Perspective read supporting the view that with TOC, the benefits of ERP materialize better and the collaboration of the ERP and TOC (ERP –TOC) becomes more powerful tool for improving profits and performance.

1. Research Papers
ERP & TOC
Collaboration
The Whole Is Greater
Than The Sum Of The Parts!
by Kuldeep Singh Malik

2. ERP & TOC Collaboration
ERP is vital to manage an enterprise and, is being implemented world over with a reasonable
success. Though, it provides a total, integrated solution for the organization's information-
processing requirements, yet it fails to respond to changes in the rules, procedures, measurements,
and even in the belief systems. Additionally, it involves high costs, time and energy, and after
dragging on for years, yields very little performance improvement. A new ERP system benefits
companies, in cleaning up data and tightening procedures. But, unless a company's business
processes are re-engineered, its performance will not be substantially improved. However, if the
TOC is coupled with ERP, then the Business Process improvements begin to show results. This paper
supports the view that with TOC, the benefits of ERP materialize better and the collaboration of the
ERP and TOC (ERP –TOC) becomes more powerful tool for improving profits and performance.
Enterprise Resource Planning (ERP):
ERP is “a packaged business software system that enables a company to manage the efficient and
effective use of resources by providing a total, integrated solution for the organization's
information-processing needs” [Sumner Mary (2000)]. This software facilitates the integration of
all the functional information flows across the organization into a single package with a common
database. Therefore, it allows easy and immediate access to information regarding inventory,
product or customer data, and prior history information [Shehab, E., Sharp, M., Subramanian, L.
and Spedding, T. (2004.)]. ERP initially covered all routine transactions within an organization only.
However, it was later expanded to cover external customers and suppliers [Turban, E., Leidner, D.,
Mclean, E. and Wetherbe, J. (2006)]. Most ERP systems now have the functionality and the
capability to facilitate the flow of information across all business processes internally and
externally. Furthermore, ERP systems have the capability to “reach beyond their own corporate
walls to better connect with suppliers, distributors and customers to engage in e-business” [Nah, F.
and Lau, J. (2001)].Today, many public and private organizations worldwide are implementing ERP
systems in place of the functional legacy systems that are not anymore well-compatible with
modern business environment. However, the process of moving from functional applications to an
ERP system is difficult and challenging [Kroenke, D. (2008)].The switch to ERP system is expensive
and it requires development of new procedures, training and converting data [Zhang, Z (2005)].
1. A Literature Review on ERP:
More than 60 percent of Fortune 500 companies had adopted of ERP system [G. Stewart, M. Milford, T.
Jewels, T. Hunter, and B. Hunter (August 2000)]. The relation between ERP and competitive advantage as
well as different managerial and organizational process enhancing the competitive position has not been
well covered by the ERP literature. And, ERP system can yield at most a temporary competitive advantage as
others are also installing these enterprise-wide systems [Steven J. Balderstone and Victoria J. Mabinsearch
(1999)].Nearly all literature on ERP is focused on ERP project and ERP implementation. Little attention had
been paid on the post implementation phase of ERP projects. IT cannot by itself influence the productivity
of a company.. The main efficiency factor lies in the way people use these technologies. ERP is one of the
major motives of firms attaining a competitive advantage [Sumner Mary (2000)]. Those organizations that
can customize their ERP systems with the new ideas to match specific strategic and decision-making needs
will be more difficult to imitate. ERP systems may support the extended value chain of the organization,
allowing them to link and share data with its suppliers and customers to improve business operations
through business process innovations [Zhang, Z., Lee, M., Huang, P., Zhang L. and Huang, X. (2005)].It is also
suggested to better adapt business process to human factors by explicitly taking into account concepts like
the role, competence and knowledge of human resources [Millman, G.J. (2004)].
Vector Consulting Group www.vectorconsulting.in

3. ERP & TOC Collaboration
2. Universal issues in ERP systems:
ERP systems have been advancing efficiency in organizations throughout the world, but also have the
reputation in industry of being notoriously over-sold and under-delivered [Mabert, V.M., Soni, A. and
Venkataramanan, M.A. (2000)], while ERP has been credited with providing competitive advantage in some
environments, the ERP market is maturing . ERP systems have drawback of being large, complicated, and
expensive [Shehab, E., Sharp, M., Subramanian, L. and Spedding, T. (2004.)].ERP implementation requires an
enormous time commitment from an organization's information technology department or outside
professionals. ERP systems tended to create changes in many business processes, and as noted by [Shang, S.
and Seddon, P. (2002)] putting ERP in place requires new procedures, employee training, and both
managerial and technical support. According to [Smith, D. (2000)], Many ERP implementations have failed
as a result of lacking clear plans. It is noted that for successful ERP implementation, one of the most critical
success factors is Re-engineering the business process, called as BPR. It is noted by [Sumner Mary (2000)]
that BPR should continue with new ideas and updates to take full advantage of the ERP system when the
system is in use. Organizations should be willing to change their businesses to fit the software in order to
reduce the degree of customization [Murray, M., & Coffin, G. (2001)]. Many organizations have made
unnecessary, complex customization to ERP software because the people making the changes do not fully
understand the organization's business practices [Sumner Mary (2000)]. According to [Somers T.M. and
Nelson K.G. (2004)], the Critical success factors in ERP implementation is BPR that drives technology choice
is an enabling factor that can give to ERP success.
3. The Theory of Constraints:
The Theory of Constraints (TOC) developed by Eliyahu M. Goldratt, is a techniques of organisational
improvements. It claims that each system has at least one constraint, challenging current state of business
practices. Thus, if the organization is viewed as a chain, then the place to focus our improvement efforts
must be at the point of greatest weakness – the weakest link, limiting factor or constraint. It is this aspect
that lies at the heart of TOC approach which is called the Five Focussing Steps, first described by [Goldratt,
E.M. (2000),].These five focussing steps are namely, Identify the constraint(s),Exploit the constraint(s),
Subordinate to the constraint:, Elevate the constraint: and Prevent inertia – go back to step one
4. ERP & TOC Collaboration: The Whole is Greater Than the Sum of the Parts:
It is argued by [Goldratt, E.M. (2000),] that the key dimension of any technology is that it should diminish a
limitation within the operational aspects of any organization. The new technology has to be implemented
into an existing system of policies, behavior, measurements and other assorted rules and regulations.
Combination of ERP with TOC (ERP-TOC) provides fast, direct and whole-companywide performance
improvements, wherein the notion of the constraint is linked to the focus and leverage offered by
throughout accounting [Somers T.M. and Nelson K.G.( 2004)]. It is suggested by [Dr Ted Hutchin (2001)] that
the notion that the organization should be viewed as a chain and the importance of the constraint also
need to be recognized. There are typically three key areas of focus of ERP-TOC, namely, manufacturing,
project management and distribution. Firstly, in the manufacturing area, the application of approaches such
as Drum – Buffer – Rope, have been well researched and the results clearly achieved. The whole of the
revenue chain from supply to customer is made possible with ERP. There is a conflict between controlling
costs and protecting sales [Turban, E., Leidner, D., Mclean, E. and Wetherbe, J. (2006)].Secondly, in the
project management focus area of ERP-TOC, its capability of data integration presents robust system. During
ERP project life cycle, in the pre-implementation stage, TOC helps in the right selection of an ERP system.
During the project implementation stage of an ERP system, TOC helps in management, makes the
implementation smooth and fast. During middle of an implementation, it provides a set of policies,
procedures and measurements that give new focus, direction and momentum to the process; it can change
employee's behavior towards resistance to the change by showing the value of ERP via TOC.
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4. ERP & TOC Collaboration
5. ERP & TOC – How do both work
ERP- TOC determines and monitors the bottleneck resource, set and manage the buffers, time the release
of work to maintain a smooth flow to the bottleneck and maximum throughput for the plant, and analyze
resources and buffers for performance improvement. It is about attitude, approach, and process than about
software .It helps reinforce new procedures, disciplines, and measurements that are taking the place of the
old ways of doing things. Once the 'drum' is identified and the “rope” put in place to time the launching of
work into the plant, the most critical on-going concern is to keep the right amount of buffer in front of the
CCR to ensure maximum throughput and a smooth flow of work. ERP-TOC helps in scheduling work in
counterintuitive environment. Typical scheduling logic and practice, including priority calculations, work on
a no-later-than date basis, tied to due date for completion of the entire production process. Scheduling for
all other work centres is tied directly to scheduling for the CCR and is not aimed at increasing utilization on
these subordinate resources.. The concept of “buffer penetration” is unique to ERP-TOC and is a key
management tool. Management reports display appropriate priorities and highlight potential problems to
keep operations moving according to TOC principles.
6. Results of ERP-TOC based on some cases:
After ERP-TOC implementation, the service days taken by the US Navy helicopter service division to service
54 helicopters in a year, reduced to 133 days from previous average of 190-200 days ,this means a 1000
hours/direct labor reduction and a dip in overtime from between 15 – 18% to 5%..It is noted from this case
that ERP-TOC is a successful technique. Focused on improving planning cycle time, simultaneously. In
another case, ITT Night Vision, a manufacturer of night vision devices (NVDs) for the United States.,
Developed an enabling SAP APO model based on the Theory of Constraints, the following results were
obtained:
˜ Improved planning cycle times from 10 days to 2 or 3 days
˜ Improved capacity utilization by 20%
˜ Reduced finished goods inventory by 19%
˜ Improved product-mix planning through better understanding of co product sales.
˜ Implemented a flexible model that allows additional constraints to be implemented in one week or less
˜ Positioned the company to take advantage of future e-business developments including collaborative
planning
7. Conclusions
ERP systems have been instrumental in advancing efficiency in organizations throughout the world by giving
access to inventory, product and customer data towards attaining a competitive advantage. However,
putting ERP in place requires new procedures, training and converting data, adapt business process to
human factors in the context of the role, competence and knowledge of human resources. It renders ERP
system being complicated, and expensive. One of the most critical success factors is Re-engineering
business process, which should continue with new ideas and updates. Here, ERP system's critical
shortcoming is its failure to respond to changes in the rules, procedures, measurements, and even in the
belief systems. If ERP is used in combination with TOC, the three key areas are focused, namely
manufacturing, project management and distribution. TOC helps an ERP system throughout the project life
cycle in effective implementation. On the basis of results of ERP-TOC, it can be concluded that TOC can help
ERP to succeed
Vector Consulting Group www.vectorconsulting.in

5. ERP & TOC Collaboration
References:
Akkermans, H., Bogert, P., Yucesan, E., and Wassenhove, L. (2003) 'The impact of ERP on supply chain management: Exploratory
findings from a European Delphi study', European Journal of Operational Research, Vol. 146, No. 2, pp.284–301.
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Dr Ted Hutchin (2001), “Enterprise Resource Planning – Creating Real Bottom-Line Impact”,
G. Stewart, M. Milford, T. Jewels, T. Hunter, and B. Hunter (August 2000), “Organizational readiness for ERP implementation,”
Proceeding of the Americas Conference on Information Systems, pp.966-971
Goldratt, E.M. (2000), “Necessary But Not Sufficient”, North River Press Great Barrington MA
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Millman, G.J. (2004) 'What did you get from ERP and what can you get?' Financial Executive, May, pp.38–42.
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Literature” (The CRC Press Series on Constraints Management), CRC Press; 1 edition.
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in the digital age'5th edition, John Willy & Sons.
Zhang, Z., Lee, M., Huang, P., Zhang L. and Huang, X. 2005. 'A framework of ERP systems implementation success in China: An
empirical study'. International Journal of Production Economics
Kuldeep Singh Malik is Head of Research at Vector Consulting Group.
Vector Consulting Group (www.vectorconsulting.in) is the leader of ‘Theory of Constraints’ consulting in India. Vector has been
working closely with some of the well known retail chains, FMCG, fashion products, custom manufacturing industry and auto
after market companies to improve their overall profitability through supply chain effectiveness.
Kuldeep Singh Malik can be reached at kuldeep@vectorconsulting.in
Vector Consulting Group www.vectorconsulting.in