ERP Adoption in Malaysia and difference with accounting system

Abstract

ERP is slowly becoming a trend for Small Medium Enterprise (SME) companies as it provides data integration and systematic process flow which could improve productivity and gain reliability from customer for its product quality. Even so, there are still a lot of SME business still using accounting software and manual excel work to handle routine work and generate financial statements.

ERP System Evolution and Growth

Enterprise Resource Planning (ERP) has evolved from inventory management systems in the 1960s, to Materials Requirements Planning (MRP) in the 1970s and Manufacturing Resource Planning (MRP II) in the 1980s. In 1990s, Gartner Group, a famous US based consultancy firm, re-christened MRPII as ERP [1]. The initial meaning of ERP indicated integrated software applications that govern different departmental functions such as finance and human resource. Today, the term ERP implies widespread integrated information systems applicable to any organization regardless of size and geographic locations [2]. The evolution of ERP system is diagrammatically shown in Table 1.

 Source: Adopted from Huang et al. (2003)

The first generation ERP system (introduced by vendors such as SAP and Baan) was used by large manufacturing companies such as Boeing, Mercedes-Benz and BMW [3]. Over time, various other industries such as retail, wholesale and service also began using ERP system [4]. In recent years, ERP II – a second generation system with additional features such as supply chain management and customer relationship management was introduced in the market. The improved ERP system integrates back and front end office operations seamlessly [5]. The primary backbone of ERP system is information technology (IT) which helps in the integration of numerous applications and processes owned by different departments in a firm. It is not just about enabling efficient communication between networks and protocols but is also about integration of different business processes, company policies and organizational structures [3].

Since mid 1990s, the number of ERP using firms has been growing significantly. Caldwell & Stein [6] reported that ERP system has become a part and parcel of firms with over $1 billion annual turnover in the year 1998. Six years later, Markus et al., [4] highlighted that nearly 70% of Fortune 1000 firms are users of ERP system. Apart from penetration quantum, reports are also abundant with success stories from ERP vendors’ perspective, although most of them seem to be estimation figure per se. AMR Research (1999) for instance gave positive prediction of ERP market reaching $6 billion by 2003. Huang and Palvia [7] accounted global ERP licensing revenue reaching $21.5 billion in the year 2000. In another instance, Kumar and Hillersberg [3] estimated global ERP sales of $20 billion by the year 2005.

The evolution of ERP meaning that demand of integrated system is getting higher and it could help an organization to achieve higher performance with lesser time and cost. Now, let we study what is the ERP adoption status in Malaysia.

What is the current status of manufacturing SMEs have implemented ERP in Malaysia?

FINDING AND ANALYSIS

First of all, table 1 below, shows the low percentage of implementation of ERP System in the manufacturing sector of SMEs. This indicates the slow adoption rate of ERP system in Malaysian manufacturing SMEs.

Table 1: Manufacturing of SMEs Implemented ERP System

This justifies that, efforts in adopting ICT products have not been fully translated into results. Only about 10% of SMEs used ERP, 10.1% used CRM software, 13% used computer-aided manufacturing, and 24.8% computer-aided design. Only 30% of manufacturing SMEs as a whole, owned websites and use ICT extensively in their daily operations. Accordingly, there is a need to identify the factors that lead to ineffective adoption of ERP System within manufacturing SMEs in Malaysia.

On the other hand, this research has a wide variety of industries were represented in the responses, and table 2 below has shown the result.

Table 2: Companies by Industry Implemented ERP System

The companies were classified by industry type as shown in Tables 2. The descriptive statistics suggests that a wide variety of industries were represented and the information was provided by top level IS executives. Table 2 shows a higher representation from manufacturing as manufacturing industry is the largest user of ERP in Malaysia.

What’s The Difference Between ERP System and Accounting Software?

In Malaysia, most of the company has their own accounting software that assist in recording the day by day financial transactions of company.  Basically, the accounting software is created with the aim to facilitate an accountant in making financial statements consisting of balance sheet, ledgers, journals, trial balance, profit and loss, etc. which the documents that needed in audit process. However, an ERP (Enterprise Resource Planning) system is created with the aim to plan and manage whole of the company resources. ERP consists of an integrated of multi modules to support various functions which assisting the operational activities of company become more efficient and smoother.

In contrast with the past, there are wide range of computer systems have the intention of achieving finance management of a company has caused the differences between an ERP and Accounting software to be somewhat diffuse. Most of the people wrongly believe that they are technically same but in fact they aren’t. Both of the software functionality has some crossover but the two are nearly different. When comparing this two software probably doesn’t make sense at all because it’d be like asking someone apples and oranges which is better.

In order to completely understand the distinction between the two let’s have a look at their respective functionality and comprehend how did we end up binding both the terms together. Table below will be summarized the differences between ERP and accounting software:




Is It Time to Move from Accounting Software To ERP?

Usually companies find it difficult to know when is time to switch from accounting software to an ERP. Before deciding which software should be selected, the company needs to know it needs first. If the company only requires automation for accounting, then using accounting software alone is enough. But as your business grows, you will realise the lack of ability in managing the processes across all departments effectively. Then you’ll either need greater functionality, the ability to process greater volumes of data and reports, more users or the ability to access the application from multiple locations, all of which can be achieved by upgrading to a comprehensive ERP.

In conclusion, growing SMEs which still relying on accounting software might find the software’s functionalities insufficient to meet their goals – moving to an ERP software will be the next natural step.

References:

[1] F. Nah, J. Lau and J. Kuang. “Critical factors for successful implementation of enterprise systems”, Business Process Management Journal, Vol. 7 No. 3, 2001, pp. 285-97.

[2] A. Huang, D. Yen, D. Chou and Y. Xu. “Corporate applications integration: challenges, opportunities, and implementation strategies”, Journal of Business and Management, Vol. 9 No. 2, 2003, pp. 137-45.

[3] K. Kumar and J.V. Hillegersberg, “ERP experiences and evolution”, Communications of the ACM, Vol. 43 No.4, 2000, pp.23-6.

[4] M.L  Markus, C. Tanis & P.C Fenma. “Multisite ERP implementations”. Communications of the ACM, 43(4), 2000, 42-46.

[5] C. A. Beath, “Supporting the Information Technology Champion”, MIS Quarterly, 15, 3, 2000, pp. 355-372.

[6] Caldwell & Stein. “Beyond ERP – New IT Agenda- Second Wave of ERP”, Information Week;CMP Media, Nov 1998

[7] Z. Huang and P. Palvia,  “ERP Implementation Issues in Advanced and Developing Countries.”  Business Process Management Journal.  Vol 7, No 3, 2001, pp.  276-284.