ERP in Construction Industry in China

Shiyu Shang
College of Urban and Environment and Civil Engineering Xuchang University Xuchang City, China E-mail: s.shang@126.com
AbstractSince the introduction of numerous IT technologies, formal business cases convince that proper ERP strategy could lead to cost reductions, better equipment utilization, easier project monitoring and improved quality of work in construction industry. As to the features of construction industry, it will be necessary to design ERP software which is specifically for the construction Industry. In this paper, construction project management module of ERP system will be demonstrated. Although ERP system has many advantages, such challenges as deficiencies of techniques and skills, security of information and system and culture shift are unavoidable in the implementation of ERP in construction enterprise. Therefore, some possible solutions are finally proposed to overcome these barriers in this paper. Keywords-ERPconstruction industrymodule challenges

II.

ERP IN CONSTRUCTION INDUSTRY

The construction industry is a highly fragmented industry. Construction companies face numerous challenges of managing project schedules, budgets, safety, and quality to meet requirements provided by the owner and/or architect /engineer. The proper utilization of internal and external resources is essential if construction companies are to make the best business decisions, maximum business goals, and survive in the competitive environment. According to Ministry of housing and urban-rural development of the people's republic of china, if construction firms in china gain outstanding qualification, they must meet the requirement of informatization. In order to be qualified, many construction firms start to implement ERP systems. Lee et al (2002) stated in their study that an ERP system can shorten the procurement cycle up to approximately 80%, by automating the repeating transactions, and reducing manpower to perform the task [1]. Compared with the developed countries in Europe and America, informatization level of construction firms in china is relatively lagging behind. Although there is some software such as computer-aided design, bidding, cost-estimation and so on in construction industry in china, the integration of these software is still poor. ERP product, especially for construction industry in china, is rather in exploratory stage. It is found that the majority of construction firms have awareness about the ERP systems but very few organizations have so far implemented such systems. The major reason is that the implementation of any ERP system needs a huge investment in time, money and resources. In addition, as there are short of mature domestic construction ERP software in china and foreign ERP software seems not compatible with Chinese construction firms in price, application, language and so forth, the further development of ERP software in specific construction firms will be highly needed [2]. However, if the solution could be taken to solve the right problems, these ERP systems can be a powerful tool for business improvement. III.
CONSTRUCTION CUSTOMIZED ERP SYSTEM

I.

INTRODUCTION

Enterprise Resource Planning (ERP) is now being hailed as a foundation for the integration of organization-wide information systems. Enterprise Resource Planning (ERP) systems integrate all departments and functions across a company in a single computer system that runs off a single database so that the various departments can more easily share information and communicate with each other. Moreover, they also connect the organization to its customers and suppliers through the different stages of the product or the process life cycle. Nowadays, ERP is normally based on computer software as the main carrier. In general, ERP software system includes financial management, manufacturing management, distribution and logistics management, human resources management and other front-office modules [3]. Although ERP is at first considered to be only for businesses in the manufacturing industry, in the past decade ERP software has become specialized to the point of carrying modules applicable to many other industries as well. The objective of this paper is to investigate the implementation of ERP systems in construction firms. Firstly, the significance of ERP in construction industry will be identified. And then the modules of ERP software, especially for construction firms, will be discussed. Finally, this paper will be concluded with the exploration of challengers of ERP in construction industry.

ERP system and related software have been widely used in manufacturing industry, whereas its application in construction is less. According to the characteristics and existing problems of the project management in construction engineering, the ERP model applied in construction industry should focus on the introduction of project management module except

common financial management module, human resources management module, logistics management module. Moreover, this ERP model should pay more attention to the integration of four modules mentioned above. As far as project modules of ERP software used in construction enterprises is concerned, it should involve several sub-modules as followed. A. Cost estimating management module Cost estimating management software is used by contractors to determine the costs of their potential projects. In project management, the precision of the budget is the basis of accuracy of cost control. Due to the different construction project and dissimilar skills of cost-estimating personnel in construction enterprises, the needs for cost estimating management vary widely. Combined with the current situation of construction industry, cost estimating management is divided into bidding budget, construction budget and secondary budget. Bidding budget is generally based on industry quota, local quota and other social quotas. As social quotas are more complicated, when construction enterprises apply ERP systems, they should choose the ERP software which has universal interface with the cost estimating software on the market. Construction budget is based on the contract budget. Under the consideration of project design and construction technology, construction budget will be the basis of the cost control in construction process. The secondary budget is mainly for the projects in which drawings and construction are nearly at the same time, or in which there are massive modification in the construction process, or in which there are many on-site temporary programs. In these kinds of projects, cost estimating is normally done on site. B. Bidding management module In ERP model used in construction enterprises, bidding management module should be integrated with the construction management module. The historical data of the construction project will form the production and operation index database of enterprises, which could provide useful information for the project bidding. It is also an effective means to control bidding risk. At the same time, with the previous bid database, bidding management software could integrate with financial, fixed assets management and all kinds of resources to reduce the workload of bidding, achieve fast and accurate project bidding, realize the closed-loop bidding management. In ERP software produced by Jindie software supplier, bidding management module hooks up the main project bidding process of construction enterprises and set up such sub-modules as opportunity management, bidding management, contract management, bidding cost management and bidding database management. C. Contract management module In the construction enterprise, contract management is throughout the whole process of project management and the business is directly or indirectly in accordance with the contract. The number and type of the contract in construction firms are various and huge. In general, contract management could be

divided into 3 levels. Level 1 is general contract. Level 2 is the subcontract. Level 3 is purchase contract, tenancy contract, etc. In ERP model produce by Renlun software supplier, contract management theme takes the project contracts as the main line and runs through all the subcontract, labor contract, purchase contract, tenancy contract and various receipt and expenditure, etc. Business starts from the contract review to contract execution, contract modification, contract payment and the final contract settlement of the whole process. In ERP model produced by Jindie software supplier, contract management can be concluded to the following aspects: contract conclusion, contents of the contract, subject of the contract, contract mark party, contract modification and claim, contract settlement and payment, the performance risk, contract termination and summary, etc. If the project is different, the contract will be different. The way of Jindie software supplier to meet various demands of clients is that in the same framework, different project applies the different standardized components to deal with these local differences. D. Sub-contract management module Sub-contract management is a common management pattern in construction project management, which is concerned with how the construction organizations select subcontractors and manage subcontracted work. Sub-contract management is always divided into three kinds, namely labor sub-contract, construction sub-contract, mechanical construction sub-contract. In the whole process of sub-contract management, subcontract activities need to be coordinated with cost, contract, bidding, material management and other business. The cost estimating of sub-project should be controlled by the whole project budget. If sub-work packages need to go through the bidding process, construction companies will use bidding management platform. After the sub-contract is done, contract management will be followed. The settlement of sub-contract also should be related with material and on-site management. E. Modification management module Construction projects have single piece, complexity, oneoff features. Moreover, its long-time duration makes projects easily affected by various objective or subjective uncertain factors. Therefore, modification in construction project is inevitable. The reason that lead to modification of project could lie in the engineering decision-making, project design and implementation stages, Which might be final outbreak in the project implementation stage. Hence, it is particularly important to make project modification under control. In ERP model produced by Jindie software supplier, modification management could be classified in construction modification, construction plan changes, time delay, resource price changes, construction management mode modification (contract mode), and quality standards change and so on.

IV.

THE CHALLENGES OF ERP IN CONSTRUCTION INDUSTRY

As mentioned above, although there are many advantages to implement ERP systems in construction enterprises, only a few of them really apply such systems due to the expenditure of resources, adaptability of system, risks. Apart from these reasons, other challenges of the implementation of ERP in construction industry will be illustrated as below: A. Security of ERP system As files, information or transactions in construction organizations will be flowed between different sections via ERP system, there will be some potential threats identified by Ma Xiao long [6]. For instance, ERP system might be infected by Trojan horse and viruses; IP address revealed by file transfers makes it easy for hackers to attack computer systems, etc. In order to reduce the negative effects from security issues, some solutions might be taken. Firstly, many organizations apply user name and password to secure who are entitled to access organizational network and that different scope of information will be allocated to different users [7]. Secondly, as safety risk might be largely from the data transfer in wide area network, technology of secure socket layer with encryption transmission, firewall and virtual private network could be used to guarantee the safety of ERP system. In addition, important information and data should be encrypted as well. Thirdly, backup plan also need to be created for dealing with any information security problems. Necessary training with regard to security of organizations computer systems needs to be conducted as well [7]. Last but not the least, it will be extremely necessary to track any change of data and information of project, which include who, where, when, why and how change such information in ERP system [6]. B. Traditional Culture When new methods or technologies are introduced, traditional culture is likely to be a hurdle in some situations. ERP system generally requires decentralized informationsharing among the whole organization; especially the grassroots level managers have the opportunity to use more information for decision-making. Therefore, the structure of the organization with flat and horizontal communication is strongly recommended. However, there is high power distance, centralization, high uncertainty avoidance in construction industry culture in china, which results in such situation that managers are reluctant to empower and the subordinates are not willing to take the risks to make decision. In addition, many construction enterprises in china are not used to encode all the information and to standardize all business processes. ERP system requires following strict rules and procedures of process, which might not be in accordance with experience-based decision-making and man-based management model in construction culture. [4] Many writers and practitioners such as Liu Jingdong and Liu Qiang [5] have recognized the significance of cultural changes which contribute to the success of application of ERP. The following factors are critical for the successful evolution to ERP: senior management support; ease of use of application;

clearly communicating ERP application to employees and managers; pilot testing before application rollout. C. Technology and skills of employees If construction enterprises wish to apply ERP system, enough computers, Internet environment should be available so that the information could be put in the internet or intranet in order to be shared in the organizations. Owing to the important role of technologies in the implementation of ERP, employees should have the knowledge and skills of computer and internet to complete their tasks. Employees without necessary computer and internet skills perhaps refuse to use ERP systems. Consequently, proper training programs for computer and internet skills also need to be arranged to increase the ability of employees in construction organization to access ERP systems. [6] CONCLUSION Nowadays, members of the construction industry are facing enormous challenges as they are beset with issues such as higher prices for materials and lower demand for new projects. In order to stay competitive, companies have seen the advantages of organizing business functions in central ERP software. There is no doubt but that ERP software should design specifically for the construction industry, even specific single construction enterprises. The design of ERP for construction industry thus takes into account functional areas such as Project Monitoring and Control, Tendering, Purchase and Supplier Management, Onsite Engineers Portal, Material Management, Labor and Contractors Management, Accounts Management, and Human Resource Management. In this paper, only cost estimating management module, bidding management module, contract management module, sub-contract management module, modification management modules are analyzed in detail. So far ERP system seems perfect. However, there are many challenges appeared in the implementation of ERP in construction industry such as security of ERP system, traditional culture, technology and skills, etc. Nevertheless, proper training, comprehensive communication and the application of data security management probably could make these challenges become opportunities. REFERENCES
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