the internal efficiency through order fulfilment. However, information on just one side of the business equation is ineffective in achieving a competitive advantage in  the  new  global  economy.  The  new  market  demands  a  distributed  knowledge  network, which necessitates the participation of the entire value chain from customer to supplier, and in some cases, even from competitors. Enterprises that strategically maximize the impact of these new knowledge flows will be in a position of competitive advantage in the emerging networked economy. This requires synergetic relationships between CRM, KM, and supply chain within one system (Mirghani, 2005).   According to Thompson and Close (2001) since the  beginning  of  1997,  the  major ERP  vendors  (e.g.,  SAP,  PeopleSoft  and  Oracle)  have attempted  to  expand  their  dominant  position  in  the  financial,  manufacturing  and  human capital management enterprise applications markets into the increasingly lucrative customer relationship management (CRM) market. Until recently, these attempts have mostly failed to meet client expectations. However, their labours are beginning to pay off.

Although ERP systems interconnect different departments through the various modules, but to  some  extent,  ERPs  initially  created  functional  silos  by  enforcing  the  business  process workflow  through  single  technology. 

This  silo  effect  needs  to  be  counterbalanced  by implementing  KM  initiatives  that  promote  the  communication and  knowledge  sharing among various value network collaborators. The KM initiative as supportive mechanism for ERP  will  reveal  different  kinds  of  knowledge  to  different  stakeholders.  The  conventional ERP systems have tremendously improved order fulfilment and intra-organization business process   workflow,   but   fell   short   to   address   the   inter-enterprise   business   process complexities.   The   latter   requires   a   full   collaboration   ecosystem   that   attracts   valued customers and shareholders from all directions to share the pertinent business knowledge. The  leverage  of  human  intellectual  capabilities  has  been  the  focus  of  ERP.  Directing  and maintaining intellectual energy while attempting a restructuring or re-engineering program is seen as a typically difficult example of this much overlooked area. Gartner defined ERP as “a business strategy and a set of industry-domain-specific applications that build customer and   shareholder   value   by   enabling   and   optimizing   enterprise   and   inter-enterprise collaborative   operational   and   financial   processes”.   This   definition   transformed   the traditional back-office ERP system from internal transactional system into a complete value network   system   that   incorporates   the   front-office   functionalities   for   various   partner communities.  Integrating  the  front  office  with  ERP  indisputably  offers  an  information visibility  strategy  that  pushes  the  right  information  to  the  right  people  at  the  right  time through the right communications channels (Mirghani, 2005). From systems point of view, ERP and KM systems need to be implemented simultaneously in    the    framework    of    integrated    enterprise    information    systems.    Simultaneous implementation of ERP and KM systems requires incorporation of both KM and ERP into enterprise  business  processes  and  incorporation  of  KM  into  ERP  system  development. Despite the different focus of ERP and KM systems, the two systems, to some extent, have common  goals.  Both  ERP  and  KM  aim  at  improving  business  processes  to  achieve  better business performance, with tasks based on data, information and knowledge.

ERP systems emphasize the efficiency of business processes in enterprises. To achieve the goals,  ERP  systems  maintain  mechanism  for  data/information  consistency  through  high degrees  of  standardization,  formalization  and  specialization.  KM  systems  devote  to  the knowledge  processes  of  enterprises  such  as  knowledge  creating,  storing,  transferring  and sharing.  In  perspectives  of  enterprises,  the  ultimate  goals  of  the  two  systems  are  helping enterprise survive in the global market by improving their performance. In summary, ERP and KM systems manage the business from the point of views of physical and knowledge assets, respectively.

With  a  proper  framework  in  which  ERP  and  KM  can  cooperate  with  each  other,  an enterprise  can  benefit  from  the  advantages  of  ERP  and  KM  and  be  successful  in  global competition.

On  the  one  side,  implemented  Enterprise  Systems  can  serve  as  a  main  source  for Knowledge  Management.  As  Enterprise Systems support  various  areas of  a company such as procurement, manufacturing, warehousing, sales, distribution, and accounting, an analysis of a run-time data can provide the knowledge manager cost-effectively with useful  data  about  the  current  process  performance.  This  perspective  characterizes Enterprise  Systems  as  a  knowledge  repository  and  can  be  described  as  “Enterprise Systems for Knowledge Management”.

•    On the other side, the management and especially the implementation of an ES solution requires a substantial amount of specific knowledge and expertise. Thus, a separate ES- related Knowledge Management can be identified that covers the entire management of knowledge  in  an  ES  project.  This  perspective  can  be  characterized    as  “Knowledge Management for Enterprise Systems”

In 2003 Sedera with his colleagues has proposed a model of Knowledge Management that is crucial for ERP success.In this study knowledge was identified as a key driver of ERP success but also needs further analysis to understand the complete influence of knowledge and other possible dimensions of knowledge.

ERP systems and it simple mentation inlarge Croatian enterprises

ERP systems can be considered as a “standard tool” for every large enterprise in a global economy and in the time of large competitiveness at the international market.  For example “Supply   Chain   Management”   includes   e-procurement,   payment   and   organizational optimization and without ERP as a integral source of data, ERP system will be impossible to implement.

The  analysis  “Enterprise  Resource  Planning  Systems  and  competitiveness  of  large  Croatian enterprises” conducted by Nikša Alfirević from the Faculty of Economics Split, Croatia in 2003 that has been accessible from the secondary source of research and has shown that the users of SAP information system in large Croatian enterprises can be divided in two main categories:

•      Enterprises with a foreign proprietary – they buy ERP systems to follow standards of


•    Small  group  of  progressive  domestic  companies  that  are  oriented  to  export  and international business.

This research (Alfirević, 2003) has been conducted at the end of 2002 and the beginning of 2003. The summary of the most important conclusions of that research will be presented in this paper.The source for analysis has been 200 leading domestic enterprises (ranked by the income) and  published  in  a  study  “Privredni  vjesnik”  in  2002.  Although  the  analysis  of  200 enterprises cannot show all trends at the ERP market, the fact is that this source presents the majority of potential ERP users and that from this analysis all relevant indicators of market situation can be measured. The analysis has shown that 68% of the surveyed enterprises do not have implemented ERP system  and  that  ERP  systems  are  not  used  enough.  There  is  a  large  gap  when  is  about investment  in  ERP  systems  in  Croatia  and  in  the  rest  of  the  world.  This  study  has  also shown that there is a significant correlation among ERP systems and relative performance measures ROA and Net profit margin (Spearman coefficient of correlation).Conducted analysis has also shown that in Republic Croatia there is a relatively low level of investment  in  ERP  technologies  but  that  enterprises  that  implement  ERP  achieve  better

business results (it can be concluded that implementation of ERP systems is very important for   competitiveness).   It   is   possible   to   connote   that   the   situation   of   ERP   systems implementation  in  large  Croatian  enterprises  has  not  change  much  in  the  years  that  have accompanied  from  the  conducted  research  because  all  trends  that  are  presented  at  the professional journals in Republic Croatia show this trend.Further researches and practice has to be oriented to adaptation of ERP systems to specifics of Croatian economy which will help to improve export capabilities and competitiveness of Croatian economy.


To  adapt  to  today’s  challenging  and  competitive  business  environment,  organizations  are implementing ERP systems to achieve a capability to plan and integrate enterprise and to be more responsive to customer demands.Today, ERP is still evolving, adapting to developments in technology and the demands of the market. Four important trends are shaping ERP’s continuing evolution: improvements in integration and flexibility; extensions to e-business applications, a broader reach to new users; and the adoption of Internet technologies. Taking a closer look at each will help you understand where ERP is headed. Despite the fact that ERP integrates and optimises the flow of information across the entire organization’s  supply  chain,  the  implementation  of  such  software  packages  can  be  costly, and may even require reengineering the entire business operations. Combinations of factors have   to   be   considered   when   undertaking   an   ERP   implementation  including:   top management support, business plan and vision, Re-engineering business process, effective project  management  and  project  champion,  careful  package  selection  process,  teamwork and composition, user involvement and education and training (Al-Fawaz et al., 2008). ERP and KM systems emphasize different characteristics, but the primary goal of the both systems is to improve the competitiveness of enterprises in global markets. From systems point  of  view,  ERP  and  KM  systems  need  to  be  implemented  simultaneously  in  the framework  of  integrated  enterprise  information  systems.  Simultaneous  implementation  of ERP and KM systems requires incorporation of both KM and ERP into enterprise business processes  and  incorporation of  KM  into  ERP  system  development.  Despite  the  different focus of ERP and KM systems, the two systems, to some extent, have common goals. Both ERP and KM aim at improving business processes to achieve better business performance, with tasks based on data, information and knowledge. In this paper study of implementation of ERP systems in Republic Croatia has been shown. Analysis has shown that in Republic Croatia there is a relatively low level of investment in ERP technologies but that enterprises that implement ERP achieve better business results. It can be said that in the future enterprises in Republic Croatia and especially large Croatian enterprises  have to orient more to advantages  of IT especially when is about role of IT in improvement  of  export  capabilities  of  large  enterprises  and  in  general  when  is  about competitiveness of Croatian economy.

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