Exploring the effects of enterprise resource planning systems on direct procurement in upstream asset-intensive industries
Njualem, Lewis Achinkeh
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The last two decades have seen an unprecedented rise in enterprise resource planning (ERP) systems implementation among companies operating within asset-intensive industries. When ERP systems became popular in the early 1980’s, initial adopters were instead from the manufacturing sectors. This affirms the notion that ERP systems did evolve from the material requirement planning (MRP) concept, which was predominantly production and inventory management based. Typical asset-intensive industries such as oil & gas, energy, and mining, rely heavily on the performance of their asset investments to stay competitive. Increased concerns about reducing maintenance costs and equipment downtimes, especially in upstream operations within these industries, led to the attraction of ERP applications. The primary objective of implementing these tools has been to streamline supply chain and maintenance operations, which account significantly for overall operating costs. In such environments, the direct procurement function driven by ERP systems to ensure availability of maintenance supplies of good quality, in the right quantities and at the right time is crucial. Recently, several ERP vendors have come up with various solutions that are embedded with diverse functionalities to address these concerns. However, challenges unique to companies in the asset-intensive industry sector such as multiplex global supply chains, geographically dispersed sites, and sporadic climatic conditions add to existing impediments. Previous research in the ERP domain focused mostly on implementation efforts and general views on their overall benefits to organizations. Consequently, available literature provides insufficient information on the impacts of ERP tools on direct procurement. This research explored the effects of ERP systems on direct procurement with a focus on upstream operations within asset-intensive industries. The study examined existing functionalities within ERP systems to determine benefits and constraints in support for direct procurement and builds on a framework with which to address potential gaps and opportunities. The study adopted a descriptive quantitative research method. Among all invaluable techniques involved in this research category, the normative survey approach was employed. The survey questionnaire addressed constructs related to ERP systems functionality to support inventory levels, delivery lead-times, procure-to-pay process, engineering change management and ERP usability. Given the isomorphism that exists within asset-intensive industries, respondents were drawn randomly from different segments including the mining, oil & gas and energy industries. A total of 80 complete responses after data cleansing were imported into SPSS for data analysis. Among the constructs on which the investigation was based on, the research found statistically significant relationships between ERP systems effectiveness and all mentioned constructs except for the procure-to-pay process and ERP usability. This information among other deductions from the study informs both academic and practice communities on future improvements and feasible developments in procurement management within this industry niche. This study extended the scope of ERP systems knowledge in asset-intensive industries and accentuated the need for more significant attention towards procure-to-pay integration and ERP usability.