Read the following case in detail before attempting any questions. (The case is based on the information as revealed in Xu, H, et al (2001) The Challenge of Implementing an ERP System in
a Small and Medium Enterprise, Journal of Information Systems Education, 22(4), 291-296.)
Custom Engineering Solutions (CES) is an engineering services company specializing in custom
electronic industrial controls and remanufacturing of heavy, electro-mechanical industrial equipment. For
the past decade, many companies aboard have come to demand CES’s products and services, As it grows,
CES has developed a source network of assemblies fabricated in Ireland and China.
Currently, CES produces approximately 1,500 active products and its sales are distributed by 10
wholesalers, many of which are large companies like Power Mason in the USA that have significant
bargaining power. In addition, CES sells directly to 50 regular customers. Sales are seasonal and thin out
during economic downturns. In order to ramp the production up and down to cope with these seasonal
peaks and valleys, the company adopts both approaches of build-to-stock and build-to-customer-orders.
Production in CES is responsible by two major divisions. The oldest and largest division of CES,
Electromechanical Motors & Equipment (EE), gains 75% of CES’s sales revenue. While EE is playing
the role of a remanufacturer of low-tech equipment, the Electronic Control Systems (ES) division
manufactures semi-custom hardware and software control panel that give CES the fame of a provider of
high-tech, custom controls in the industry.
When a job order arrives, the EE division primarily develops a skeleton set of material, labour, and
machine requirements by using bills of material (BOMs) for jobs of a similar type that the division has
completed in the past. The BOMs could then be modified extensively to support the remanufacturing
effort and the estimation of cost, profit, and price. Although each job is essentially customized and is
unique in the specifications of machines, generators, or power systems that are being refurbished, raw
material quotation can be made by the skilled and experienced sales managers who are responsible for
pricing. In spite of this, they often find job cost estimation rather difficult because the existing
manufacturing control system in EE is unable to track the time and cost of a job. The management
believes that a better, more automated system that analyzes prior jobs would be a big help in future job
quotations.
Being a manufacturer rather than a remanufacturer, the ES division has a different process. For new
products, the ES develops standard BOMs to which custom components and routing steps are added later
in order to create several product configuration options that meet customer orders. Instead of using a more
conventional APICS (The Association for Operations Management) standard, ES creates unique product
numbers for each customer order. Since many of these production orders are run only once or in a limited
number of times, the manufacturing control system has accumulated thousands of these ’dead’ BOMs of
product variations. Besides, the ES has its own problems in pricing.
Moreover, changes in labour and materials requirements as the result of customization are not recorded in
the current manufacturing control system. It is because ES has received a large amount of orders for semicustom products, to which the current system is unable to capture the costs of labour and materials at the
point they were incurred. Consequently, ES has to backflush costs based on the ‘as built’ standards
without considering any factory data or inventory control capabilities. Cost variances have been
incorrectly calculated, making any production costs assessment or cost variance analysis impossible.
Required:
Assume that you were the Chief Operation Officer (COO) of CES and believed that the problems in both
the EE and ES divisions would be detrimental to the growth of the company. Present a proposal to
convince the Board of Directors of CES that investing in an enterprise information system (e.g. an ERP)
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