Investigation of the Significance of Enterprise Resource Planning in the Value Chain of the Colgate-Palmolive Company

1. Investigation of the Significance of Enterprise Resource Planning
in the Value Chain of the Colgate-Palmolive Company
Karim Khayat
April 2014

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Contents
1- Introduction
2- Background on
3- Significance of the value chain
4- The Colgate-Palmolive Company’s Value Chain
5- Levels of Information Systems
6- Enterprise Resource Planning
7- The Colgate-Palmolive Company’s ERP
8- Conclusion
9- References

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Introduction
Every business has a vision and mission. While all businesses attempt at generating profit, a
successful business is one that creates value for its product or service. The twenty-first century has proved
that competition is around the corner for any business, and as such, companies today must be able to
pinpoint and implement innovative work processes that “demonstrate clear worth in the value chain”
(Janzen, 1999). The new “mainstream” development that companies are implementing is going online,
and adopting e-business in their operations has brought major benefits and added value to their
companies. This is done in various ways. The development of on-demand software delivery service
models such as software-as-a-service (SaaS), aiming to provide firms with Internet-based access to
resources or applications related to a firm's complete virtual value chain (Chou and Chiang, 2013). On the
other hand, cloud computing is the latest trend to outsource some or complete IT operations to run a
business from the public Cloud that provides a flexible and highly scalable technology platform for an
organization’s business operations (Armbrust et al., 2010; Badger et al., 2011; Catteddu and Hogben,
2009). This report will tackle the significant of an aspect of this implementation of e-business, namely
“Enterprise Resource Planning systems (ERPs) and how value can be added by using this information
system. This report will present the discussion using the case study of the Colgate-Palmolive Company.
Background on the Colgate-Palmolive Company
The Colgate-Palmolive Company is an American multinational consumer products company
founded in 1806 and established in New York City by William Colgate. The Colgate-Palmolive company
is focused on the production, distribution and provision of household, health care and personal products,
such as soaps, detergents, and oral hygiene products (Colgate.com). The company is worth around ten
billion dollars and operates in over 200 countries, and has more than 38,000 employees. Colgate’s core
vision is to enhance consumer lives, whether through oral care, personal care, home care, or pet nutrition.
The company’s continual success in the last decade can be attributed largely to the fact that it adopted an
ERP system in 1994. The company’s business reports found on the website show that in 1994, the

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revenue was 63 million USD, and in 2004, the revenues totaled about 114 million USD, while in 2014,
the revenues increased to 167 million USD. The firm has been steadily increasing, expanding, and
become more successful over the years (colgate.com).
Significance of the value chain
The value added to a product or service is what creates competitive advantage; why would you
buy an HP laptop over a DELL laptop? Supposing that both laptops had the same specifications, and cost
the same, why would a consumer buy one over the other? Perhaps HP provides a three year warranty
while DELL provides a one-year warranty, or perhaps that with purchase a DELL laptop, a free laptop
bag, mouse, or both are given. Suppose one gives a free operating system with the laptop while the other
provides free malware for a year, or that you can buy one online and the other delivers for free. There is
much room for value creation, and the general strategies that companies adopt are cost strategies or
product differentiation. The idea is that the customer will have to decide which product to buy over the
other based on the value created.
Adding value and the value chain are not the same thing. The value chain is technically adding
values at different stages of operations in the business (Recklies, 2001). According to Porter’s Value
Chain Analysis (see Fig. 1), there is a unique pattern of activities that can add value to a company which
are separated into two categories; the primary activities and the supporting activities (1985). The primary
activities are the operations needed to create the product and deliver it, while the supporting activities are
ones that add to the productivity of the primary activities through increasing efficiency and effectiveness
(Recklies, 2001). Furthermore, according to Porter, these activities, both the primary and supporting
activities, create data (1985). Porter suggested that this data be analyzed, and the resulting information be
used to generate value; however, with traditional methods, this could be tiresome as the data has to be
collected manually and the information extracted. IN this age, it is possible to store and transform the vast
amounts of collected data into information through digital methods; Information Systems has become a

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support tool for many businesses, especially ERPs. This report will later display how ERPs have the
ability to conglomerate all the various sources of data and ‘deduce’ from them.
Figure 1. Learnmarketing.net’s version of Porter’s Value Chain Analysis.
The Colgate-Palmolive Company’s Value Chain
The Colgate-Palmolive Company’s value chain has been advancing steadily since the establishment in
1901, and especially after its expansions across Europe in the 1930s. Colgate –Palmolive clearly
developed its activities, evolving from selling soap and wax to producing all types of products from
shower gel to toothpaste and detergents. Expanding the product line was one way of advancing the value
chain, but creating the “Colgate Smile” has become an idiom in the English language, emphasizing the
brand success. Thereon, all customers rely on the quality of all Colgate products, and Colgate kept on
increasing its value by allowing online shopping and delivery through its website, and providing more
and more products every year that are met with success.
With the increasing number of customers, the Colgate Palmolive Company has had to integrate its data to
maintain its huge market share, and the integration will be discussed in this report.

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Levels of Information Systems
Information Systems are usually harmonious with a firm’s structure; while there are different
vertical and horizontal structures that some businesses adopt, and others using the flat structure, it seems
that the majority companies still use the traditional hierarchal structure even in the twenty-first century
(Turban et al, 2007). Information Systems adapt to the hierarchal structure. According to Turban et al, the
transaction processing systems (TPS) is the part that supports the observation, collection, storage,
processing, and distribution of a business’s transactions, and TPS is used on the operational level, namely
by operations managers (2007). Furthermore, knowledge work systems (KWS) are used by knowledge
workers who process data and extract useful information. On a higher level, there are the management
information systems (MIS) which are used by functional managers in order to support them with their
decisions through providing periodic reports that include summaries, comparisons, and other statistics
(Turban et al, 2007). The top level information system is executive support system (EIS), and is used on
the strategic level by senior managers.
Having all these systems is not enough; the information systems need to work synergistically.
According to Laudon and Laudon (2012), it is a real challenge to get all the different kinds of systems in a
company to work together; it seems that corporations end up with a collection of systems over time and
face the challenge of getting these systems to “interact”. Since information systems are department-
oriented, having the different systems integrate together is a need. Traditional information systems seem
to have many limitations being department-specific, making less efficient than the requirements of
managers. As such, many companies have turned towards what seems to be the innovation of the century;
enterprise resource planning systems, coined “one of the most important and significant developments in
the corporation of information infrastructure (Davenport, 1998; Hitt et al. 2002; Upton & McAfee 2000;
Hanseth and Braa 2001).
Enterprise Resource Planning

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Figure 3. Everything is integrated into ERP.
ERP is software that integrates the business processes of different departments into one system in
a central database, such as integrating purchasing, manufacturing, sales, and other departments into one
system (Laudon and Laudon, 2012). ERP allows the automation and integration of business processes
while enabling data collection and sharing (Sumner, 2005). Bocij et al. (2006) add that ERPs assimilate
all functional information within then the various departments of a company and within one single system
in order to satisfy the organization’s needs. So what is the value of ERPs? Simply, they increase overall
efficiency, produce information that heavily supports management in decision making, evaluate the
organization’s financials and performance, and even provide faster response to customers’ requests
(Sumner, 2005).

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Figure 3. Top ERP producing companies in revenue growth comparison from 2003 to 2007
There are many companies that provide ERP software for businesses to purchase, but the market
leaders include SAP AG, PeopleSoft, Oracle Applications, Baan Series, and J.D Edwards One World.
Through competition, ERPs have evolved to become better and more efficient until their benefits included
fewer data errors, increased efficiency, and more commands and options to use (Bocij et al, 2006). Also,
ERPs are not used only internally in the organization; suppliers and other businesses can all share their
information and enhance their relationship with the organization (Siriginidi, 2000). Moreover, according
to Fournie et al (2007), ERP allows the minimization of costs through synchronization and the corrective
maintenance facilitated by the vendor.
At this stage, value is added in a company’s value chain since ERPs have become backbones for
the primary and support activities through the instantaneous sharing of information within an
organization’s system. This means that ERP creates competitive advantage for the organizations that use
it well. However, like everything else, ERP systems are not without drawbacks. It is costly to implement
ERPs as they are highly specialized; also maintaining it would also cost. On that note, the ERPs being
highly specialized require professionals who are trained to use ERP and maintain it. This is all costly and
time consuming (Bocij et al, 2006). ERP keeps evolving and progressing as we speak and as such,

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requires incessant maintenance all the time, meaning it will be complicated and costly all the time
(Hossain et al, 2002).
Given these sides of benefits and disadvantages of ERP, a business owner must be cautious and
considerate before implementing it, even if the benefits outweigh the disadvantages. This is especially
true in the case of the Colgate-Palmolive Company.
The Colgate-Palmolive Company’s ERP
The Colgate Palmolive Company an ERP system provided by SAP in 1996. Its implementation of ERP
was described as one of the 10 most successful according to BusinessWeek. Their ERP system
successfully implemented modules including supply chain management, customer relationship
management, supplier relationship management, human resources management, financial management,
integrated application, order processing procedure management, materials management, production
management list, self-service and other employees.
Colgate upgraded their ERP system twice, and currently includes the SAP R / 3 series, mySAP
senior schedule plans and optimization, CRM, SAP portal and mySAP Business Warehouse. Colgate has
reduced the number of manufacturing plants worldwide by over 25% after finding possible cost
reductions through SAP since 2004. Even the Colgate Business Planning (CBP) in 2008, a global
initiative for commercial planning and budgeting, used sap. Supported by SAP software, CBP
incorporates a strong return on investment methodology into all work routines, which together with
greater focus on the customer and regular meetings to assess performance against goals (Colgate.com).
The result was extreme efficiency. For example, in Australia, the ERP system allowed the
pinpointing and identification of certain inefficient promotions, while in Poland, the cost of employee
recruitment services was cut by 24 percent by reducing the number of suppliers from 6 to 2. The ERP
they use brings exact information, and they know how to use it, which keeps Colgate on the road to
success.

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Conclusion
In conclusion, this report showed how ERPs add value to the value chain of organizations by
referring to the case of the Colgate Palmolive Company. The company is now a multi-national
corporation that withstood the test of time for more than a century. Their ability to define and penetrate
new markets, expand their customer-base through new product line, and maintaining their overall brand
quality while adapting to new information systems is an example for other companies to follow.

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