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CHAPTER ONE

INTRODUCTION OF THE STUDY

1.1Background Information

The essence of an organization is being is to make profit by whatever goods the company produces. This

explains why firms in Kenya have inventory control department as one of the key sections of the company.

Unga limited is located approximately few kilometres from Nairobi town In Nairobi district within the

industrial areas at enterprise road unga limited started as a family business in 1908 with only a handful of sta

and caravans or kart that were owned by the whites only, it was then left for the blacks to go ahead with it as

they returned back to Europe.

Over times the company has evolved from humble family business into a professionally managed organizatio

that is highly respected in its field of operation but still holds family value. Unga Limited are one of the few

companies in the country that operates the 24hour a day 7 days in a week processing well over a hundred ton

of wheat and animal feeds a day. Directly employing 100 highly motivated staff and indirectly employing 15

more within the agriculture and service sector of the Kenya vast economy.

Unga limited has staff which of is highly qualified millers ,maintenance,distributors,sales managers will

always ensure that product of the highest possible quality and service provided to all our clients will always b

outmost excellent.

1.2statement of the problem

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I. To establish how less lead time affect stock level management at Unga Limited as a manufacturing

company.

II. To find out how just in time concept affect stock level management at Unga Limited as a manufacturing

company.

III. To determine how Economic Order affect level management at Unga Limited As a manufacturing

company.

IV. To find out what extent enterprise resource planning affects stock level management Unga Limited. As a

manufacturing company.

1.1 Research Questions

I. How does lead time affect stock level management Unga Limited?

II. What is the effect of just in time concept on stock level management Unga Limited?

III. How does Economic Order Quantity affect on stock level management Unga Limited?

IV. To what extent does Enterprise Resource Planning affect stock level management Unga Limited?

1.5 significance of the study

The research was of much benefit to several stakeholders. The researcher stands to gain after successfully

completing the research preparation for further studies. The management of the organization may obtain

important feedback regarding the stock management techniques and how they can be improved. The conclusions

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and recommendations may add value to the existing literature firm. Other researchers may use the study as a

spring board to investigate other related aspects of stock management. This is captured in the section of

implications for further studies. The employees in various departments may be interested in the information that

summarized, analyzed and interpreted for decision making. They can become stock level conscious in their day t

day activities.

1.6 Limitation of the study

There was limited time and money to undertake the research, the time was so tricky since it was on the

attachment period provided by the school which was two months and it was not enough to do a good research, bu

I used the time to my advantage and produce this satisfactory research. Money was limitation to, whereas it was

limited and could not travel to all the sub-branches, but I was able to get the information from its headquarters

company(UGL) that I happen to be an intern.

1.7 Scope of the study

The study examined the effects of inventory control techniques on stock level management of Unga Limited in

Nairobi location. The study targeted the 88 employees of Unga Limited picked from the departments in Unga.

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CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

The purpose of literature review is to bring out what other researchers have done in relation of study. Literature

review showed the gaps and the existing knowledge regarding the topic. It enabled the topic. It enabled the

researcher to demonstrate and familiarize with the area of study.

2.1 Overview of Inventory Control Techniques and Stock level Management

According to Gilliland (2005), Inventory control refers to the supervision of supply, storage and accessibility of

items in order to ensure an adequate supply without excessive oversupply. It can also be referred as internal

control an accounting procedure or system designed to promote efficiency or assure the implementation of a

policy or safeguard assets or avoid fraud and error. Inventory control can refer to several concepts: in economics

the inventory control problem, which aims to reduce overhead cost without hurting sales ; in the field of loss

prevention , systems maintain information about activities within firms that ensure the delivery of products to

customers. The subsystems that perform these functions include sales manufacturing, warehousing, ordering and

receiving. In different firms the activities associated with each of these areas may not be strictly contained within

separate subsystems, but these areas may be perfumed in sequence in order to have a well-run control system.

In todays business environment, even small and mid sized businesses have come to rely on computerized

inventory management systems. Certainly, there are plenty of small retail outlets, manufacturers, and other

businesses that continue to rely on manual means of inventory tracking. Indeed, for some small businesses, like

convenience stores, shoe, stores, shoe-stores or nurseries, purchase of an electronic inventory tracking system

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might constitute a wasteful use of financial resources. But for other firms operating in industries that Feature hig

volume turnover of raw materials and /or finished products, computerized tracking systems have emerged as key

component of business strategies aimed at increasing productivity and maintaining competitiveness. Moreover,

the recent development of powerful computer programs capable of addressing a wide variety of record keeping

needs including inventory management in one integrated system have also contributed to the popularity of

electronic inventory control options.

Given such developments, it is little wonder that the business experts commonly cite inventory management as a

vital element that can spell the difference between success and failure in todays keenly competitive business

world. Writing in production and inventory management journal, Godwin (2008) described telecommunications

technology are far better equipped to succeed than those who rely on outdated or unwieldy methods of inventory

control.

2.2 Past Studies

2.2.1 less Lead Time

Accordingto Liker (2003),Lead time is the latency delay between the initiation and execution of a process. For

example the lead time for ordering a new car from a manufacturer may be anywhere from 2 weeks to 6 months. I

industry, lead time lead reduction is an important part of lean manufacturing. A more conventional definition of

lead time in the supply chain management realm is the time from the moment the customer places an order to the

moment it is received by the customer. In the absence of finished good s or intermediate (work in progress) it is

the time it takes to actually manufacture the order without any inventory it is the time it takes to actually

manufacture the order without any inventory other than raw material.

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Hirano (2006)asserts that in the manufacturing environment, lead time has the same definition as that of Supply

Chain Management, but it includes the time required to ship the parts from the supplier. The shipping time is

included because the manufacturing company needs to know when the parts will be available for material

requirement planning. It is also possible for lead time to include the time it takes for the company to process and

have the part ready for manufacturing once it has been received. The time it takes a company to unload a product

from a truck, inspect it, and move it into storage is non-trivial. With tight manufacturing constraints or when a

company is using Just In Time manufacturing it is important for supply chain to know how long their own intern

process take.

According to Goldrat (2005) if for example company A needs a part that can be manufactured in two days once

company B has received an order. It takes three days for company A to receive the part once shipped, and one

additional day before the part is ready to go into manufacturing. If company As manufacturing division asks the

Supply Chain Division what the lead time is, they will be quoted 5 days since shipping will be included. If a line

worker asks the manufacturing division boss what the lead time is before the part is ready to be used, it will be 6

days because setup time will be included.

He further asserts that in very complex manufacturing environments, like the manufacture of microprocessors, a

usual Lead Time may be between 5-7 weeks. This is due to the sequence of operations, where there are multiple

very similar steps repeated and one can be skipped if a manufacture of a CPU requires 35 exposure masks, that

translates approximately into 35 x photo resist coating, exposure, development, main process step like etching,

diffusion, metal filling, photo resist stripping and and/or polishing + other possible steps plus additional steps

before and after all processing. There are wait times not only associated with scheduling a product into

production, since the product lines are busy, but also a beginning run of production goes to scrap plus tool chang

and alignment takes time, and there are possible wait times of batches being processed during the production. No

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all machinery works at the same speed, or requires maintenance steps, tool change, plus there is the time it takes

physically transport the silicon wafers from one processing machinery to another in small transport batches.

Shonberger (1982),is of the idea that the most effective way for businesses to reduce stock is by reducing the

supply lead time. Lead time can be defined as the time it takes from when you first determine a need for a produc

until it arrives on your door steps. If lead time was zero, inventory could be zero. In a perfect world, imagine how

simple business would be with a lead time of zero and orders being filled instantly. A customer could walk

through the door of your business, place their order, and walk out happy with no delay. If business was this easy,

you would require no warehouse space, no order follow-up, no inventory counting, no forecasting, no product

damage, no obsolete inventory, fewer employees, less risk of theft, and less cost overall.

He further asserts that of course the real world does not work like this, but the shorter the lead time times, the les

complex our inventory management will be. In general, you can expect the following reductions in inventory as

lead times are reduced. Changing your order frequency from twice a month to once a week or even daily can cut

total effective lead times with a high degree of uncertainty can force necessary inventories upward. Obviously th

is something to keep in mind when selecting suppliers. Reduction of product replenishment lead times is a core

element of our supply chain management services.

2.2.2 Just In Time

According to Shigeo (1989),just-in-time (JIT) is an inventory strategy that strives to improve a businesss return

on investment by reducing in-process inventory and associated carrying costs. Just in Time production method is

also called the Toyota Production System. To meet JIT objectives, the process relies on signals or Kanban

between different points in the process, which tell production when to make the next part. Kanban are usually

tickets but can be simple visual signals, such as the presence or absence of a part on a shelf. Implemented

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correctly, JIT focuses on continuous improvement and can improve a manufacturing organizations return on

investment,

Quality and efficiency, to achieve continuous improvement key areas of focus could be flow, employee

involvement and quality. Quick notice that stock depletion requires personnel to order new stock is critical to the

inventory reduction at the center of a JIT. This saves warehouse space and costs. However, the complete

mechanism for making this work is often misunderstood.

Gilliand (2002) argues that its effective application cannot be independent of other key components of a lean

manufacturing system or it can end up with the opposite of the desired result. In recent years manufacturers have

continued to try to hone forecasting methods such as applying a trailing 13 week average as a better predictor for

JIT planning, however some research demonstrates that basing JIT on the presumption of stability is inherently

flawed.

According to him, the philosophy of JIT is simple: inventory is waste. JIT inventory systems expose hidden

causes of inventory keeping, and are therefore not a simple solution for company to adopt. The company must

follow an array of new methods to mange the consequences of the change. The ideas in this way of working com

from many different disciplines including statistics, industrial engineering, production management, and

behavioral science. The JIT inventory philosophy defines how inventory is viewed and how it relates to

management.

Grabosky (2000),asserts that inventory is seen as incurring costs, or waste, instead of adding and storing value,

contrary to traditional accounting. This does not mean to say JIT is implemented without awareness that removin

inventory exposes pre-existing manufacturing issues. This way of working encourages businesses to eliminate

inventory that does not compensate for manufacturing process issues, and to constantly improve those processes

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to require less inventory. Secondly, allowing any stock habituates management to stock keeping. Management

may be tempted to keep stock to hide production problems. These problems include backups at work centers,

machine reliability, and process variability, lack of flexibility of employees and equipment, and inadequate

capacity. In short, the just-n-time inventory system focus is having the right material, at the right time, at the righ

place and in the right place, and in the exact amount without the safety net of inventory.

Newman (1994)investigated this effect and found that suppliers in Japan charged JIT customers, on average, a

5% price premium. The JIT system has broad implications for implementers. JIT reduces inventory in a firm.

However, a firm may simply be outsourcing their input inventory to suppliers, even if those suppliers dont use

just in time. During the birth of JIT, multiple daily deliveries were often made by bicycle. Increased scale has

required a move to vans and Lorries (trucks).

Cusumano (1994)highlighted the potential and actual problems this causes with regard to gridlock and burning o

fossil fuels. This violates three JIT waste guidelines: Time-wasted in traffic jams; inventory specifically pipelin

(in transport) inventory and Scrap- fuel burned while not physically moving. JIT implicitly assumes a level of

input price stability that obviates the buy parts in advance of price rises. Where input prices are expected to rise,

storing inventory may be desirable. JIT implicitly assumes that input parts quality remains constant over time. If

not, firms may hoard high quality inputs. As with price volatility, a solution is to work with selected suppliers to

help them improve their processes to reduce variation and costs. Longer term price agreements can then be

negotiated and agreed-upon quality standards made the responsibility of the supplier, Fixing up of standards for

volatility of quality according to the quality circle.

Karmarker (1989),highlights the importance of relatively stable demand, which helps ensure efficient capital

utilization rates. Karmarker argues that without significantly stable demand, JIT becomes untenable in high capit

cost production. In theU.S, the 1992 railway strikes caused General Motors to idle a 75,000-worker plant becaus

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they had no supply. A surprising effect was that factory response time fell to about a day. This improved custom

satisfaction by providing vehicles within a day or two of the minimum economic shipping delay. Also, the factor

began building many vehicles to order, eliminating the risk they would not be sold. This improved the company

return on equity. Since assemblers no longer had a choice of which part to use, every part had to fit perfectly. Th

caused a quality assurance crisis, which led to a Economic Order Quantity

In product quantity, Eventually, Toyota redesigned every part of its vehicles to widen tolerance, while

simultaneously implementing careful controls for quality control. Toyota had to test and train parts suppliers to

assure quality and delivery. In some cases, the company eliminated multiple suppliers.

According to Ruffa (2008), when a process or parts quality problem surfaced on the production line, the entire

production line had to be slowed or even stopped. No inventory meant a line could not operate from in-process

inventory while a production problem was fixed. Many people in Toyota predicted that the initiative would be

abandoned for this reason. In the first week, line stops occurred almost hourly. But by the end of the first month,

the rate had fallen to a few line stops per day. After six months, line stops had so little economic effect that Toyo

installed an overhead pull-line, similar to a bus bell-pull, that let any worker on the line order a line stop for a

process or quality problem. Even with this, line stops fell to a few per week.

The result was a factory that has been studied worldwide. It has been widely emulated, but not always with the

expected results, as many firms fail to adopt the full system. The just-in-time philosophy was also applied to oth

segments of the supply chain in several types of industries. In the commercial sector, it meant eliminating one or

the entire warehouse in the link between a factory and a retail establishment. Examples in sales, marketing, and

customer service involve applying information systems and mobile hardware to deliver customer information as

needed, and reducing water by video conferencing to cut travel time.

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Allan (1998), assets that the main benefits of JIT include: Reduced setup time, Cutting setup time allows the

company to reduce or eliminate inventory for changeover time. The tool used here is SMED single-minute

exchange of dies; The flow of goods from warehouse to shelves improves, small or individual piece lot sizes

reduce lot delay inventories, which simplifies inventory flow and its management; Employees trained to work on

different parts of the process allows companies to move workers where they are needed; Production scheduling

and work hour consistency synchronized with demand. If there is

no demand for a product at the time, it is not made. This saves the company money, either by not having to pay

workers overtime or by having them focus on other work or participate in training; Increased emphasis on suppli

relationships. A company without inventory does not want a supply system problem that creates a part shortage.

This makes supplier relationships extremely important and Suppliers come in art regular intervals throughout the

production day. Supply is synchronized with production demand and the optimal amount of inventory is on hand

at any time. When parts move directly from the truck to the point of assembly, the need for storage facilities is

reduced.

According to Paul (1997), Just-in-time operation leaves suppliers and downstream consumers open to supply

shocks and large supply or demand changes. For internal reasons, Ohno saw this as a feature rather than a bug. H

used an analogy of lowering the water in a river to expose the rocks to explain how removing inventory showed

was production flow was interrupted. Once barriers were exposed, they could be removed. Since one of the mai

barriers was rework, lowering inventory forced each shop to improve its own quality or cause a holdup

downstream. A key tool to manage this weakness is production leveling to remove these variations. Just-in-time

a means to improving performance of the system, not an end.

Very low stock levels means shipments of the same part can come in several times per day. This means Toyota i

especially susceptible to flow interruption. For that reason, Toyota uses two suppliers for most assemblies. As

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noted in Liker (2003), there was an exception to this rule that put the entire company at risk because of the 1997

Aisin fire. However, since Toyota also makes a point of maintaining high quality relations with its entire supplie

network, several other suppliers immediately took up production of the Aisin-built parts by using existing

capability and documentation. Thus, a strong, long-term relationship with a few suppliers is better than short-term

price-based relationships with many competing suppliers. Toyota uses this long-term relationship to send Toyota

staff to help suppliers improve their processes. These interventions have been going on for twenty years and hav

created a more reliable supply chain, improved margins for Toyota and suppliers, and lowered prices for

customers. Toyota encourages their suppliers to use JIT with their own suppliers.

As noted by Liker (2003) and Womack and Jones (2003), it ultimately would be desirable to introduce

synchronized flow and link JIT through the entire supply stream.

However, none followed this in detail all the way back through the processes to the row materials.. With present

technology, for example, an ear of corn cannot be grown and delivered to order. The same is true of most raw

materials, which must be discovered and / or grown through natural processes that require time and must accou

for natural variability in weather and discovery. The part of this currently view as impossible is the synchronized

part of flow and the linked part of JIT. It is for the reasons stated raw materials companies decouple their supplie

chain from their clients demand by carrying large finished goods stocks. Both flow and JIT can be implemente

in isolated process islands within the raw materials streams. The challenge becomes to achieve that isolation by

some means other than carrying huge stocks, most to today.

According to Bongioni (2003), because of this, almost all value chains are split into a part made-to-forecast and a

part that could, by using JIT become make-to-order. Historically, the make-to-order part has often been within th

retailer portion of the value chain. Toyota took piggly Wigglys supermarkets replenishment system and drove

each at least halfway through their automobile factories. Their challenge today is to drive it all the way back to

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their goods-inwards dock. Of course, the mining of iron and making of steel is still not connected to an order for

particular car. Recognizing JIT could be driven back up to the supply chain has reaped Toyota huge benefits and

dominant position in the auto industry.

Shonberger (1982),noted that the advent of the mini mill steeling facility is starting to challenge how far back JI

can be implemented, as the electric arc furnaces at the heart of many mini-LTD can be started and stopped

quickly, and steel grades changed rapidly.

It has been frequently charged that the oil industry has been influenced by JIT. The argument is presented as

follows: The number of refineries in the United States has fallen from 279 in 1975 to 205 in1990 and further to

149 in 2004. As a result, the industry is susceptible to supply shocks, which cause spikes in prices and

subsequently reduction in domestic manufacturing output. The affects of hurricanes Katrina and Rita are given a

an example: in 2005, Katrin caused the shutdown of 9 refineries in Louisiana and 6 more in Mississippi, and a

large number of oil production and transfer facilities, resulting in the loss of 20% of the US domestic refinery

output. Rita subsequently shut down refineries in Texas, further reducing output. GDP figures for the third and

fourth quarters showed a showdown from 3.5% to 1.2% growth. Similar arguments were made in earlier crises.

According to Flinchbaugh (2006), beside the obvious point that prices went up because of the reduction in supply

and not for anything to do with the practice of JIT, JIT students and even oil & gas industry analysts question

whether JIT as it has been developed by Ohno, Goldratt, and others than the application of JIT. One of those

reasons may be economic rationalization: when the benefits of operating no longer outweigh the cost, including

opportunity cost, the plant may be economically inefficient. JIT has never subscribed to such considerations

directly; following Waddel and Bodek (2005), this ROI-based thinking conforms more to Brown-style accountin

and loan management.

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Further, and most significantly, GIT calls for a reduction in inventory capacity, not production capacity. From

1975 to 1990 to 2005, the annual average stocks of gasoline have fallen by only 8.5% from 228,331 to 222,903

bbls to 208,986 (Energy Information Administration Data). Stocks fluctuate seasonally by as much as 20,000 bb

During the 2005 hurricane seasons, stocks never fell below 194,000,000 bbl (30,800,000 m3) in 1997. This show

that while industry storage capacity has decreased in the last 30 years, it hasnt been drastically reduced as JIT

practitioners would prefer .

According to Goldratt (1986), Vendor-managed inventory (VMI) employs the same principles as those of JIT

inventory, however, the responsibilities of managing inventory is placed with the vendor in vendor/customer

relationship. Whether its a manufacturer managing inventory for a distributor, or a distributor managing

inventory for the customers, the management role goes to the vendor. An advantage of this business model is tha

the vendor may have industry experience and expertise that lets them better anticipates demand and inventory

needs. The inventory planning and controlling is facilitated by applications that allow vendors access to their

customers inventory data.

Another advantage to the customer is that inventory cost usually remains on the vendors book until used by the

customer, even if parts or materials are on the customers site. With customer- managed inventory (CMI), the

customer, as opposed to the vendor in a VMI model, has responsibility for all inventory decisions. This is similar

to JIT inventory concepts. With a clear picture of the inventory and that of their suppliers, the customer can

anticipate fluctuations in demand and make inventory replenishment decisions accordingly.

2.2.3 Economic Order Quantity

According to Grabosky (2000), there are many methods available to calculate the order quantity. The factors to

be considered are cost and the capacity. Capacity is a limitation we have to consider and we need to be realistic.

we want to do more set-ups, and we do not have surplus capacity we must reduce the set-up time. The cost of set

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up is another factor. In manufacturing it includes not just the cost of setting or preparing the machine, but the

entire off cost associated with processing an order. For purchased par t it is the cost of placing the order and

processing the receipts.

The other cost factor Is the cost of holding the inventory in stock that is made in the company. This includes the

lost opportunity cost of having the capital tied up in inventory, insurance, theft, damage, obsolescence and the co

of running the store. The economic order quantity can be calculated using the following formula:

EOQ= sort [(2*U*S)/(I*C)]

Where;

U= annual usage

S= ordering or set-up cost

I= inventory holding cost

C= unit cost

There are however a few assumptions which need to be made. For example, the demand should be equal and

regular, the physical size of the part should not be considered beyond

a point, the facility has sufficient capacity, sufficient storage space and facilities. In reality this might not be the

case. The concept is that the parts should be built or purchased in such a manner so as to incur the least total cost

to the company over a period of time. The more we put into stock the more it is going to cost us to store it from a

inventory holding point of view. The more we manufacture the more we can spread the cost of setting up the

machines and processing the order.

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Cusumano (1994),assets that, Economic order quantity is the level of inventory that minimizes the total inventor

holding costs and ordering costs. It is one of the oldest classical production scheduling models. The framework

used to determine this order quantity is also known as Wilson EOQ Model or Wilson Formula. The model was

developed by F.W Harris in 1913, but R.H. Wilson, a consultant who applied it extensively, is given credit for hi

early in-depth analysis of it. EOQ only applies where the demand for a product is constant over the year and that

each new order is delivered in full when the inventory reaches zero. There is a fixed cost charge for each order

placed, regardless of the number of units ordered. There is also a holding or storage cost for each unit held in

storage (sometimes expressed as a percentage of the purchase cost of the item).

According to Newman (1994), when an organization wants to determine the optimal number of units of the

product to order so that to minimize the total cost associated with the purchase, delivery and storage of the

product, the required parameters to the solution are the total demand for the year, the purchase cost of each item

the fixed cost to place the order and the storage cost for each item per year. The number can be determined from

the other parameters. The underlying assumptions of EOQ are; The ordering cost is constant, the rate of demand

constant, the lead time is constant, the purchase price of the item is constant that is no discount is available and

that the replenishment is made instantaneously, the whole batch is delivered at once.

Karmarker (2004) assets that several extensions can be made to the EOQ model, including, backordering costfs

and multiple items. Additionally, the economic order interval can be determined from the EOQ and he economic

production quantity model which determines the optimal production quantity, can be determined in a similar

fashion. A version of the model, the Baumol-Tobin model, has also been used to determine the money demand

function, where a persons holdings of money balances can be seen in a way parallel to a firms holdings of

inventory.

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2.2.4 Enterprise Resource Planning

According to Joseph (2008), Enterprise Resource Planning (ERP) is an integrated computer-based system used t

manage internal and external resources including tangible assets, financial resources, materials, and human

resources. It is a software architecture whose purpose is to facilitate the flow of information between all business

functions inside the boundaries of the organization and manage the connections to outside stakeholders. Built on

centralized database and normally utilizing and enterprise wide system environment. An ERP system can either

reside on a centralized server or be distributed across modular hardware and software units that provide services

and communicate on a local area network. The distributed design allows a business to assemble modules from

different vendors without the need for the placement of multiple copies of complex, expensive computer systems

in areas that will not use their full capacity.

According to Moses (2004), the term Enterprise resource planning originally derived from manufacturing

resource planning (MRP II) that followed materials requirements planning (MRP). MRP evolved into ERP when

routings became a major part of the software architecture and a companys capacity planning activity also

became a part of the standard software activity. ERP systems typically handle the manufacturing, logistics,

distribution, inventory, shipping, invoicing and accounting for a company. ERP software can aid in the control of

many business activities, including sales, marketing, delivery, billing, production, inventory management,

quantity management, and human resource management. ERP systems saw a large boost in sales in the 1990s as

companies faced the Y2K problem in their legacy systems.

He further asserts that many companies took this opportunity to replace such information systems with ERP

systems. This rapid growth in sales was followed by a slump in 1999, at which time most companies had already

implemented their Y2K solution. ERP systems are often incorrectly called back office systems indicating that

customers and the general public are not directly involved. This is contrasted with front office systems like

customer relationship management (CRM) systems that deal directly with the customers, or the

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e-Business systems such as e-Commerce, e-government, e-Telecom, and e-Finance, or supplier relationship

management (SRM) systems.

Bernard (2003) assets that, ERP systems are cross-functional and enterprise-wide. All functional departments tha

are involved in operations or production are integrated in one system. In addition to areas such as manufacturing

warehousing, logistics, and information technology, this typically includes accounting, human resources,

marketing and strategic management. ERP II, a term coined in the early 2000s, is often used to describe what

would be the next generation of ERP software. This new generation of software is web-based and allows both

employees and external resources (such as suppliers and customers) real-time access to the systems data. The

initial ERP was first employed by research and analysis firm Gartner Group in 1990 as an extension of MRP

(Material Requirements Planning; later manufacturing resource planning) and CIM (Computer Integrated

Manufacturing), and while not supplanting these terms, it has come to represent a larger whole. It came into use

makers of MRP software started to develop to cover all core functions of an enterprise, regardless of the

organizations business or charter. These systems can now be found in non-manufacturing businesses, non-profi

organizations and government.

Susan (2007) asserts that though traditionally ERP packages have been on-premise installations, ERP systems ar

now also available as Software as a Service. Best practices are incorporated into most ERP vendors software

packages. When implementing an ERP system, organizations can choose between customizing the software or

modifying their business processes to the best practice function delivered in the out-of-the-box

version of the software. Prior to ERP, software was developed to fit individual processes of an individual

business.

She further asserts that due to the complexities of most ERP systems and the negative consequences of a failed

ERP implementation, most vendors have included Best Practices into their software. These Best Practices ar

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what the vendor deems as the most efficient way to carry out a particular business process in an Integrated

Enterprise-Wide system. A study conducted by Ludwigshafen University of Applied Science surveyed 192

companies and concluded that companies which implemented industry best practices decreased mission-critical

project tasks such as configuration, documentation, testing and training. In addition, the use of best practices

reduced over risk by 71% when compared to other software implementations. The use of best practices can make

complying with requirements such as IFRS, Sarbanes-Oxley, or Basel II easier. They can also help where the

process is a commodity such as electronic funds transfer. This is because the procedure of capturing and reportin

legislative or commodity content can be readily codified within the ERP software, and then replicated with

confidence across multiple businesses that have the same business requirement.

2.3 Critical Review

Writing for articles in the Oil & Gas Journal, Waguespack and Cantor (1996), point out that JIT does not seem to

have been a goal of the industry. The authors point out that JIT would require a significant change in the

supplier/refiner relationship, but the changes in inventories in the oil industry exhibit none of those tendencies.

Specifically, the relationships remain cost-driven among many competing suppliers rather than quality-based

among a select few long-term relationships.

However, the writers of the articles did not contend with is the fact that a large part of the shift came about

because of the availability of short-haul crudes from Latin America.

Yet, in the follow-up editorial, the Oil & Gas Journal claim that casually adopting popular business terminology

that doesnt apply had provided a rhetorical bogey to industry critics. Confessing that they had been as guilty as

other media sources, they confirmed that, it also happens not to be accurate.

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