This paper is a report evaluating the various methods/models of vendor evaluation and selection. It analyzes the situation in which Caterpillar Australia Ltd is by discussing the various methods the company can use to evaluate vendors and gives recommendations for the most appropriate method that the company can use to select the best vendor among three possible vendors for the SAP software. It also gives the advantages and disadvantages of the various vendor selection methods.
The selection of an ERP system is normally an involving task because several ERP systems exist and their applicability in the operations of the purchasing company is desirable. There is, therefore, a need for vendor evaluation before these systems are acquired. Vendor evaluation refers to a continuous appraisal of performance that targets a specific vendor and uses a specific criterion in its analysis. The criteria could be quality or timeliness. The main reason behind carrying out vendor evaluation is the maintenance of the quality of the products and services of a given company. This goal leads to the achievement of other related goals like the possession of competitive advantage and reduction of costs (Nelke, 2002, p. 1). The vendor evaluation and selection process should consider several factors for it to yield desired results. These factors include the fact that the activity itself is multi-objective and thus the selection of the vendor should attempt to maximally balance the objectives of the evaluation. Another factor is the striking of a balance between resources used in evaluation and the reward obtained from the evaluation (Birt, Chamlers, Beal, Brooks, Byrne & Oliver, 2008, p. 13). The choice of the method to use in vendor evaluation and the resultant vendor choice must strike a perfect balance between the risk of the system/product to be acquired and the cost implied by the choice of these two. Enterprise Resource Planning (ERP) software is used in the integration of the various sections of an organization to form one system that is easier to manage. It groups organizational functions into a complete package that is consistent and easy to manage. This leads to efficient facilitation of the various steps and aspects of manufacturing. The functions grouped by ERP include traditional management functions like accounting, Customer Relationship Management (CRM), Human Resource Management (HRM) and management of the manufacturing process. Therefore, in choosing vendors for ERP software, an organization has a myriad of functions to consider (Poloni, 2004, p. 13). The multiplicity of these functions can potentially lead to confusion over which functions to give priority and this could lead to the wrong choice of vendor. Organizations should thus employ a systematic and effective system for choosing vendors (Jones & Burger, 2009, p. 59). Organizations that lack effective ERP software experience a lot of problems ranging from interdepartmental miscommunication to uneconomical use of resources and inefficient financial management. It is, therefore, of essence that Caterpillar Australia Ltd should employ an effective system in the choice of the ERP vendor to contract in a bid to reduce costs and avoid manufacturing and management interferences (Weber, 1991, p. 1).
Software vendor selection models
There are three main software vendor selection models. These are the SAP model, the Oracle model and the Microsoft model. Lately, there has been a lot of controversies related to the relative strengths of SAP, Oracle and Microsoft ERPs. This is primarily due to the stiff competition in the applications market. Let us have a look at the characteristics of each of them.
SAP is an ERP (Enterprise Resource Planning) software that is developed with much of its functionality to sit SMEs (Small and Medium-sized Enterprises). The SAP module has fourteen main modules. The first is the Administration Module in which configurations are made. The second is the Financial Module which handles conducts accounting and financial functions. Next, we have the Sales Opportunities Module in which customers and potential accounts are managed. Next is the Sales Module that deals with order activities like entering, invoicing and shipping. The Purchasing Module is concerned with the acquisition of goods and receiving of orders. Other modules include the Business Partners Module, the Banking Module, the Inventory Module, the Production Module, the MRP Module, the Service Module, the HRM Module, the Reports Module, and E-commerce. All the above-stated modules are geared towards the provision of management services to SMEs (Birt, Chamlers, Beal, Brooks, Byrne & Oliver, 2008, p.45).
Oracle is ERP (Enterprise Resource Planning) software based on a relational database. The fact that oracle is based on a relational database makes its ease of data retrieval and management easy. This is the greatest strength of oracle that has led to its popularity in its use as ERP software. An example of oracle ERP software is the Oracle E-Business which is used to support key business processes by the use of its built-in capabilities. These capabilities include Oracle Financial Analytics, Oracle Project Analytics, Oracle Procurement and Spend Analytics and Oracle Order Management Analytics (Narayanan, 2008, p. 54).
Microsoft is the most successful IT Company worldwide but they are, arguably, not the best in the ERP market. They however have a respectable reputation in the ERP market. They have developed a number of ERP software the most commendable being Microsoft Dynamics. Formerly known as Microsoft Business Solutions, Microsoft Dynamics is a collection of products that help in the automation of business functions like financials, supply chain and customer relations. The Microsoft Dynamics software therefore helps to streamline business processes.
Advantages/disadvantages of models
The main advantage of SAP is its reduction of the lack of integration that is normally characteristic of the functionalities of different business lines in the same organization. This strength of SAP makes it avoid duplications, errors and data inconsistency. Therefore, SAP is very important in the integration of several organizational functions and processes to form a single comprehensive system. SAP also offered unequal flexibility to its clients. Its modules (FI, QM, and MM etc.) can be implemented individually and thus a business can select the module(s) that are most appropriate for its operation and therefore maximize efficiency of the SAP system and cut down costs. Additionally, this property of SAP gives the option of incremental implementation of SAP modules. Thus, the most critical module can be implemented first and others added as the organization grows. SAP is also built with the capability to collect information, both internal and external, that helps organizations in planning and simulation. This enables organizations to evaluate risks and rewards and deal with future uncertainties. SAP’s recent development has seen addition of user-friendly functionalities like end-user access through Business Explorer and user access through the internet. This has led to substantial ease in its implementation. SAP implementation also has the lowest total cost of ownership due to the fact that its implementation does not have compatibility issues. Other advantages include its comprehensive features, customization capabilities, scalability to suit the size of the software user and its acting as the universal standard for ERP because it is the leading ERP product (Nelke, 2002, p. 2).
The main disadvantages of SAP are its relatively high cost and the fact that it is not very flexible. Another disadvantage is that SAP requires training before it can be effectively used (Nelke, 2002, p. 9).
Oracle has a couple of advantages attached to its use. It is characterized by incremental growth of features whereby, new features are incorporated in its products and old valuable features retained. This contributes to Oracles user-friendliness in the learning of new features which is a plus in organizational implementation of oracle systems. The first competitive advantage of oracle is its suitability for large applications. This has led to specific development of some oracle systems to suit specific industries that run large applications like banks. Oracle is also not convoluted with massive program constructs like other databases and thus it is comparatively efficient. It offers excellent performance in demanding environments thus making it valuable to worthy clients. Oracle also obeys the rules of atomicity and thus preserves the consistency of organizational data during data processing. It also has integrity constraints that are also very instrumental in the preservation of data consistency. Oracle ensures that data is secured by isolating the details of data processing during transactions to avoid inter-transaction interference. Transaction results are permanently embedded in the system to ensure that data is secured against failures of the system and media. Oracle also has a competitive advantage in its superior networking features that give enormous support for real-time applications. It is also cost-effective and thus gives the user cost convenience backed up with substantial performance (Magal & Word, 2009, p. 32).
Oracle has a number of disadvantages. Some of these disadvantages include the fact that it is not that simple because of the long period required to learn it. As a result, there are very few professionals who are qualified in it. It has a lower performance than Microsoft SQL and is relatively costly. Oracle systems are also incompatible with a significant number of systems. Similar products available in the ERP market cannot be used in conjunction with Oracle due to this incompatibility. Oracle also requires high hardware specifications making it operable on a limited number of platforms (Lakey, 2005, p. 4).
Microsoft Dynamics ERP
Microsoft Dynamics offers flexibility in the use of applications to run and manage business operations. The ERP can be customized using Microsoft technologies and maintain its performance. An example of a customizing technology is silver light. Microsoft Dynamics products also give customers unequaled control over data. The other main advantageous features of Microsoft Dynamics are its adaptability in different business environments, ease of use and its ability to provide management with summarized managerial information to aid the management in making decisions. Microsoft Dynamics also possesses an attractive interface and it is easy to use as compared to other products (Calvert, 2009, p. 21).
It is therefore evident that most of the advantages of Microsoft Dynamics are common to Oracle and SAP. Microsoft Dynamics products also have security issues in their implementation in an enterprise. The scalability of Microsoft Dynamics systems is also limited and thus they are inapplicable in small businesses and businesses with a large number of operations (Jones & Burger, 2009, p. 21).
System Application Products (SAP) is a very resourceful software system. SAP’s modules provide support in almost every realm of business operation and can be implemented individually. These modules include the SAP FI module which is instrumental in the financial accounting function of the organization. It covers accounting elements like the trial balance, the cash book, ledgers etc. Next, the SAP CO module is an asset in management accounting used in controlling the cost of the business. The SAP also has an HR module that is instrumental in human resources and the PM model which is for plant management. The PM model is very instrumental in the maintenance of an organization’s equipment. On the other hand the MM module is used in the maintenance of the materials of an organization. It is thus mainly concerned with the management of inventory (Bucki, 2010, p. 34). SAP also has a QM module that is responsible for quality management and which is very useful in planning. Next the SAP PP module is concerned with production planning. In this module all aspects of production are planned and controlled. Lastly the SAP SD module is used in controlling ad implementing sales and distribution strategies. From the diversity of the modules of SAP, it can be argued that Caterpillar Australia Ltd made a good decision in their choice of the SAP system. This is because the SAP system is bound to bring balanced organizational performance due to its perfect integration of organizational functions (Calvert, 2009, p. 14). I, therefore, recommend a SAP ERP system for Caterpillar Australia Ltd. This is because the company needs an ERP specifically for its accounting and logistics functions and thus there is a need for the ERP to be properly integrated and able to be implemented in modules. This property is found in SAP ERP software since the others, Oracle and Microsoft Dynamics ERP are implemented holistically.
From the above discussion, the SAP ERP software is the most appropriate for Caterpillar Australia Ltd due to its perfect applicability in the operations of the company. This is made possible by the discussed characteristic integration of several functionalities in SAP software and the ability of these functionalities to be implemented one at a time. It is specifically an advantage to Caterpillar Australia Ltd due to the fact that the company requires a system to handle its accounting and logistic functions and thus the implementation of the Oracle and Microsoft systems will lead to undesired redundancy and issues of incompatibility of the ERPs with the existing systems in the company (Weber, 1991, 17). Therefore since, while using SAP, the accounting and logistics modules can be implemented each at a time without incorporation of unnecessary functionalities, the SAP system is the most appropriate for Caterpillar Australia Ltd due to their need to customize the ERP to suit their needs. The decision by Caterpillar Australia Ltd to use an ERP software system in its operations is also commendable due to the advantages that accrue due to the use of Enterprise Resource Planning software. These advantages include the cutting down of payroll costs due to the ability of the ERP software to reduce workforce. Another advantage is the increase in the efficiency of operations that are associated with the automation brought about by the use of ERP software. The software also eases CAATS (Computer Assisted Audit Techniques) which are used in checking the operations of an organization to ensure that data is consistent and that no malicious or malicious/fraudulent manipulations to data are made.
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