Enterprise Resource Planning in Mining and Manufacturing Industries - Assignment Example

Enterprise Resource Planning (ERP) In Mining and Manufacturing Industries Introduction Information Technology (IT) is transforming the operations of the companies and the process by which companies are engaging in product creation and business activities, delivery of information, products and services to the consumers resulting to creation of value for the consumers.1 The focus of this assignment is to examine the application of ERP in mining and manufacturing companies taking consideration of the advantages, disadvantages and limitations posed by the ERP in those companies.2 The analysis will be based in the case study of Oracle Customers in mining and metal industries. IT is fundamental in human resource management, firms’ infrastructures, marketing, procurement, technology development, etc. As mining and manufacturing companies extend their operations to the global arena, they have to change operational strategies in order to gain efficiency and competitiveness in the global market. Expansion of operations leads to increase in complexity of operations that pose challenges of managing efficiency of operations.3 1. How Widespread Is The Use Of ERP Mining And Manufacturing Industries? Mining industry has unique characteristics distinct from other industries because they are process industries and requires intensive capital investments with heavy plants and equipment.4 Since they are focused on profitability and efficiency, the focus of ERP is to reduce production cost and increase efficiency through maintenance management and effective utilization of production capacity.5 There is a need to avoid idle time by ensuring accurate scheduling and avoidance of the unpredicted breakdown, which can be achieved through scheduling of preventive and predictive maintenance task. The source of raw materials (ore) for the mining industry is obtained internally (from the mine) and involves a lot of uncertainty and an approximation error that are only determined during the production process.6 Furthermore, unlike the manufacturing function mining industry produce for stocking, not for orders. Therefore, the mining and manufacturing companies require the use of ERP for informed decision-making in areas of operation, accounting, human resource, supply chain, marketing, customer, etc. The use of ERP in a mining and manufacturing company helps the organization to integrate information to achieve real time accessibility of information across units and processes using the data created by the company’s technical and operational systems software. Integration of scheduling, material management, production and distribution are the fundamentals of profitability in the mining and manufacturing business.7 Individual department applies different criterion for output measurement, which in most cases does not relate with requirements of shareholders or legal requirements. However, use of ERP enables the individual departments to use separate reporting procedures. It converts data bidirectionally to the business reporting standards. For example, Alcoa Company has managed to streamline its operations by adopting Oracle E-Business suite by integrating various its activities across the globe resulting to reduction in cost.8 The use of ERP aid in capturing customer information and provide a response to customer requests thus resulting to the establishment of customer relations and evaluation of knowledge management. According to a statement by George Gradl, mining and metals director of SAP (Burger 2013), the mining companies are integrating operational technologies with information technology “through digital mining enterprise system to manage production planning and execution of transactions, and provide near real-time visibility and intelligence for various divisions.”9 The achievement of digital mining is achieved through “autonomous equipment, robotics and remote control, as well as integration of operational and information technologies that ensure availability of intelligence across all functional areas such as operations, scheduling, mine planning, operations planning and execution, intelligence, operational reporting, equipment maintenance, etc. ERP is used in execution functions orders such as shipping, invoicing and placement and scheduling of orders.10 ERP has been used in mining and manufacturing industry to increase the availability of information across the industry for decision-making purpose. The integration of various operational systems ensures single entry of data “into the mine application landscape is accessible across other applications and by different people according to data mapping rules, workflow rules, user roles and system authorization to gain a real-time of all functions across the company’s footprint” (Burger, 2013, 8). For example, the adoption of Oracle E-Business Suite in Alcoa helped the company to integrate 43 Legacy Systems resulting to improved communication because all stakeholders can monitor the business activities in a single click in real-time.11 Furthermore, the manufacturers should balance demand and supply of the products in order to control the production cost and meet market demand in time.12 Therefore, use of ERP in the firm provides appropriate facet for integration of for procurement and production process of materials, contract and risk management. These requirements call for the use of ERP in order to establish a single source of information for all company’s stakeholders to access and respond to all contract’s needs in real time.13 ERP enables the companies to achieve end-to-end purchasing and logistics processes resulting to improved cost savings. Through vertical Oracle Process Manufacturing and Oracle Discrete Manufacturing, Alcoa can manage business enterprises through order-to-cash process it deploys in its vertical structure.14 The integrated order-to-cash leverages order management, shipping, costing, planning, quality and manufacturing solutions at reduced inventory and cost resulting to efficiency in the flow of products to deliver customer satisfaction.15 Managing of business contracts manually involves a lot of risks, prone to various human errors and is time-consuming. In the mining and manufacturing company contracts are fundamental components of the company.16 It entails the terms involved such as pricing requirements, delivery of materials and quality specifications. In order to ensure the achievement of contract requirements, there should be an effective system for tracking all aspects of the contract and ascertain that materials are delivered at the right time, quality and quantity. ERP enables companies to capture various data and process it into information for decision making. “Alcoa is establishing single operating environment in Australia, South America, North America and Europe by leveraging common data warehouse solution to aggregate information.”17 The focus is to have a single source of information for the four regions and set common tools for operating their business. This is being achieved through Oracle Discoverer; a customized reporting system and the company aim at establishing its Daily Business Intelligence (DBI) product.18 ERP facilitates effective capture of employee information and maintenance of database for optimal utilization of employees to achieve better productivity. For example, through Global Human Resource Management System (HRMS) implemented in Australia in 2002 Alcoa manages the human resources, payroll and personnel processes in real-time.19 The HR activities including recruitment, managing assignment, training and development are all carried out in real-time. Through this system, the organization can establish a strong relationship between customers and the employees and ensure quick delivery of services.20 Furthermore, the organizations can conduct employee appraisal, control financial investment, promote quality and investment in training, etc. It will be able to promote skills and balance the available opportunities with available resources in order to promote efficiency. ERP enables companies to sustainably improve assets usage, minimize costs to improve efficiency and sustainability if the entire asset lifecycle. In partnership with Oracle, Alcoa developed Enterprise Asset Management Solution (eAM). The Oracle eAM helps Alcoa to manage the asset requirements such as engineering design and utilization based requirements to be managed in a common location.21 The single view of assets will maximize utilization of assets, improve efficiency of resources and remove frantic legacy systems. Use of ERP enables organizations to comply with regulatory requirements, achieve real-time financial data management and improve overall financial performance of the organization. ERP assists the company to plan and optimize production capacity and resources. In addition, it helps producers to manage the inventory processes within the warehouses and respond promptly to challenges involving supply and demand of products and services.22 Therefore, ERP has improved organization performance in all aspects including procurement, production, marketing, human resource management, asset management, etc. 2. What are the benefits reported from implementing ERP? Increase Information Availability ERP increases information availability in the organization by ensuring real-time flow of information in all operational areas of the organization.23 Availability of adequate information in time manner is essential for decision making within the organization, and it promotes precise prognostics concerning the organization. According to Burger (2013), information is input once, and it is easy to keep track of all activities taking place within the company. ERP aids the processing and organization of financial data thus contributing to the improvement in short-term and long-term commercial activities.24 Availability of information enables companies to reduce the capital and operation cost through consolidation of their systems and financial data and establishment of real-time enterprises. For example, the use of Oracle E-Business Suite in Alcoa Mining Industry gives the company an opportunity to integrate all business processes for easier control.25 This enables the company to improve the quality of the operation procedures resulting to improved quality and services, profitability and efficiency of areas such as operations, human resource and accounting. Increased Operations Efficiency and Product Flow The use of ERP enables the management to improve the efficiency of controlling cost and production levels. For example, Alcoa Company dropped its 43 legacy systems and adopted Oracle E-Business Suite (ERP) that helped Alcoa to integrate various applications into single system to provide accurate, timely and complete information from all its business activities taking place around the globe.26 The company maintains a unified data model that maintains data for all applications involving suppliers, employees, customers, and products across the globe help its stakeholders with easy accessibility of the data.27 The company managed to achieve low implementation cost than anticipated and experienced low cost of operations compared to 43 legacy systems it was relying on. For example, Alcoa uses Oracle E-Business Suite to manage aluminium products, mining, refining and designing, engineering and production in a vertical structure involving vinyl siding, aerospace, Reynolds Warp and Alcoa wheels.28 Reduced Cost of Operations Through state of the art information technology system Alcoa Company has managed to reduce the cost of production inventory and delivery to customers, has increased availability of products to the customers across the globe, meet customer specifications, ensure timely delivery, etc. It can improve customer satisfaction, predict and manage demand thus increasing efficiency of operations and cost reduction. For example, the company has been able to implement POSCO project successfully using Oracle E-Business Suite System.29 The company is achieving higher returns on information due to improved performance of operations. Furthermore, the elimination of 43 legacy systems and adoption of Oracle E-Business Suite contributed to a significant reduction of cost. 3. What are its limitations? When company introduces a new system, there is high resistance posed by the users of the system opposed to change. The users express satisfaction with the existing system because they are used to it fear the consequences of changes.30 For example, a new system introduces feature and procedures that may seem a difficulty for the users to get accustomed to thus they pose resistance. Furthermore, some users fear that they it may take them time to learn and understand the new package which may render them redundant or restrict their career growth. This has been the case with all Oracle customers in mining and metals industries around the globe.31 Furthermore, it takes time for the users to learn and appreciate the new system. The training of the system users is tedious, time-consuming and involves high cost that the company may not be able to meet with efficiency. For example, Alcoa provided training to 6,500 users if enterprise business solution in six business units through a web-based tutor. The cost of training ranged between 0.6% and 3.8% of the total implementation cost.32 Therefore, the cost of training users adds to the total cost of the organization and reduces profitability of the business. Finally, mining and manufacturing companies deal with complicated and unrelated activities. The sourcing of raw materials is internal (mines) unlike the manufacturing companies that are mainly outsourced.33 Therefore, integrating unrelated mining and manufacturing activities to share single system can pose great challenges to the organization. List of references Microsoft Dynamics, Scalable Data Systems, Raw Material Procurement for Manufacturing, 2014 Burger, Schalk, ERP solution enables mining companies to gain real-time view of operations. 6th September 2013 Http://www.miningweekly.com/article/erp-solutions-for-digital-mining-and-manufacturing-using-existing-systems-2013-09-06 Groger, Christoph., Niedermann, Florian and Mitschang, Bernhard, Data Mining-driven Manufacturing Process Optimization: Proceedings of the World Congress on Engineering, Vo. 3. (London; UK. 2012). Available at http://www.iaeng.org/publication/WCE2012/WCE2012_pp1475-1481.pdf Oracle. Oracle Customers in the Metals & Mining Industries: Towards a Sustainable Industry. (Singapore, 2004). Pp. 1-32. Fernando, Jose, B. L., Francesco, Giorgio, C. T. & Fernando, Paulo, T. S., ERP Systems In Mining Industry: Studying The Software Functionality And The Value Chain. Second World Conference On Pom and 15th Annual Pom Conference Cancun, (Mexico, May 3, 2004). Pp. 1-24. April 30 - Available at Harding, J.A., Choudhary, A.K. & Tiwari, M.K., Data mining in manufacturing: a review based on the kind of knowledge. (Journal of Intelligent Manufacturing, 20 (5), 2009). pp. 501 - 521 Etezady, Nooredin, The Impact of ERP Investments on Organizational Performance. (ProQuest, 2008). Pp. 67-186. Kinney, Michael & Raiborn, Cecily, Cost Accounting: Foundations and Evolutions. (Cengage Learning, 2012). Pp. 1-848. Gelinas, Ulric., Dull, Richard & Wheeler, Patrick, Accounting Information Systems. (Cengage Learning, 2014). Pp. 581-744. Hall, James, Information Technology Auditing. (Cengage Learning, 2010). Pp. 1- 672. Read More