International Journal of Operations & Production Management

Measuring the benefits of ERP on supply management maturity model: a big

data method
Yung-Yun Huang Robert B Handfield
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IJOPM
35,1
2 Yung-Yun Huang
Received 18 July 2013
Revised 18 December 2013
21 February 2014
17 March 2014
Accepted 18 March 2014
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International Journal of Operations
& Production Management
Vol. 35 No. 1, 2015
pp. 2-25
Emerald Group Publishing Limited
0144-3577
DOI 10.1108/IJOPM-07-2013-0341
The current issue and full text archive of this journal is available on Emerald Insight at:
Measuring the benefits of ERP on
supply management maturity
model: a big data method
Department of Operations Research, North Carolina State University,
Raleigh, North Carolina, USA, and
Robert B. Handfield
Poole College of Management, North Carolina State University,
Raleigh, North Carolina, USA
Abstract
Purpose The purpose of this paper is to investigate the effects of implementing enterprise resource
planning (ERP) systems and the selection of ERP vendors on supply management performance for
Fortune 500.
Design/methodology/approach The paper adopts the supply chain maturity model adopted by
Gupta and Handfield (2011) and used publicly available information such as articles, research report,
newspapers to develop objective maturity ratings for four key indicators strategic sourcing, category
management, and supplier relationship management.
Findings The analysis results suggest ERP users are more mature than non-ERP users in three key
indicators: strategic sourcing, category management, and supplier relationship management.
Moreover, SAP ERP users are more mature than non-ERP users in strategic sourcing, category
management, and supplier relationship management.
Research limitations/implications This study does not account for the longitudinal performance
of ERP systems, nor does it account for differences between organizational scope of ERP deployment,
global reach, or implementation duration. The authors also did not include other measures of supply
chain performance outside of the procurement area. These factors could provide further insights to
supply chain performance, and will be an interesting topic for future research.
Practical implications This study provides an extensive analysis of how the deployment of ERP
systems and the selection of ERP vendors can benefit a companys supply chain performance. This
information is valuable for companies that are considering adapting an ERP system.
Originality/value This paper uses innovative an maturity assessment rating approach with
publicly available resources to measure supply management performance across different companies.
This method is novel and provides valuable insights to how ERP systems and their vendors impact
supply chain management performance.
Keywords Procurement, Information management, Buyer-supplier relationships
Paper type Research paper
1. Introduction
As organizations seek to drive supply chain integration across global business units
and markets, billions of dollars have been invested in massive systems known as
enterprise resource planning (ERP) systems (Monczka et al., 2011). ERP systems are
generally thought of as large systems with transaction processing and data structure
capabilities that promote intra-organizational communication (Bendoly et al., 2006). Key
competitive advantages to information integration include improving collaboration
of supply chain partners, visualizing customers demand, reducing uncertainty, and
achieving lean inventory management (Lee and Whang, 2000; Yu et al., 2001; Mefford,
2009). ERP systems are deemed to be a critical enabler for real-time information sharing
 and integration (Fawcett et al., 2011). Implementation of ERP systems to align business Measuring
decisions and to increase visibility to transactions across internal functions is the the benefits
largest technological investment for Fortune 500 companies (Boubekri, 2001;
Akkermans et al., 2003; Kim et al., 2005). Such systems are also instrumental in
of ERP
establishing aligned tactical and strategic performance metrics systems that drive
improved economic outcomes (Bendoly et al., 2007). Companies such as Honeywell,
Caterpillar, Procter and Gamble, GlaxoSmithKline, and others have made decisions to 3
implement ERP systems across their end-to-end supply chains, from customer order
management to supplier collaboration. ERP systems are designed to integrate
transactions from finance, human resources, procurement, operations, sales and
marketing, logistics, and other functions in a firm. ERP systems serve as massive
databases to standardize business processes and to support decisions concurrent with
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planning and managing of businesses (Vollmann, 2005; Chopra and Meindl, 2007;
Handfield et al., 2009). ERP systems were developed from material requirements
planning (MRP) and manufacturing resource planning II (MRP-II) systems to supplement
the need of an automatic interface between operational activities and corresponding
accounting transactions (Jacobs and Weston, 2006). The implementation of an ERP
system requires both internal information visibility as well as supply chain ability
(Mabert et al., 2000; Davenport and Brooks, 2004; Kashyap, 2011).
Implementation of an ERP system requires significant upfront capital investment. The
average cost of an ERP system for 172 companies was $7.1 million (Panorama Consulting
Group, 2013). In addition, the implementation process for ERP systems is complicated
and time consuming, requiring on average 17.8 months to complete (Panorama
Consulting Group, 2013). Mabert et al. (2000) conducted a survey for 479 manufacturing
companies in the USA and found that more than half of the ERP adopters implemented
their ERP system in order to connect to their legacy systems. The complexity and high
cost makes the selection of different ERP software vendors even more complicated
(Kumar and Hillegersberg, 2000; Mabert et al., 2000; Jacobs and Weston, 2006). Some
evidence of improved firm profitability (but not in stock) were observed for firms
implementing ERP systems (Hendricks et al., 2006). This improvement is more evident for
early ERP adopters, and were found to provide improved stock returns and profitability
for supply chain management (SCM) modules, but not for customer relationship
management modules of ERP systems. The ERP software market is dominated by
software giants, SAP, Oracle, and several best-of-breed supply chain vendors (Jacobs and
Weston, 2006; Chopra and Meindl, 2007). ERP software vendors affect companies long-
term IT strategies, and have a direct impact on companies profitability. There are also
challenges that arise when buyers are locked in to a single ERP system and must
continue to invest in system upgrades and improvements (Narasimhan et al., 2009).
Empirical methods such as case studies and surveys are often used to evaluate
how ERP systems affect supply chain performance (Davenport, 1998; Mabert et al.,
2000; Davenport and Brooks, 2004; Forslund and Jonsson, 2010; Hwang and Min, 2013).
However, such methods are inadequate for assessing supply chain performance across
different company environments. Financial performance can be derived using
industrial effects, shareholder returns, and other factors in the supply chain. These
public financial information are often used to obtain a more robust and systematic
analysis of the effects of ERP system implementation (Poston and Grabski,
2001; Hunton et al., 2003; Nicolaou and Bhattacharya, 2006; Hendricks et al., 2006;
HassabElnaby et al., 2012). Hedman and Borell (2004) used narratives as a mean to
evaluate ERP systems. Huang et al. (2004) measured the values of ERP systems by
 IJOPM using economic analysis methods. Bendoly et al. (2006) adopted a measurement that
35,1 assessed the usefulness of ERP systems, task interdependence moderated by culture
was an important factor. These analyses only show general impacts of ERP system
implementation. However, the extent to which supply chain performance is improved
or not through the adoption of ERP remains largely unknown.
Supply chain maturity measures provide a standardized and systematic
4 methodology for comparing supply chain performance across different companies
(Gupta and Handfield, 2011). An early version of maturity measurement was based
upon the supply chain operating reference (SCOR) model by McCormack et al. (2003),
which applies a maturity rating from 1(Ad hoc) to 5 (Optimized) to the major supply
chain processes inherent in the SCOR model. This approach was used to evaluate
supply chain performance across different companies (Lockamy and McCormack,
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2004). Descriptive best practice indicators were subsequently added to the maturity
measurements to enable more systematic assessment tools (Gupta and Handfield,
2011). This method relies on well-recognized characteristics of supply management
maturity, including spends analysis, strategic sourcing, category management,
and supplier relationship management (Handfield, 2006; Gupta and Handfield, 2011).
A survey was conducted to evaluate the impacts of ERP systems on business process
performance by using both financial indicators and supply chain performances
indicators adopted from SCOR model (Wieder et al., 2006). All these methods rely on
self-reported data, and are subject to cognitive biases.
In this study, we adopted a novel supply chain maturity model using large market
data scans of public information to measure the impacts of ERP systems. The approach
utilized big data methodologies for classifying and categorizing large amounts of
data that could be synthesized into a company maturity rating for our sample. Using a
classification protocol, the assessment metrics enabled us to evaluate how the adoption
of different ERP systems were related to supply management maturity. Using this
model, we studied the supply chain performance of 250 Fortune 500 companies in year
of 2011 and analyzed how different ERP vendors affect supply chain performance. Our
results demonstrate that the adoption of ERP systems have profound impacts on
supply chain maturity, but that differences in systems and approaches do exist.

2. Literature review
Previous studies on the impacts of ERP implementation is spotty at best, and appears
to be often dependent on the context of whether a functional business or an IT manager
perspective is doing the reporting! Research on return on investment (ROI) of
implementing ERP systems is largely focussed on operational and financial analyses of
benefits. In terms of operational benefits, ERP systems have been credited with
reducing order cycle times, resulting in improved customer service and supplier
management (Davenport, 1998; McAfee, 2002; Hwang and Min, 2013). ERP system also
has been shown to decrease manufacturing lead times and improve on-time delivery
measures (McAfee, 2002; Davenport and Brooks, 2004). A study by Bendoly et al. (2006)
also found that differences existed in how ERP system capabilities emerged in China vs
the USA, and that task interdependency played an important role in determining the
usefulness of ERP systems. When properly aligned with internal business processes,
ERP systems have been shown to effectively reduce operational costs and improve
productivity (Mabert et al., 2000; Davenport and Brooks, 2004; Su and Yang, 2010).
Tangible criteria associated with these benefits include real-time transaction
information that supports inventory and working capitals reductions, but also helps
 to improve company collaboration with suppliers and customers (Davenport and Measuring
Brooks, 2004). The ability to link tactical and strategic performance measures based on the benefits
large volumes of transactional data also is a critical role of ERP systems (Bendoly et al.,
2007). Su and Yang (2010) proposed a structural equation model for analyzing ERP
of ERP
benefits to firm competence in SCM. This study demonstrated that the operational
benefit of implementing an ERP system can enhance a focal firms competence in
operational integration. However, many of these operational performance were 5
conducted using case studies and surveys, and often lacked standardized measurement
of benefits across different companies.
Hayes et al. (2001) found that stock markets reacted positively to ERP
implementation announcements. Stock prices based on analyst evaluations were
positively related to larger ERP vendor installations (SAP and Oracle) as opposed to
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other ERP vendors. ERP systems impact on working capital is related to reduction of
cash-to-cash cycle times and enabling transparency of financial transactions (Mabert
et al., 2000; Stratman and Roth, 2002; Hendricks et al., 2006). Poston and Grabski
(2001) apply publicly available financial data to examine the effect of an ERP system
on performance over a three-year post-implementation time horizon, but found
no evidence of improvements in financial performance for firm adopting ERP
systems. Conversely, Hunton et al. (2003) conducted a longitudinal study of ERP system
deployment effects on financial performance based on a sample of 63 companies. Results
suggest that return on assets, ROI, and asset turnover of ERP adopters were significantly
better than non-adopters. Their analysis revealed that the performance metrics for
adopters did not change significantly from pre- to post-adoption. Moreover, ERP non-
adopters financial performance appeared to decrease over time while it held steady for
ERP adopters. However, Hendricks et al. (2006) questioned the research methodology
purposed by Poston and Grabskis because of the lack of bench marks to control for
changes in performance related to the sample firms prior performance. By establishing
effective benchmarks to evaluate financial performance, Hendricks et al. (2006) found that
the investment in ERP systems improves a companys long-term stock price and
financial performance. Nicolaou (2004) also supported the effect of successful adoption
of ERP systems on financial performance, based on publicly available information.
A potential challenge associated with ERP systems identified by Narasimhan et al. (2009)
is the danger of becoming locked in to an ERP supplier, as the cost of disentangling
ones operations from the ERP provider goes up over time. There are limited possibilities
for re-sourcing the provider, although organizations are expanding how to deploy
functional bolt-on systems to baseline ERP systems as alternatives to growing the
initial investment with the same supplier.
The apparent benefits of ERP adoption leads to our first hypothesis, stating simply
that ERP users have more mature supply management processes than non-ERP users.
This is based on the fact that business process alignment is typically an outcome of
ERP adoption, and if often a function of the process itself (Handfield, 2007; Monczka
et al., 2011; Gupta and Handfield, 2011; Hwang and Min, 2013). As performance metrics
associated with specific areas of supply management become available through system
functions such as spend analysis and supplier performance measures, the likelihood of
translating tactical measures into strategic improvements in the relationship increase
(Bendoly et al., 2007):

H1. ERP users have greater supply management process maturity than non-ERP
users.
 IJOPM A second dimension of interest is whether the ERP system selected has any bearing on
35,1 the outcome. ERP vendor selection is a crucial decision, and based on the desired
business process outcomes, different systems have different capabilities. ERP vendor
selection requires due diligence on many different criteria, including system fit for the
business environment, alignment to operational strategy, vendor services, and software
capability (Shang and Seddon, 2000; Bingi et al., 1999). Clearly, this is a significant
6 investment, and is often difficult to extract oneself from over time, leaving one open to
greater price risk (Narasimhan et al., 2009). Fortune 500 companies in general tend to
favor selection of larger ERP vendors such as SAP and Oracle (Hayes et al., 2001; Kim
et al., 2005). This leads to our second hypothesis that ERP vendor selections may also
affect supply management process maturity, using the assumption that Fortune 500
companies have typically experienced higher levels of growth and competition, and
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have developed more mature business processes compared to smaller companies:

H2. Selection of SAP and Oracle ERP vendors will result in higher supply
management maturity compared to the selection of the other ERP vendors.

The next section describes the measurement system applied for assessing supply
management maturity and the research methodology.

3. Methodology
The methodology for this research study consists of two sections. We first describe a
supply chain maturity model that utilizes public information to evaluate the supply
chain performance of Fortune 500 companies. Then, using this supply chain maturity
model, we studied how the selection of different ERP vendors affect supply chain
maturity outcomes.

3.1 Supply chain maturity model and hypotheses

We adopted the SCM process maturity model proposed initially by Lockamy and
McCormack (2004), and refined for supply management by Gupta and Handfield (2011).
The supply chain maturity model was developed based on the initial framework for
process maturity, business process orientation, and capability maturity, developed
initially by the Software Engineering Institution at Carnegie Mellon University. This
model was modified to accommodate elements of the SCOR model. Lockamy and
McCormack (2004) used survey instrument data to explore the correlation between
SCM process maturity and supply chain performance. Gupta and Handfield (2011) later
refined the process to adopt specific descriptions of actual changes to the business
process in question, providing a more unbiased and practically derived system for
measurement supply chain business process improvements. Using the descriptive
elements derived therein, the researchers used search engines through the university
database system to obtain publicly available information to support ratings of supply
chain maturity for a subset of the Fortune 500. The supply chain maturity ratings
were conducted by carefully reviewing the secondary data by individual reviewers,
followed by peer review to ensure the quality of the ratings, and make adjustments
for perceived differences based on the publicly available data for that company.
Measures of supply chain maturity was restricted to supply management processes,
for several reasons. First, supply management is an area that is often most impacted by
ERP system outcomes, in that procure to pay systems, order management systems, and
 third party contracting are all comprised in the ERP system element (Handfield, 2007). Measuring
Second, procurement impacts more than 50 percent of the total cost of goods sold the benefits
for most organizations, and we sought to find differences in performance that could
therefore directly impact financial performance outcomes (Gupta and Handfield, 2011).
of ERP
Third, procurement is seen as an evolutionary field where ERP system vendors often
differ in their ability to derive practical solutions to business problems (Monczka et al.,
2011). Fourth, ERP systems rely on large volumes of transactions processed that 7
consolidated can be used to derive important performance metrics and strategic
decisions related to supplier selection and relationship management (Bendoly et al.,
2007). ERP systems increase the level of measurement accuracy associated
with sourcing decisions. In order to apply the secondary data to derive ratings for
different level of supply management business maturity, we applied a set of
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five-point rating scales based on Gupta and Handfield (2011), to evaluate four
foundational supply management elements: spend management, strategic sourcing,
category management, and supplier relationship management. The final supply
chain maturity rating was based on a weighted combination for these four elements.
A description of the elements and their measures for each of these is found in
Appendix 2.
Our first hypothesis suggests that ERP adopters have greater supply chain process
maturity than non-ERP adopters across all four areas of supply management:

H1-1. ERP adopters have greater supply management process maturity than
non-ERP adopters in spend management.

H1-2. ERP adopters have greater supply management process maturity than
non-ERP adopters in strategic sourcing.

H1-3. ERP adopters have greater supply management process maturity than
non-ERP adopters in category management.

H1-4. ERP adopters have greater supply management process maturity than
non-ERP adopters in supplier relationship management.
Our second hypothesis predicts that the selection of ERP vendor will result in different
supply chain maturity outcomes for companies. Specifically, we propose that
companies deploying major brands of ERP systems with the Big 2 (SAP and Oracle)
will have higher supply management maturity outcomes than companies that selected
other ERP vendors. Prior research on ERP system usefulness as perceived by
supervisors reveals that systems which have high-task interdependence are more likely
to be perceived as useful (Bendoly et al., 2006). As such, supply management often
involves multiple functional decisions that overlap, including spend analysis,
specification development, sourcing strategy development, request for quotes,
bidding, contract databases, and supplier performance measurement systems
(Monczka et al., 2011). These tasks often involve engineering, finance, marketing,
and other key supply management stakeholders (Handfield, 2007). Larger systems such
as SAP and Oracle tend to track a broad cross-functional set of supplier-related data
accessible to decision makers in building performance metrics (Bendoly et al., 2007),
as opposed to singular financial systems that are typical of many smaller systems
(Monczka et al., 2011). Although lock-in to these systems is a risk (Narasimhan
 IJOPM et al., 2009), we propose that the benefits of improved decision making and cost savings
35,1 outweighs the risks of increased pricing by the vendor (Figure 1):

H2-1. Selection of SAP and Oracle ERP vendors will result in higher spend
management maturity compared to the selection of other ERP vendors.

8 H2-2. Selection of SAP and Oracle ERP vendors will result in higher strategic
sourcing maturity compared to the selection of other ERP vendors.

H2-3. Selection of SAP and Oracle ERP vendors will result in higher category
management maturity compared to the selection of other ERP vendors.
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H2-4. Selection of SAP and Oracle ERP vendors will result in higher supplier
relationship management maturity compared to the selection of other ERP
vendors.

3.2 Research approach

The process of collecting and coding large volumes of publicly available data on
organizations into succinct measures of supply chain maturity represents a new
approach to the mining of big data. The conceptual roots of big data analytics is
based on prior research in sociology and is based on the idea of extracting analytical
measures from large data sets, and then exploring relationships from these analytics
(McKinsey, 2011). Our approach to utilizing publicly available company announcement,
web site information, third party articles, and other sources of data for assessing
supply chain maturity is a novel approach that has been adopted and implemented in
the last five years (Gupta and Handfield, 2011) (Figure 2).
This research study began with the analysis of publicly available information
derived from search engine terms. Online magazines, newspapers, articles, spend
management blog, white papers, and company web sites were utilized as primary
sources for collecting company information on spend management, strategic sourcing,
category management, and supplier relationship management. The secondary data for
each company was collected and input into a standardized format for review and
analysis by our research team. The major categories of events, information, codes of
conduct, policies, and news articles were classified into the following sets of categories:
C1. Supplier web site.
C2. Articles and news for spend management, strategic sourcing, and category
management.
C3. Partnership guidelines.
C4. Lawsuits.

H1-1
Spend Management
ERP Adoption H1-2
H1-
H1- 3 Strategic Sourcing
4
-1
H2 2-2
H Category Management
H2-3
Figure 1. ERP Vendor Selections H2-4
Research hypotheses
Supplier Relationship Management
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Variance .0.67

1. Secondary analysis 4. Calculate variance Variance <0.67 5. Finalize ratings for

2. Independent ratings 3. Peer review ratings
of companies of individual ratings companies
the benefits

Research processes
Measuring

of ERP

Figure 2.
9
 IJOPM C5. Vendor recognition.
35,1 C6. Company recognition.
C7. Information from the web sites of category, spend management tool providers.
All articles related to SCM performance were summarized with information collected
from various sources, and documented accordingly for later retrieval, reference, and
analysis. An example of a sample data record (for Volkswagen in this case) is shown in
10 Appendix 1.
The second step of this study involved subjecting the formatted company data to
coding and classification rubrics, using independent subject matter experts (SME) to
provide individual maturity ratings for each company based on the collected data. The
SMEs in this case included faculty members in SCM, MBA students taking a
concentration in SCM, Master of Science students in Industrial Engineering, and
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students who had graduated but are now employed with supply chain roles. Each SME
provided an independent rating ranging from 1 (Ad hoc) to 5 (Optimized) for spend
management, strategic sourcing, category management, and supplier relationship
management. By comparing the obtained ratings to the maturity scale (Appendix 2),
each company was assigned a score. The third step of this study contains peer
reviewing processes by individual SMEs to ensure the quality of all ratings and the
secondary data documents.
In the fourth step of this study, we calculated the consistency of ratings across all
SMEs. The variance and percentage agreement among the individual SMEs for each
company was calculated. If the variance was W 0.67, the ratings were revisited and
normalized by revising the secondary data as a team, reviewing the results, and if
necessary, conducting additional secondary data collection to derive greater insight
into the supply chain processes for that particular organization. If the variance was
found to be less 0.67, the average ratings for these four indicators were finalized.
In the final step of this study, we calculated average ratings of all SMEs to minimize
bias of individual assessments and generated final ratings. In this research, we
collected 1,830 articles from public resources to analyze supply management
performance for the 250 randomly selected companies in Fortune 500.

3.3 ERP vendors information collection

3.3.1 Data set. An ERP system software system consists of software modules integrated
from one or several ERP vendors. Companies can select a single ERP vendor to reduce
implementation time and cost or select multiple vendors to provide best-of-breed
modules for each business function. We utilized public published documents, news, major
ERP vendor web sites, and third party software assessments (such as Gartner) to collect
primary ERP vendor information for 250 researched companies. After analysis of the data,
the team collected primary ERP vendor information from four primary categories: SAP
users, Oracle users, other ERP users, and non-ERP users. The third category included
organizations that utilized a smaller system or a number of different systems as opposed
to a single dominant Oracle or SAP system. According to META Group (2004), the ERP
adoption rate for Fortune 500 companies is approximately 80 percent which was
consistent with the data we collected. For the remaining 20 percent of companies, we found
no information on ERP adoption, and we labeled these data points as non-ERP users.
Table I captures the distribution of the 250 companies.
Next, ERP vendor information was grouped by using first two digits North
American Industry Classification System codes to assess trends for ERP vendor
 selection in different industry. Table II demonstrates the three major industries for our Measuring
data. In the manufacturing industry, more than 60 percent of companies select SAP as the benefits
their primary ERP vendor. In contrast, only 21 percent of companies in the retail
industry choose SAP as their primary ERP system, while 38 percent of companies
of ERP
select an ERP vendor that is not one of the Big 2. In the finance and insurance
industry, 36 percent of companies are non-ERP users.
11
3.4 Designing the multivariate analysis of variance (MANOVA) model
MANOVA were used instead of multiple analysis of variance (ANOVA) to avoid
inflating type-1 statistical errors in the analysis of the four individual supply
chain maturity ratings: spend management, strategic sourcing, category
management, and SRM (Hair et al., 1998). MANOVA is an extension of ANOVA to
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accommodate more than one dependent variable. It is a dependence technique that

measures the differences for two or more metric-dependent variables based on a set of
categorical (non-metric) variables acting as independent variables (Hair et al.,
1998). The post hoc Bonferroni test could further investigate the mean differences of
specific groups.
Before the maturity ratings are analyzed by MANOVA models, we first confirmed
that these data are consistent with assumptions of MANOVA analyses (homogeneity of
variances and covariance measures, normal distribution and linearity). Univariate and
multivariate analyses confirmed an absence of outliers in our mature rating data
(standard scores are all below 3 and Mahalanobis D2 values for all samples are above
0.001). Table III contains correlation coefficients and Cronbachs values for the four
dependent variables: spend management, strategic sourcing, category management,
and SRM. The scales for all variables are reliable, with the high values ranging from
0.945 to 0.955. However, VIF values for spend management and category management
were high which suggested a possible multi-collinearity effect existing between these
two variables. After careful analysis of the correlation coefficients, we decide to remove
spend management which had a significantly higher correlation coefficients with the
other variables to avoid multi-collinearity. The VIF values for strategic sourcing,
category management, and SRM were below 3 and displayed no multi-collinearity
effects. The cumulative distribution of strategic sourcing, category management, and

Primary ERP vendor Count %

SAP 118 47
Oracle 38 15 Table I.
Other 50 20 ERP vendor
Non-ERP users 44 18 distributions

Industry Count SAP (%) Oracle (%) Other (%) Non-ERP users (%) Table II.
Industry
Manufacturing 111 63 14 13 10 segmentation by
Finance and insurance 33 30 15 18 36 two-digit NAICS
Retail trade 29 21 28 38 14 code
 IJOPM Correlation coefficient
35,1 Spend Strategic Category Supplier relationship Cronbachs
management sourcing management management

Spend management 1 0.945

Strategic sourcing 0.886*** 1 0.955
12 Category
management 0.927*** 0.851*** 1 0.948
Supplier relationship
Table III. management 0.788*** 0.730*** 0.765*** 1 0.952
Descriptive statistics Note: ***p o0.001
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SRM were approximately normal distributions. Finally, for these four MANOVA
models, all sample sizes meet the minimum requirements of group size exceeding the
number of dependent variables, as well as, Boxs M tests were above than the
significant level of 0.001. The assumptions of homogeneity of variance-covariance
matrices at 0.05 were met. Thus, all the assumptions were met to allow us to proceed
with MANOVA tests.
To test the effects of ERP adoption and vendors selection, we used Hotellings T 2,
a specialized form of MANOVA that analyzes two-group cases, with strategic sourcing,
category management, and supplier relationship management as dependent variables,
and the implementation of ERP systems as the independent variable. MANOVA
models were used to derive the four different independent sample means: non-ERP
users, other ERP vendor users, Oracle users, and SAP users. The MANOVA analyses
were significant at the p o 0.05 level. Moreover, 111 manufacturing industrial
companies were used to validate data consistency between companies of the same type
of industry. The remaining industries were not tested this way due to the sample sizes
being too small for MANOVA analyses.

4. Results
4.1 ERP adoption and supply management maturity
Hotellings T2 analyses with post hoc Bonferroni test were used to analyze how the
adoption of ERP impacts strategic sourcing, category management, and supplier
relationship management (Table IV). Companies that adopted ERP have significantly
different levels of supply management maturity compared to those non-ERP users
(Table IV). The mean values of ERP users are significantly higher for strategic
sourcing, category management, and supplier relationship management than non-ERP
users, suggesting that the adoption of ERP have a positive impact on all those three
supply chain categories.

Non-ERP users (Group 1) ERP users (Group 2) F

Table IV.
Multivariate analysis Strategic sourcing 2.07 (2) 2.50 (1) 11.720***
of variance: ERP Category management 2.05 (2) 2.50 (1) 14.548***
adoption and supply SRM 2.24 (2) 2.76 (1) 19.708***
management Note: Numbers in parentheses indicate the group(s) from which that group is significantly different at
maturity ***p o0.001
 4.2 ERP vendor selections and supply management maturity Measuring
MANOVA with post hoc Bonferroni test were used to study the impacts of ERP vendor the benefits
selection on supply chain performance. In strategic sourcing, SAP users has a
significantly higher mean value than non-ERP users (Table V). Companies that used
of ERP
Oracle or other ERP vendors do not show significant difference in strategic sourcing to
non-ERP users (Table V). In category management, SAP users have significantly
higher mean value than non-ERP users and companies that used other ERP vendors 13
(Table V). Oracle users again are not significantly different to non-ERP users this
supply chain category (Table V). In supplier relationship management, both Oracle
and SAP users show mean values that are significantly higher than non-ERP users
(Table V). In addition, the mean value of SAP users is also significantly higher than
companies that use vendors other than SAP and Oracle (Table V). These results
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suggest that companies that use SAP as their ERP vendor exhibit the most improved
supply chain performance in strategic sourcing, category management, and supplier
relationship management, compared to companies that do not use ERP systems.

4.3 ERP adoption and supply management maturity in manufacturing

Hotellings T2 analyses with post hoc Bonferroni test were used to examine the supply
management performance of 111 companies in the manufacturing industry that are
using ERP systems. The results show that, companies with ERP systems have
significantly higher supply management ratings than non-ERP users in strategic
sourcing, category management, and supplier relationship management (Table VI).
These results are consistent with previous findings using data from all 250 companies
(Table IV).

4.4 ERP vendor selections and supply management maturity in manufacturing

To investigate if different industries are differentially affected by ERP vendors,
we compared the supply management ratings a single industry, to the ratings from all

Non-ERP Other Oracle SAP

(Group1) (Group 2) (Group 3) (Group 4) F
Table V.
Strategic sourcing 2.07 (4) 2.3 2.41 2.61 (1) 6.289*** Multivariate analysis
Category management 2.05 (4) 2.26 (4) 2.41 2.63 (1,2) 8.703*** of variance: ERP
Supplier relationship vendor selections
management 2.24 (3,4) 2.5 (4) 2.88 (1) 2.83 (1,2) 9.984*** and supply
Note: Numbers in parentheses indicate the group(s) from which that group is significantly different at management
***p o0.001 maturity

Non-ERP users (Group1) ERP users (Group 2) F Table VI.

Multivariate analysis
of variance: ERP
Strategic sourcing 1.78 (2) 2.58 (1) 8.205** adoption and supply
Category management 1.78 (2) 2.59 (1) 9.826** management
Supplier relationship management 1.89 (2) 2.87 (1) 15.511*** maturity in the
Notes: Numbers in parentheses indicate the group(s) from which that group is significantly different manufacturing
at **p o0.01; ***p o0.001 industry
 IJOPM 16 industries. The manufacturing industry was chosen as the single industry example
35,1 as it has the most number of companies (111 companies), sufficient for MANOVA
analyses. In strategic sourcing and category management, SAP users have
significantly higher mean values than non-ERP users (Table VII). Oracle and other
ERP vendor users do not show significant difference in strategic sourcing to non-ERP
users (Table VII). In supplier relationship management, both Oracle and SAP users
14 show mean values that are significantly higher than non-ERP users (Table VII). These
results from the manufacturing industry are largely consistent with results from all
16 industries, suggesting that the impacts of ERP vendor selection is similar for
all industries.

5. Discussion
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5.1 ERP adoption and supply management maturity

Our first hypothesis proposes that ERP adopters enjoy higher levels of supply
management maturity than non-ERP adopters. This was indeed found to be the
case across several areas of procurement performance including strategic sourcing,
category management, and supplier relationship management. This finding
corroborates prior findings on the impact of deployment of ERP systems on
performance (Hitt et al., 2002; Hendricks et al., 2006; Mabert et al., 2000), but goes a step
further in identifying specific capabilities that are derived in the supply management
function. For instance, Hendricks et al. (2006) hint that the business integration
and transaction automation offered by enterprise systems are valuable tangible
capabilities, but that their data fails to show stock price impacts. Hitt et al. (2002) were
similarly unable to estimate the long-run impact of ERP systems due to a lack of post-
implementation data at the time they conducted their study. Similarly, and Mabert et al.
(2000) found some improvements in perceptions of performance related to order
management, but found few reduced direct operational costs. Our findings suggests a
possible explanation behind these patterns through a detailed supplier segmentation
analysis (Monczka et al., 2011). Segmentation, generally associated with strategic
sourcing practices, is the basis for building sourcing strategies, which require an ability
to negotiate prices based on leveraged volumes of purchases from across the
organization (Handfield, 2007). This in turn drives transformational value in the form of
category teams that include multiple stakeholders across the enterprise, leading to
improved supplier relationships and other forms of intangible value (e.g. innovation,
total cost of ownership improvements, etc.). All of these capabilities take time to build
and create, and for that reason, deployment of ERP systems become a catalyst for
change within the organization, but is not the sole source of value formation that
occurs. Our model would therefore predict that organizations who do not follow-up
ERP deployments with other strategic efforts are not only missing out on the

Table VII. Non-ERP Other Oracle SAP

Multivariate analysis (Group1) (Group 2) (Group 3) (Group 4) F
of variance: ERP
vendor selections
Strategic sourcing 1.78 (4) 2.21 2.47 2.68 (1) 4.269**
and supply
Category management 1.78 (4) 2.36 2.47 2.67 (1) 4.154**
management
Supplier relationship management 1.89 (3,4) 2.57 3.05 (1) 2.79 (1) 6.496***
maturity in the
manufacturing Notes: Numbers in parentheses indicate the group(s) from which that group is significantly different
industry at **p o0.01; ***p o0.001
 opportunity to drive change, but may indeed be missing out on the ROI that Measuring
accompanies these changes. This is also consistent with other findings that show the the benefits
importance of intra-organizational communication in the usefulness of ERP systems
(Bendoly et al., 2006). Also, Stratman and Roth (2002) describe the role of internal
of ERP
capabilities they term ERP competence, which is comprised of a portfolio of intangible
capabilities encompass both technical and organizational elements. Conversely,
organizations who do not adopt ERP deployment are unable in many cases to build an 15
enterprise database that drives a strong spend analysis, which in turns forms the
foundation for many of the improvements in supply management that follow
(Gupta and Handfield, 2011).
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5.2 ERP vendor selection and supply management maturity

Our second hypothesis posits that who you select to work with as your ERP vendor
will have an impact on the degree of success of outcomes that follow in supply
management. The importance of vendor selection is particularly important given the
lock-in nature of this decision over time (Narasimhan et al., 2009), with the research
emphasizing the importance of fit when selecting ERP providers. For example,
prior literature suggests that the choice of ERP vendors should consider business fit,
alignment to operational strategy, vendor service, and software capability (Shang
and Seddon, 2000; Bingi et al., 1999). Hitt et al. (2002) found that for SAP
implementation, there was some evidence of improved financial performance
during implementation, but no way of knowing whether the long-run impact of ERP
deployment was sustainable.
Our research also found that organizations selecting a large provider (SAP) had
improved outcomes relative to users of Oracle, other ERP systems, and no ERP system,
supporting H2. However, the results also pointed to some other interesting
relationships. An important finding was a negative significant relationship between
non-ERP users and category management, supporting our earlier contention that one of
the foundational elements in building effective insights into supplier management is
the ability to measure what you are spending your money on! With no system in place,
users are likely to use multiple forms of transaction channels, including purchase cards,
online vendor web sites, purchase orders, or in many cases, contracting after the fact!
This form of activity ( known as maverick buying) is one of the most challenging
behaviors to control in the enterprise, and leads to deterioration of supplier leverage,
and a focus on transactional activities to the exclusion of strategic value-added
procurement activities (Monczka et al., 2011).
A secondary effect was a positive significant relationship for Oracle users, but only
for the supplier relationship management. This result provides some level of assurance
that higher-order supply management benefits are being derived by Oracle users, but
neglects to provide evidence of foundational supply management improvements.
A confounding factor here may be that Oracle users tend to be congregated in services
industries, where achieving a higher level of spend management and strategic sourcing
may be more difficult, due to the more fragmented nature of spending on service
contracts (Handfield, 2007).
In general, however, the domination of SAP and Oracle may have to do with the
globalization of industries, and the focus toward a more centralized view for integrated
sales and operations planning, inventory management and end to end integration
across the global supply chain. Many companies that implemented other ERP vendors,
 IJOPM although they have strong capabilities, do not have the scope and ability to deploy
35,1 across multiple countries, in multiple languages, currencies, measurement systems, and
regulatory boundaries, which limit their ability to drive market share. For example,
an executive from a large pharmaceutical company we interviewed noted that We are
going wall-to-wall SAP, and it is a corporate decision. They are the only one that were
able to meet our global requirements, as we operate our supply chain in 146 different
16 countries worldwide. Similarly, an executive from a large manufacturing company
noted that We are going with that we have with our current systems. The decision to
drive towards a single operating system is a corporate decision over which we have
now say. This trend may partially explain why larger SAP systems dominate across
all dimensions of supply management maturity outcomes in the Fortune 500 sample.
Our research also found that SAP users account for the majority of ERP deployments
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in the manufacturing industry, but there were no significant manufacturing industry

effect on maturity outcomes in the study.

5.3 Future research and limitations

Limitations of the study include the fact that the maturity assessment rating approach
is new to the research field, and contains the possibility of rater error and bias.
However, the application of multiple raters and variation analysis addresses this issue
to some extent. The study also does not measure longitudinal performance of ERP
systems, nor accounts for differences in organization scope of ERP deployment, global
reach, or implementation duration. All of these factors are important and could be
included in future studies of ERP impacts. In addition, we did not include other
measures of supply chain performance outside of the procurement area. The team is
beginning to build data in these areas, and may be able to measure these outcomes at
some point in the future.
A number of potential avenues for future research exist. One approach would be
explore the longitudinal relationship between ERP system usage, supply management
maturity, and operational outcomes (cost savings, financial returns, share price, etc.).
Our finding support the notion that procurement transformation is perhaps catalyzed
by ERP adoption, which sets foundational capabilities in spend management, leading
to successive improvements in other areas of supply management. This transition is
also impacted by many other factors, including enterprise capacity for change, changes
in leadership, organization culture, regional variation in talent, and many other factors.
We believe this is a fruitful area for pursuit of additional relationships beyond the ones
proposed in our research.
Another research initiative would be to explore why other ERP vendors fail to generate
the results found in our research for large vendors. An analysis of small to mid-size
company supply management results based on ERP adoption may point to other forms of
positive outcomes than the sample of firms we used in the Fortune 500.

6. Conclusions
The results of our study found significant support for the notion that ERP systems
have some ROI, particularly in the form of improved levels of supply management
performance. There was evidence to support the idea that ERP systems provide a
foundation for measuring and managing third party spending, which forms the basis
for higher-order supply management strategies, including strategic sourcing,
category management, and supplier relationship management. We also propose here
that ERP system can form the catalyst for change, particularly when accompanied by a
 strong leadership initiative to rein in spending, drive a centralized procurement Measuring
transaction channel, and build a structured approach for sourcing governance. The the benefits
research also points to new areas of potential research, including the impact of
globalization on the decision to implement ERP systems, and the potential mitigating
of ERP
impacts of other organizational factors on the successful outcomes from deployment.
Although organizations continue to makes billions of dollars in ERP investments, the
research is hopeful in providing evidence of tangible evidence of benefits that may 17
occur over an extended period of time.

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Appendix 1. Sample secondary data format for Volkswagen

Supplier web site:
www.vwgroupsupply.com/b2b/vwb2b_folder/supplypublic/en.html
Contacts:
Francisco J. Garcia: leitung.beschaffung.vw@vwgroupsupply.com
Summary:
Sourcing at VW is for all its models and the whole sourcing process is designed so that it offers
competitive advantages to all involved. In 2007 purchasing volume was over 72 billion euro.
Categories defined.
http://tfh.phillipkern.de/Semester2/tl/presentations/Supplierportal-06.pdf
[Supplier portal design.]
www.vwgroupsupply.com/b2b/vwb2b_folder/supplypublic/en/platform/applications.html
[With over 30 different applications in place to be able to work efficiently and more being created
as needed, there exists strong sense of strategic sourcing control and management. Among the
available stuff are a supplier database, capacity management, online negotiations].
www.vwgroupsupply.com/b2b/vwb2b_folder/supplypublic/en/collaboration.html
 IJOPM [There is a mechanism of supplier evaluation; they call for partnership-driven collaboration but
no evidence of systems in place for a two way partnership unless that is included in the supplier
35,1 evaluation mechanism].
Partnership guidelines: NA
Lawsuits:
20 www.drive.com.au/Editorial/ArticleDetail.aspx?ArticleID 18841&vf 1
[VW files suit against French supplier, stating that the supplier paid bribes to get business filed
in 2006.]
Best practices:
As much of the procurement is as transparent as possible. Clear cut instructions for companies to
become part of the organization and get access to the supply chain databases.
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www.vwgroupsupply.com/b2b/vwb2b_folder/supplypublic/en/collaboration/procurement/
procurement_strategy/supplier_management.html
[Look to the suppliers for innovation and better ways of doing things; suppliers are then asked to
work with the 2nd and 3rd tier suppliers to get things done.]
Vendor recognition:
www.ddb.com/pdf/press/current/5-25-08_VW_honorsBestSuppliers.pdf
[Volkswagen invites over 100 suppliers and presents awards to 15 of its top suppliers located all
over the world. Thanks suppliers and calls on suppliers to share profits and be more innovative
and help VW continue the growth globally.]
www.prdomain.com/companies/B/BASF/newsreleases/200853057531.htm
[BASF gets award from VW as eco-friendly supplier.]
www.volkswagenag.com/vwag/vwcorp/info_center/en/news/2006/07/Prize_for_the_Best_Supplier_
in_JEnvironmental_Protection.html
[VW presents 24 of its suppliers the Volkswagen award VW sets very high standards for its
suppliers including sustaining the relationship].
Company recognition: NA
Miscellaneous: NA
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Rating Status Descriptions

1 Ad hoc No well-defined process for spend management across the supply base
Allocations are based primarily on the buyers relationships with the supplier representatives
No historical information is used to base spend management decisions
Appendix 2. Rating criteria

2 Defined The processes and rules for spend management have been defined and documented
The company has started collating historical data upon which spend management decisions will be based
Information about suppliers in the source approved vendor list is being collected and stored in the companys knowledge base
Pilots have been successfully conducted for a sample set of materials and suppliers
3 Managed Processes have been fine-tuned based upon the outcome of the pilots
Measurements to determine process validity of various aspects of spend management are in place
Suppliers have been informed about the companys spend management process
4 Leveraged The company maintains a central database for this historical data
Any business unit within the company is capable of obtaining any and all information about any supplier allocation history
Periodic evaluation across the company boundaries is being performed
Suppliers are able to find (manually from their counterparts in the company) information about how they are being rated under
this system
Measurements (internal) are reviewed for effectiveness and updated as required
5 Optimized Process for evaluating and integrating new suppliers are defined, documented, and being used
Allocations may be changed dynamically according to rules based upon supplier performance
Measurements (external) are reviewed for effectiveness and updated as required
Suppliers can query the companys systems to find statistics about their allocations and work with the company on optimizing
allocations

spend management
the benefits
Measuring

of ERP

21

Rating criteria for

Table AI.
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22
35,1
IJOPM

Table AII.

strategic sourcing
Rating criteria for
Rating Status Descriptions

1 Ad hoc No organized process. Suppliers are chosen without considering prior suppliers beyond capacity and requirements
2 Defined Tracks and documents supply base
Has a policy for determining how to prioritize product families to be rationalized
Uses measures such as % of products that are single sourced, number of vendors per product, % of products that are rationalized
3 Managed Measures are in place for determining optimal rationalization
Cross-functional teams are in place to create measures
Externally, the organization is tracking supplier capacity and how much of that capacity it is consuming
4 Leveraged Cross-functional teams review optimal rationalization measures for alignment with organization strategy and strategic sourcing plans
Sourcing processes incorporate rationalization
All relevant stakeholders understand sourcing rationalization and measures, and follow the set guidelines and contracts
Measures are documented and accessible
Externally, suppliers are evaluated based on measured performance
Externally, the organization provides feedback and takes necessary actions
5 Optimized Suppliers and customers join cross-functional teams to determine optimal rationalization
Suppliers are empowered to work with each other to resolve potential problems including disaster recovery, capacity, or delivery problems
Information sharing about relevant criteria, such as capacity and demand forecasting, facilitates cross-enterprise decision making
Continuous improvement processes are in place and anchored into the culture, such as mandated scanning for new technologies to help
with supplier assessment, communication, or potential supplier identification
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Rating Status Descriptions

1 Ad hoc No market analysis whatever. Product is purchased whenever it is needed from whoever can provide it immediately
No understanding of the market or its needs
No future planning
2 Defined Supply markets and methods of studying them are documented
Market analysis is a part of the functional process of doing business, but results are not well understood or studied
Marketing strategies are basically historical
Cross-functional teams are formed, although team goals may not be clearly defined
3 Managed Supply market analysis goals are established
Early efforts to document and benchmark successes and failures
Full documentation of efforts of market analysis as defined above
Cross-functional teams defined and established
Cross-functional teams evaluate outcome of analysis
External contacts are made to involve the whole supply chain in market analysis, although individual concerns may be overemphasized at
this point
4 Leveraged Companys strategy comes together, with all stakeholders helping to define what market information is missing, and prioritizing the stages
in acquiring said information
Documenting and benchmarking efforts to obtain market information are being used
External contacts are involved in planning future strategy
5 Optimized Entire supplier network, including possible future members, is included in the market analysis
Dynamic detailed understanding of companys spend vs those of competitors
Established supply market intelligence in place that provides regular feedback and information on market conditions
Supply market analysis study is done periodically for continuous improvement

management
the benefits
Measuring

of ERP

category
Table AIII.
23

Rating criteria for

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24
35,1
IJOPM

Table AIV.

management
Rating criteria for
supplier relationship
Rating Status Descriptions

1 Ad hoc Supplier relationship management processes are unstructured and ill-defined

Process measures are not in place and the jobs and organizational structures are based upon the traditional functions, not horizontal
processes
Individual heroics and working around the system are what makes things happen
2 Defined Basic supplier relationship management processes are defined and documented
Changes to these processes must now go through a formal procedure
Supplier relationship management-related jobs and organizational structures include a process aspect, but remain basically traditional
Representatives from functions meet regularly to coordinate with each other concerning supplier relationship management process
activities, but only as representatives of their traditional functions
3 Managed Managers employ supplier relationship process management with strategic intent
Broad supplier relationship management process jobs (process owners) and structures (process teams) are put in place outside of traditional
functions
Cooperation between intra-company functions and vendors takes the form of supplier relationship management teams that share common
process measures and goals
4 Leveraged The company, its vendors and suppliers, take cooperation to the process level
Supplier relationship management-related organizational structures and jobs are based on process, and traditional functions, as they relate
to the supplier relationship management process, begin to disappear altogether
Supplier relationship management process measures and management systems are deeply imbedded in the supplier relationship
management organization
Advanced process management practices take shape within the supplier relationship management-related organization
5 Optimized Supplier relationship management scope is based upon multi-firm networks (multiple tiers of suppliers)
Collaboration between legal entities (other than the firm) during the supplier relationship management process is routine to the point where
advanced process practices that allow transfer of responsibility without legal ownership are in place
Trust and mutual dependency are the glue holding the extended supplier relationship management network together
A horizontal, collaborative culture is firmly in place within the supplier relationship management-related organizations
 About the authors Measuring
Yung-Yun Huang is a PhD Student in Operations Research at the North Carolina State the benefits
University. She has extensive experience working with big data and has experience working in a
financial services organization. of ERP
Robert B. Handfield is the Bank of America University Distinguished Professor of Supply
Chain Management at the North Carolina State University, and the Director of the Supply Chain
Resource Cooperative (http://scm.ncsu.edu). He also serves as Faculty Lead for the
Manufacturing Analytics Group within the International Institute of Analytics, and is on the 25
Faculty for Operations Research Curriculum at the NC State University. The SCRC is the first
major industry-university partnership to integrate student projects into the MBA classroom in an
integrative fashion, and has had 15 major Fortune 500 companies participating as industry
partners since 1999. Prior to this role, Handfield was an Associate Professor and a Research
Associate with the Global Procurement and Supply Chain Benchmarking Initiative at the
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Michigan State University from 1992 to 1999, working closely with Professor Robert Monczka.
Professor Robert B. Handfield is the corresponding author and can be contacted at:
robert_handfield@ncsu.edu

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