KARELIA TOBACCO-UNIVERSITY OF GRONINGEN
WMS Implementation
The development of a framework to ensure the
success of the WMS implementation
Ioanna Karelia 18/6/2011
Author
Ioanna Karelia
Student Number: S2053861 E-mail: ioannakarelia@gmail.com
34 Markou Botsari, Filothei 15237, Athens
Greece
Karelia Tobacco
Supervisor: Asimina Spyropoulou Board of Directors
E-mail: ikarelia@karelia.gr
Athinon Street 241 00, Kalamata Greece
University of Groningen- Faculty of Economics and Business (FEB)
Master: Operations and Supply Chains Supervisor: Dr. J. C. (Hans) Wortmann E-mail: j.c.wortmann@rug.nl
Co-assessor: Dr. Tudor D. Bodea E-mail: t.d.bodea@rug.nl
Netelbosje 2
Preface
This master thesis is the outcome of a five month research project I carried out at Karelia Tobacco. The project began in February 2011 and ended in June 2011. During that time period I had the chance to develop a framework to ensure the success of the Warehouse Management System implementation at Karelia Tobacco. This master thesis completes the master in Operations and Supply Chains.
The research project and the master thesis came to an end with the help of people, without whom I would not have achieved their completion. As a result, this preface is an opportunity for me to thank all the people who provided me with significant help in order to complete the project.
I would like to thank Karelia Tobacco and its employees for their help throughout this project. They were very supportive and ready to answer all my questions. I would like to thank especially Asimina Spyropoulou from the board of directors and Athanasios Gosdas, the logistics manager, for providing me with the direction and data required. Furthermore, I would like to thank the university supervisor and co-assessor, Dr. J. C. Wortmann and Dr. Tudor D. Bodea, respectively, for their assistance and direction throughout this research. Both were very supportive by monitoring my progress and providing me with feedback.
This research project and the writing of the master thesis was an important opportunity for me to link the theoretical knowledge I gained during my studies to practice in a real world environment.
Please enjoy the outcome of my five month research. Ioanna Karelia
Management Summary
Table of Contents
Chapter 1. Introduction ... 1
Chapter 2. The organization of Karelia Tobacco ... 2
2.1. The history of Karelia Tobacco ... 2
2.2. Current state and structure of Karelia Tobacco ... 3
2.3. Products ... 4
2.4. Summary ... 7
Chapter 3. The research project ... 8
3.1. Motive ... 8
3.2. Problematic situation ... 9
3.3. The research objective and the expected framework and results ... 13
3.4. Summary ... 15
Chapter 4. Theoretical Background ... 17
4.1. Warehousing and WMS ... 17
4.2. Information systems implementation and critical success factors ... 18
4.3. Summary ... 24
Chapter 5. Methodology ... 25
5.1. Case study research ... 25
5.2. A multi-method strategy for critical success factors research ... 28
5.3. Summary ... 30
Chapter 6. Design of framework and discussion ... 31
6.1. Preliminary framework ... 31
6.2. Description of taxonomies ... 33
6.3. The final framework ... 38
6.4. Discussion ... 40
Chapter 7. Conclusion ... 44
7.1. Overview and contribution... 44
7.2. Further research recommendations ... 45
Chapter 8. References ... 46
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Chapter 1.
Introduction
The aim of this paper is to present the outcome of my master thesis project that was undertaken at Karelia Tobacco between February 2011 and June 2011. The ultimate goal of the research project was to develop a framework to ensure the success of the implementation of the Warehouse Management System (WMS) in the non tobacco materials warehouse of the company.
The current chapter provides an overview of what is going to follow. Seven more chapters will follow until we reach the end of this paper. The following chapters are depicted below.
In chapter two, the organization of Karelia Tobacco will be described. We will go through the history of the company, its current state and structure as well as its products. As a result, an insight of the setting in which this research project was carried out will be developed.
In chapter three, the motive of this research project will be explained. This way the practical relevance of the development of the framework mentioned above will become more clear. Moreover, the problem that the company is facing will be stated and described to understand the reasoning that is behind our objective and formulate the research question.
In chapter four, the theoretical background will be presented. Relevant theories that have been developed over the years will be depicted through literature review. The theoretical background will assist in conceptualizing the main research question as well as the sub questions.
In chapter five, the methodology that was used will be explained. More specifically, this chapter will explain the way the relevant literature was collected, why it was collected and in what way it was used in the research. Moreover, the limitations of the methods used will be discussed to determine the degree to which the outcomes are valid.
In chapter six, the findings from the literature review will be combined to design the framework in question. As a result, a clear argumentation about the selection of the specific elements of the framework will made and the elements will be described. The final results will also be presented. Moreover, the view of the company on these results will be discussed.
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Chapter 2.
The organization of Karelia Tobacco
In this chapter, the organization of Karelia Tobacco will be described. We will go through the history of the company, its current state and structure as well as its products. As a result, an insight of the setting in which this research project was carried out will be developed.
2.1.
The history of Karelia Tobacco
Karelia Tobacco was founded in 1888 by George and Stathis Karelias. It started as a small tobacco company, located in Kalamata in the south of Greece. In the beginning the company was operating only regionally. Later on however, Greece’s economic and political situation stabilized in relations to the second world war years, allowing the company, starting in the 1950’s, to expand its market throughout Greece.
In 1971 Karelia Tobacco moved to different premises but still within the city of Kalamata. It is the same premises that are used today, having been used
ever since as the
headquarters. Moreover, the sales and marketing moved to Athens.
Figure 1. The headquarters of Karelia Tobacco (www.kalamata.gr)
The company was listed on the Stock Exchange of Athens in 1976. RJ Reynolds, currently being part of Japan Tobacco International, provided the company to manufacture and distribute the Winston brand throughout Greece. The Camel brand followed shortly after.
In the 1990’s Karelia Tobacco internationalized its operations and expanded its market share globally. Its Bulgarian office in Sofia opened and Meridian duty free specialists was acquired. In 2000, the company’s joint business with Japan Tobacco International, JTI, came to an end.
2003 was the year in which Karelia Tobacco Company UK was formed in London to distribute the brands in the UK. Also, in 2008 Karelia Tütün ve Ticaret A.S. was founded and entered the Turkish duty free market and Karelia Tobacco bought the Backwoods cigar brand from Altadis S.A. for manufacturing and distribution in the Greek market.
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2.2.
Current state and structure of Karelia Tobacco
Karelia Tobacco is now the largest Greek cigarette producer with a history of more than 120 years. Its products are being sold in more than 65 countries. In 2009 sales reached 12,9 billion cigarettes with a turnover of 504 million Euros. The company’s capacity consists of state of the art production technology and employees. Its technology allows it to produce 16,000 cigarettes/minute whereas, its well trained employees are 459. (http://www.karelia.gr/english/karelia.html)
The headquarters of the company are still in Kalamata and the subsidiaries that were formed in Bulgaria, UK, Turkey still exist. Meridian duty free specialists, the shipchandling company, is currently in operation.
The company is now focused more on the export market. Almost 77% of total production is sold in the export market. In 2009, the annual sales in the export market reached 9.92 billion. More specifically, EU exports rose by 28%. However, in the non-EU countries the company is facing obstacles due to the countries’ fiscal problems, raises in excise taxes as well as devaluations of their currencies. In the Eastern European market, sales volumes decreased for the same reasons and consumers shifted to cheaper brands. The only exception was Georgia. Moreover, in Middle East and the Persian Gulf regions the results were mixed. In Africa the conditions were not favorable either. However, prices were reduced to obtain larger sales volumes and shipment costs were reduced as well so margins improved. Lastly, in Far East the growth was double digit.
Due to the company’s focus on brand innovation and efficiency, investments of about 2 million Euros were made on acquiring and installing new machines for the production of cigarettes. For 2010 such investments have been estimated to reach 4.8 million Euros. As a result, costs will be reduced and production will be faster. (Karelia Tobacco Annual Report, 2009)
Figure 2. Production Facilities of Karelia Tobacco (Karelia Tobacco Annual Report, 2009)
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direct communication between the employees and the board. Both the CEO and the General Manager are members of the board so these three blocks could be considered as one. One of the principles of the board has been to care about the employees so the firm is unionized to allow for a better communication between the employees and the board of directors.
The structure of the company is illustrated in the organogram below. This organogram was developed after consulting the internal audit manager. The department in which this research project was performed is the non tobacco related materials warehouse, which has been highlighted in green. More information about this department can be found in chapter three.
Figure 3. Karelia Tobacco Organogram
2.3.
Products
Karelia Tobacco has three lines of products, cigarettes, roll your own tobacco (RYO) and cigars. Its core line however, is cigarettes. We will first briefly cover the smaller lines of RYO and cigars and then focus more on cigarettes.
The reason for which the company has entered the RYO market with the George Karelias and Sons RYO is that it is growing again. When the economic crisis started in 2007-2008, consumers started looking for cheaper smoking. The answer to their need was RYO. It is value for money since they can smoke more by paying less. According to the tobacco manager, a 25gr pouch can produce about 33 cigarettes and currently Karelia’s price for that pouch is 3.80 Euros. Comparing that with the
Board of Directors CEO General Manager Company Secretary Internal Audit Marketing Sales Exports
Finance HR IT Production Technical Tobacco
Legal Investor Relations
Communi-cation
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equivalent cigarette pack, for example the George Karelias and Sons shoulder box pack, it is obvious that it is cheaper. The shoulder box pack is priced at the same level but contains only 20 cigarettes, 13 sticks less than those than can be produced from a RYO pouch. Another attribute that has significantly contributed the growth of this market is that rolling your own cigarette is seen as a ritual that fulfils the consumer. Moreover, nowadays, personal cigarette rolling machines are available so the whole process of rolling your own cigarette has become simpler and faster. The raw materials needed for RYO are not many. Only four raw materials are needed, tobacco, adhesives, printed pouch blanks and tipping stickers. Tobacco is finely cut and blended according to the Karelia recipe, placed into pouches that should contain 25gr of tobacco, the pouch is then sealed to ensure stable humidity and the sticker is placed on the tip for use once the pouch is unsealed by the smoker. The cigarette paper is bought by the smoker separately since it is the product of other companies that specialize in that market.
Figure 4. George Karelias and Sons RYO (www.karelia.gr)
6 Figure 5. Backwoods cigars (altadisusadomesticcigars.com)
As we mentioned earlier, cigarettes are the main business of Karelia Tobacco. Their types vary from king size, slims, super slims, menthol, shoulder box cigarettes, filtered to non filtered. The ingredients vary according to the flavor requirements of each type. Slims and super slims have the longest length of 97mm and the filtered shoulder box cigarettes the shortest length of 79mm. The blend depends on the recipe of the company, the tobacco blends that are usually used are Virginia, Burley, Fire cured, Air cured, Sun cured and Oriental. (www.karelia.gr) According to the Tobacco manager, Virginia is blond and has a light flavor, Burley is darker and stronger and the remaining four blends are very dark, strong and are usually used in small quantities to spice up the flavor and make the cigarette heavier.
Figure 6. Cigarette parts (www.bat.com)
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paper and adhesives. It is not the same for all cigarettes so it can be adjusted. The difference lies on its porosity, which refers to the quantity of air that can pass through the paper. The higher the porosity, the higher the quantity of air passing through the paper so the lighter the flavor becomes and the lower the yield due to the dilution of the constituents of smoke. The tipping paper has the same properties. The design of the filters can be very complex and adjusted. The length, density, fibers and material can be adjusted and affect the yields of smoke and of course, the taste. Moreover, the ventilation of the filter is very important. The higher the ventilation, the lower the smoke yields because the smoke that is being produced in each puff is less. The filter rod is made out of cellulose acetate tow that stems from wood pulp fibers. Sometimes charcoal is added to the filter to increase the filters absorption rate of smoke yields. (www.bat.com)
2.4.
Summary
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Chapter 3.
The research project
In this chapter the motive of this research project will be explained. This will be derived from an interview with the logistics manager. Moreover, the problem that the company is facing will be stated and described to understand the reasoning behind our objective and formulate the research question. This will be done by developing process maps through which the non value adding activities will be depicted. Finally, the framework that we expect to develop will be discussed.
An open interview was conducted with the logistics manager that lasted 30 minutes. During this interview, the logistics manager explained what triggered the company’s decision for this project, the problems the company is facing in the non tobacco warehouse, possible solutions for these problems and his view on the contribution of the development of the framework in question.
3.1.
Motive
The trigger for this research project is the desire of the company to reduce its costs due to the unfavorable market conditions in both the Greek and export markets. “Things don’t look good in our markets” the logistics manager said. In 2010 in the Greek market, the Greek government increased the excise tax three consecutive times and the VAT two consecutive times. These actions have increased the revenues per brand by about 8%-18%, however, the increase is due to price increases and not increases in sales. Sales have actually decreased significantly due to the economic crisis that Greece is facing, the increases in retail prices and the banning of smoking in public places. So far the reduction in sales seems to be around 13% and further reductions are expected. As the logistics manager said “sales are expected to continue reducing at the same rate during the rest of the year”. Moreover, due to the high risk of default in Greece, the company has diversified its deposits by shifting most of them abroad in more sound economic environments. However, interest rates abroad are lower than the relatively high rates of Greek banks so the income of the company stemming from interest rates will be reduced as well.
As far as the export markets are concerned, which are the main focus of the company, the situation does not look better. “Even though in the beginning of the current year
business seemed to be picking up, now the future seems to be more cloudy”. The main
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increase in the expected profits for 2010 is not sustainable. As a result, the company wants to decrease its costs and this is the trigger for this research project.
3.2.
Problematic situation
The logistics manager believes that one way to reduce costs is to improve the operations in the non tobacco warehouse. The warehouse in question is a manual warehouse with a picker to product system. Its size in square meters is 9.663. There is no automation and the picker reaches the product requested by riding a vehicle. The vehicles used are 3 reach trucks for man aboard horizontal and vertical storage and picking as well as 2 hand pallet trucks for horizontal storage and picking. The warehouse is run by 5 indirect personnel and 9 direct personnel. The indirect personnel consists of the logistics manager, a warehouse manager and office workers. The direct personnel consists of reach truck drivers, hand pallet truck drivers and warehouse workers.
Currently, the raw materials are received palletized from the suppliers and during storage they are stacked on racks. There are no shelves in the warehouse. Storage allocation and picking are completely manual processes that rely on the experience and limited memory of the employees. A possible mistaken decision of the employees could result in underutilization of the available space and high travel times in order to find a storage location and store the material or carry out picking. “The processes in the non tobacco warehouse are labour intensive and time ineffective.” The above mentioned arguments on this very traditional warehouse are in line with the arguments of Hou J. et al. (2010), who argue that the traditional approach for storage management is both inconsistent and complicated.
In labour intensive warehouses, picking is the most costly process. The preliminary literature review showed that 65% of all operating expenses of a labour intensive warehouse are due to picking processes (Gademann N. and Van de Velde S., 2005; Anon, 1990; Tompkins J. et al., 2003). According to the logistics manager, “The most inefficient processes are those of storage location assignment and picking. Of course, picking is influenced by the storage location assignment process. So, the latter seems to be the main problem.” As a result, the two processes on which we are going to focus are storage location assignment and picking. Since the non tobacco warehouse is labour intensive, the storage location assignment and picking processes contain non value adding activities. Consequently, the aim of the company is to eliminate these non value adding activities to improve the operations mentioned above in order to reduce costs.
The logistics manager said that “the company has already taken measures to improve
the physical infrastructure of the warehouse”. Blueprints of the proposed
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two sides. Bulk raw materials will be stored on drive in shelves on one side and non bulk raw materials will be stored on back to back shelves on the other side. This way, specific storage locations will be formed in contrast to the current layout, where the warehouse workers store the raw materials wherever they find space and then they run the risk of not remembering where they have stored them. The blueprint of the new infrastructure can be found in the appendix (Figure 1).
At this point we should create a table summarizing the types of raw materials stored in the non tobacco warehouse, the sizes of their pallets as well as the number of pallets of each type of raw materials received within a year. This illustration gives us an indication of the type and volume of raw materials received in a year. The data required was obtained from the materials management module of SAP R/3 of the company and the number of code numbers for the non tobacco materials that was found is 1.326. The table can be found below.
Raw Materials Pallet Dimensions Number of pallets received 01/01/2010-31/12/2010
Blanks 120Χ100Χ135 1.300 Blanks 120Χ80Χ110 4.000 Shoulder Boxes 120Χ80Χ110 2.400 Cigarette Paper 115Χ115Χ175 450 Tippings 120Χ100Χ115 490 Tow 120Χ100Χ110 1.900 Glycerin, Propylamine 115Χ115Χ102 345 Tin Foils 120Χ80Χ130 650 Glue 120Χ80Χ112 240 Boxes 120(135)Χ80Χ115 5.300 Polypropylamine 120Χ100Χ110 750 Plastic Films 120Χ80Χ110 70 Triplex 120Χ60Χ105 1.270 Filters 135Χ77Χ100 100 Filter Papers 115Χ115Χ175 205 Filter Papers 80(120)Χ80(120)Χ120 108 Tear Tapes 120Χ100Χ145 45
Figure 7. Raw materials data (SAP/R3)
11 Figure 8. Stock per day 2010, setting day 1 as January 1st 2010 (SAP R/3)
In the graph above, one can see the number of pallets, on which non tobacco materials are stored measured in days. The average number of pallets for the year 2010 is 11,241, the maximum is 13,042 and the minimum is 9,162. Moreover, more pallets are stored in the warehouse in the second half of the year compared to the first half. This occurs because during the summer period, when the consumption rate of cigarettes is high, the retailers and wholesalers want to restock so more orders are received during that time period. As a result, a higher level of stock is needed to ensure that the orders will be fulfilled on time. Furthermore, the average throughput time per pallet seems to be quite high, a bit more than half a year. Although, logistics control is not the focus of this research project, it should be noted that better logistics control could mean less stock in hand, smaller space needed and thus, lower travelling times within the warehouse and avoidance of duplicated actions.
We should now move on to the mapping of the processes of storage location assignment and picking and determine the non value adding activities. During the month of February 2011, observations of these processes were carried out. The information collected has been used to develop the process maps in question. The process maps were developed with Bizagi software and the language BPMN 2.0 was used. The process maps as well as the descriptions of the processes can be found in the appendix (Figure 2 and 3, List 1 and 2).
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receiving and well as physical materials handling, are out of the scope of this project so they were not included in the process maps. The Bizagi software was selected because it is freeware and uses Business Process Modeling Notation (BPMN), which has become the standard language for business process mapping. (Owen and Raj, 2003) “A BPMN model is composed of a set of BPMN processes which are related to each other via subprocess invocation activities or message flows.” (Dijkman et al., 2008) For more information about business process mapping and BPMN, the reader is referred to Dijkman et al. (2008) and Owen and Raj (2003). Moreover, a BPMN poster with all the notations can be found in the appendix.
In both process maps the non value adding activities have been highlighted in red. All the tasks that are not performed by using the trucks are completely manual. As a result, they are time consuming. Moreover, the non value adding activities could become automated. Activities such as the location of available storage location or the already stored material and the requests of the warehouse worker to the drivers would be completely eliminated resulting in leaner processes, time effective activities and fewer mistakes. To have an indication of the time needed to perform the activities in the non tobacco warehouse, the logistics manager provided time and personnel data he had collected. According to his data, storage currently requires 8 hours/day x 1 direct personnel to store the pallets and 4 hours/day x 2 indirect personnel to carry out the administrative work related to storage. Moreover, picking currently requires 2 hours/day x 1 direct personnel for all the tasks that involve the replenishment list, 5 hours/day x 1 direct personnel to transport the pallets to the picking area and cross check that the correct pallets were picked, 6 hours/day x 3 direct personnel to transport the pallets from the picking area to production and 6 hours/day x (3 direct +1 indirect personnel) for repeated tasks when the cross checking reveals mistakes and to perform the administrative work required. This data reflects the time and personnel needed for tasks that are not as detailed as the ones used for the process maps. Therefore, it should be used only as a rough indication. Karelia Tobacco could also benefit from a possible reduction in the workforce of the warehouse or else, the relocation of the not needed workers to other positions, where they would be more needed. The end result, would be the reduction in costs, which is exactly what Karelia Tobacco wants.
Karelia Tobacco has found a way to automate its storage location assignment and picking processes. “We want to convert our warehousing practices from being labour intensive to IT intensive by implementing SAP R/3 Warehouse Management system (WMS).” “WMS is an information system that provides support to inbound and outbound logistics.” (Barbosa and Musetti, 2010) We should note here that the company implemented SAP R/3 in 2004, bought the license for WMS but never implemented the module or used it. “This way we would be able to eliminate the non
value adding activities”. According to literature, WMS would improve warehousing
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allocation could reduce travel times both for storage location assignment and picking. (Van den Berg and Zijm, 1999) WMS could also improve the quality and flow of information and materials as well as lead times since paperwork is eliminated (Barbosa and Musetti, 2010). An indication of the quantifiable cost benefits associated with the implementation of WMS can be found in the appendix (Table 1). It was found that in the year of the implementation the operating cost of the warehouse would be reduced to 588.576 Euros from 597.394 Euros whereas, in the next year it would be reduced to 525.079.
3.3.
The research objective and the expected framework
and results
Based on the interview I had with the logistics manager of Karelia Tobacco and the analysis of the problematic situation in the storage location assignment and picking processes, the objective of this research project is the following:
“The development of a framework to ensure the success of the Warehouse Management System (WMS) implementation”
At this point we should also formulate our research question, which is the following: “How can the success of the Warehouse Management System (WMS) be ensured In
Karelia Tobacco?”
With this research project also, the following research sub-questions will be answered:
“How can WMS be implemented in Karelia Tobacco?”
“In what way will WMS implementation influence the storage location assignment and order picking processes of Karelia Tobacco?”
14 Figure 9. Conceptual Model
To explain this conceptual model, we will first cover the right part and move to the left. We have already covered the topics of storage location assignment and order picking. We have said that order picking accounts for the greatest proportion of operating costs in a manual warehouse and is influenced by the way storage location assignment is performed. Consequently, the more efficient storage location assignment is, the more efficient order picking becomes. Also, it is expected that WMS implementation will have a positive influence on both of these events. Last but not least, it is believed that critical success factors (CSFs), if taken into consideration during the implementation phase, will ensure the success of the WMS implementation.
Regarding the expected results, the framework should provide the firm with taxonomies of factors that if taken into consideration, would ensure the success of the implementation of WMS in the non tobacco warehouse. These taxonomies will act as a guideline for Karelia Tobacco to implement WMS. We should note here, that no academic papers on WMS implementation have been found so since WMS and ERP are both information systems we assume that they share similar properties and consequently, their implementation is influenced by similar dimensions.
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implementation in small and medium size companies (SMEs) that are located in developing countries (Ioannou and Papadoyiannis, 2004; Loh and Koh, 2004; Spathis and Constantinides, 2003, Koh et al., 2006). According to these authors, there are some differences between the way SMEs in developing countries and large firms in developed countries implement ERP systems. The main differences lie in the non-holistic thinking of the SMEs’ managers, the limited understanding of ERP systems and the fragmented ERP adoption. On the other hand, the triggers were quite similar. As a result, the factors that will be retrieved from the literature focused on large firms in developed countries will be relevant for Karelia Tobacco. However, they should be used with caution by tailoring them to the Greek culture, economy, social and political environment. Also, in the framework, the factors retrieved from the literature on SMEs in developing countries although limited will be assigned greater weight due to their higher relevance to Karelia Tobacco.
The framework should also rank the factors based on the frequency of their appearance in literature. Based on the ranking of the factors, it should then, rank the taxonomies. The taxonomies that will contain factors that are higher ranked on the list, will be considered more important and placed on the top of the list.
Now that we have explained the ranking of the factors and their taxonomies, we should note that the factors retrieved from the literature on SMEs in developing countries will be assigned greater weight by automatically qualifying them for the top positions on the list.
Moreover, it is also important to determine the scope of the framework. Numerous critical success factors could be found through the literature review however, somehow we need to limit them. The company prefers to consider critical success factors that are more recent so only literature that was published after and including 2000 will be considered. Furthermore, the company is interested in the implementation phase only so the critical success factors found should be focused on that phase.
This framework will enhance the capabilities of Karelia Tobacco by providing it with a systematic approach to deal successfully with the implementation of WMS. The framework is very important to the company because even though the company has acquired some experience from the SAP R/3 implementation, it does not have a planning department and project management officers and is not experienced with WMS and warehousing since this is not the core activity of the firm.
3.4.
Summary
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Chapter 4.
Theoretical Background
In this chapter a literature review will be performed and the relevant theories that have been developed over the years will be presented. The theoretical background will assist in conceptualizing the main research question as well as the sub questions. We will briefly cover the topics of warehousing and WMS since by elaborating on the warehousing inefficiencies of Karelia Tobacco and on their plans of action to deal with these inefficiencies, we have formed a relatively clear picture about the theory behind these topics. Later on, we will focus on information systems implementation and its combination with critical success factors to ensure the success of the implementation. The chapter will be concluded by summarizing the main points covered.
4.1.
Warehousing and WMS
“Warehousing involves all movement of goods, namely: receiving, storage, order picking, accumulation and sorting and shipping.” (Van den Berg, 1999) When a raw material arrives in the non tobacco warehouse, receiving is the first process it encounters. In the process of storage, items are assigned a storage location and are stored there. In the order picking process, when production places orders for raw materials, the requested stock keeping units are retrieved from their locations in batches then, accumulated, sorted based on the orders and shipped to the production department. (Shiau and Lee, 2010)
Since Karelia Tobacco has decided to implement the warehouse management system of SAP, it would be useful to focus on SAP WMS in this section. “The SAP warehouse management application provides flexible, automated support to assist in processing all goods movements and in maintaining current stock inventories in a warehousing complex” (Prospecta, 2008).WMS allows companies to define and manage their warehouses, optimize their material flows through storage and picking techniques and process fast and in an easy way administrative work such as goods receipts and issues and transfers of stock. Moreover, with SAP WMS, one can trace a particular material to its location in the warehouse. (Prospecta, 2008)
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picking and transport of the materials required to the production department, which also triggers a change in the status of the materials in the WMS. (Prospecta, 2008) To sum up, SAP WMS is associated with several benefits ranging from optimizing storage locations and material flows to being fully integrated into SAP R/3. What is more, it leaves room for a potential greater degree of automation in the sense that it supports the use of RFID technology. (Prospecta, 2008)
4.2.
Information systems implementation and critical
success factors
Time has shown that during the implementation phase of information systems projects, companies experience significant problems. As a result, such projects run late or exceed their planned budget but in some cases they also fail and lead to legal proceedings. As a consequence, academic researchers have investigated implementation problems and proposed critical success factors. (Parr and Shanks, 2000)
Before we review some of the implementation models, we should first explain the different phases that exist. Firstly, implementation assumes that a company has already indentified, defined, mapped and evaluated in great detail the processes in question. This is what is known as planning. After the completion of planning, a project team is formed and participates in the remaining phases. Implementation does not just imply the installation of the information system but is considered as a business project. Once the system has been implemented and is live and running, a review, called the post-implementation review, might be performed and the system is stabilized if review reveals faults since the faults are taken care of. (Parr and Shanks, 2000)
A summary of the phases found in the literature can be found in the figure below.
Phase Bancroft et al. (1998) Ross (1998) Markus and Tanis (1999) Parr and Shanks (2000)
1 Focus Design phase Chartering Planning
2 As is Implementation Project Project
3 To be Stabilization Onwards Enhancement
4 Construction and testing Continuous improvement Upwards 5 Actual implementation Transformation
Author
Figure 10. Summary of phases
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acceptance of the users is performed, leading to the creation of a prototype through receiving continuously feedback from the users. The to be phase is followed by the construction and testing phase, where the system is configured, real data is used, the interfaces are built and tested, the same applies for reporting and the system is tested by the users. The last phase is actual implementation, where networks are built, hardware is installed and users are trained and supported. (Bancroft et al., 1998) In the same year, Ross developed another model. It also contained five phases. The first phase was the design phase, which involved the planning required, where a plan and its guidelines regarding the implementation are created. The implementation phase is similar to the phases of as is to actual implementation of Bancroft et al. (1998). Right after implementation, any problems related to the system are solved. This is known as stabilization. Afterwards, the efforts for improvement is continuous. Lastly, transformation is required to maximize the flexibility of the system. (Ross, 1998)
In 1999, Markus and Tanis developed an implementation model that consisted of four stages. The first phase is chartering, which combines the focus phase of Bancroft et al. (1998) and the design phase of Ross (1998). Also, the information system package and project manager are selected and the schedule and budget are determined and approved. The second phase is the project phase, which combines the project phase of Ross (1998) and all the phases of Bancroft et al (1998) after the as is phase. The last phase is the onwards and upwards phase, which reflects the continuous improvement and stabilization phases of Ross (1998). (Markus and Tanis, 1999)
The three models that have been depicted above do not relate critical success factors to their phases. However, there is a need for a better understanding of the process of implementation. As a result, a guideline to ensure the success of implementation projects is needed. For this purpose, Parr and Shanks (2000) developed a project phased model that focuses on the distinct phases of the implementation project and associates each phase with relevant critical success factors. Consequently, managers could be guided when planning information systems implementation projects. This model has taken into consideration the already existing models in the sense that the planning and post-implementation phases are recognized although, the main focus is implementation and the critical success factors that accompany its phases.
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As we have already mentioned, the focus of this model is the implementation itself. As a result, the project phase consists of five sub-phases. The first sub-phase is the set up phase, where the team members of the project team or teams are picked based on their technical skills and business expertise, in case there are multiple teams they integrate, a specific form of reporting is established and guidelines take place. Then, there is the re-engineering sub-phase, where the business processes that currently exist are analysed to decide on the degree of business process re-engineering required, the information system is installed, the business processes are reflected on the functions of the system and the members of the project team or teams are trained. Following that is the design sub-phase, which consists of broad and detailed design based on the acceptance of the users as well as prototyping through continuous interactions with the users. In configuration and testing the system is configured if needed, real data is used, the interfaces are built and tested, the same applies for reporting and the system is tested by the users. The last sub-phase is installation, where the networks are built, hardware is installed and users are trained and supported.
Parr and Shanks (2000) have augmented the phases of their model with critical success factors, defined as “those few critical areas where things must go right for the business to flourish” (Rockhart, 1979). Their reasoning is that critical success factors could act as guidelines for managers in planning and monitoring information systems implementation.
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Going back to Parr and Shanks, an illustration of the project phased model of Parr and Shanks (2000) can be found below:
Figure 11. The PPM model of Parr and Shanks (2000)
Karelia Tobacco had a preliminary conversation with a consultant for the WMS implementation project. Based on this conversation, the phases of the project seem to be similar to those of the implementation phase of Parr and Shanks (2000). These phases can be found in the table below:
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What can be seen from this figure is that each of the project phases corresponds to each of the project sub-phases of the project phase of the Parr and Shanks (2000) model and the duration of the implementation project is estimated to be between four and five months. As a result, the project phased model of Parr and Shanks (2000) could be very useful for the company. Not only does it indentify the same sub-phases for the project but also the existence of planning and enhancement as well as the need to augment the phases with critical success factors. An indication on how the company could adapt the Parr and Shanks (2000) model is illustrated below:
Figure 13. Parr and Shanks (2000) model adapted to Karelia Tobacco
23 Figure 14. Actions per party per sub-phase
Sub-phase Cconsultant Company Actions
1 Χ Preparation of work space Χ Equipment for system development Χ Project map
Χ Project organisation Χ Detailed timetable
Χ Agreement for prototyping and procedures 2 Χ Organisation structure
Χ Printed documents archiving Χ Finalisation of project planning
Χ Determination of development standards Χ Training of main users
3 Χ Basic parametarization Χ Design of go live Χ Improvements program X Χ Reporting program
X Χ User manual and training material Χ Parametarised development system Χ Determination standards
Χ Χ Testing plan Χ Χ Testing Χ Testing support
Χ Finalization trials and improvements 4 Χ Training of final users
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The project preparation phase refers to the preparation needed to organize the work required in order to implement WMS. This involves scheduling of the work, a working agreement, preparation of the work space and a kick off meeting. The business blueprint phase refers to the structuring of desirable processes that the WMS should cover. The requirements of Karelia Tobacco will be analysed and weight is given in understanding the goals of the company and its processes. The end result of this phase is the production of a business blueprint, which will be given to the project leaders for approval. The realization phase refers to the parameterization of the WMS and the development of interfaces, conversions, enhancements, reporting, lay out sets and authorizations, as determined in the previous phase. The final preparation phase refers to testing, user training, data transfer and determination of go live date. Finally, in the go live and support phase, the WMS goes live and starts operating in a real life environment, any problems that occur are solved and the users are supported by the consultant. However, we should note here that these phases are mere suggestions of the consultant and are not restricting the company in any way.
4.3.
Summary
In this section the theoretical background was presented. A literature review on the topics of warehousing, warehouse management systems and information systems implementation and critical success factors was performed and the finding were reported.
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Chapter 5.
Methodology
In this chapter, the methodology of this research project will be discussed. More specifically, the data collection methodology and the contribution of this data to the research project will be discussed. Moreover, the limitations of the methodology used will also be covered to determine the degree of validity of the outcomes. We will begin by discussing the use of case study research and how theory can be built and then, move on to the methodology for critical success factors research in information technology projects.
5.1.
Case study research
According to Benbasat (1984), what determines the research strategy selection are the goals of the researcher and the nature of the topic that is researched. When the problems are practice based, the actors’ experiences are significant and the context in which action is taking place is important, case study research is an appropriate research methodology to use. In our case, the project problem is practice based since it stems from a real company, the experiences of the company personalities that are involved in this project are significant and the context, which is the non tobacco materials warehouse of Karelia Tobacco is important. As a result, case study research seems to be an appropriate methodology.
Case study research has been defined by Benbasat et al. (1987) as “a case study that examines a phenomenon in its natural setting, employing multiple methods of data collection to gather information from one or a few entities (people, groups, or organizations). The boundaries of the phenomenon are not clearly evident at the outset of the research and no experimental control or manipulation is used.” It has also been defined by Eisenhardt (1989) as “a research strategy which focuses on understanding the dynamics present within single settings.”
Such a research strategy is very useful when studying information systems, such as WMS in our case. It provides the opportunity for the researcher to investigate WMS in a natural setting such as that of the warehouse, learn more about it and use practice to generate theories. The complexity of WMS implementation is also revealed through case study research. Last but not least, WMS implementation is a study area in which a limited number of previous studies has been performed. As we already mentioned in a previous section, most studies of this nature have been performed in large companies located in developed countries. (Benbasat et al., 1987)
When starting a case study research, setting a clear objective and stating it explicitly is very important. Research questions and sub-questions should be specified as well before the beginning of the study by the researcher and not by the participant company. In our case the research questions were developed by the researcher.
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materials warehouse, that of WMS implementation. Moreover, the kind of generalizations the researcher aims for are significant. In this project, the researcher is aiming for satisfying the request of the particular company and not for generalizing the findings. (Benbasat et al., 1987)
The next step is to select the site. In the single case studies, what determines the decision to perform a single case study, also determines the site selection decision. One factor to consider is the topic of the study. In our case, the topic was based on a project of the non tobacco materials warehouse of Karelia Tobacco therefore, the site was automatically selected. Since the project was formed by the company itself, there was no need to contact an appropriate company person for approval of the project. However, in case the opposite occurs, researchers should seek for approval of the project by the company and provide a detailed description of the project and budget needed and the research team that will be involved. Furthermore, in some cases the confidentiality of the information provided to the researcher should be guaranteed and the benefits that the project will bring to the company should be highlighted. In the case of Karelia Tobacco, the benefits include, learning more about the warehousing operations of the company as well as warehouse management systems and their implementation and impact on the operations of warehouses and last but not least, the satisfaction of having contributed to research. (Benbasat et al., 1987)
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these problems and his view on the contribution of the development of the framework in question. Also, data regarding the number of pallets received throughout 2010 and their dimensions were retrieved from SAP R/3 and graphically illustrated to better understand the requirements of the warehouse. During the same month, direct observations of the process of storage and picking were carried out, where notes about the tasks of the processes were made and used to map the processes of storage and picking allowing for a better understanding of them and the identification of the non value adding activities involved in these processes. The logistics manager also provided us with rough data on the time and personnel needed to perform each task. Based on the data collected, the research question and sub questions were developed and the conceptual model was illustrated. The data collected depend on the research questions set and the analysis unit. All the data collected here are used to answer the research questions and reflect what is happening in the unit of analysis that has been determined. During the conduct of research the data collection plan could change. (Benbasat et al., 1987)
During the next three months literature review on WMS, its implementation and the critical success factors related to its implementation was performed. However, this research step is explained in the next sub section of this chapter. Through the literature review, the implementation model of Parr and Shanks (2000) was selected because it was the only one dealing with both the implementation phases and critical success factors so it was believed that it was a more complete model. The logistics manager provided information about the possible WMS implementation phases at Karelia Tobacco and their timeline. They actually corresponded to the implementation phases of Parr and Shanks (2000), which was then adapted to the Karelia Tobacco implementation phases. Later on, the sub phases of these phases were shown in a table and further explained. The last month was used to provide an overview of the thesis, its contribution and limitations and recommendations for further research.
Eisenhardt (1989) has identified a number of advantages that case study research has. First of all, novel theory could be generated. The novelty in the theory that could be generated by this research is that it would refer to medium size companies located in a developing country in Europe. Secondly, the constructs used, could be readily measured. In our case the constructs used, critical success factors, WMS implementation, storage location assignment and picking, are readily measured. Last but not least, the theory produced quite often reflects reality. In this project, the theory that will be produced will indeed reflect reality since the project is based on a real company and most of the literature through which the critical success factors will be selected is based on real companies as well.
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particular research site. Moreover, they also identified the lack of several data collection methods that could be used for triangulation. The research methodology of this project has been mainly based on the research of Benbasat et al. (1987) therefore, it is believed that these disadvantages are not present in this project.
5.2.
A multi-method strategy for critical success factors
research
The approach of critical success factors has been around for more than thirty years and was first developed by Rockart (1979). Nowadays, this approach is very popular among information systems researchers, consultants and managers and is used as a support tool for information systems strategic planning (Esteves, 2004).When the outcome of an information systems project is affected by several factors and when the researcher aims at determining the most critical ones in order to construct recommendations, the critical success factors approach is very useful. It is essential however, to take into consideration the context in which the project is taking place and realize that the researcher’s recommendations serve as suggestions and not as guidelines that should be taken for granted. As a result, the approach in question is context based and subjective and not practical per se. Therefore, the outcomes should be used with caution.
The reason why this approach was picked is that it fully serves the purpose of this research project and its popularity raises the interest to discover it. Our research is context based since the contingencies of Karelia Tobacco and the warehousing characteristics have been considered. Moreover, the criticality of the factors is noted and the research for the factors is limited by the scope of the research project. Last but not least, the management of the company has been informed about the subjective manner of the results and using the results without caution is not an issue.
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which, according to Khandelwal and Ferguson (1999), “management is able to provide a constant focus until they are successfully achieved”.
Esteves (2004) has identified four phases in critical success factors research projects. The first one is state of the art, where literature review is performed to set solid grounds for the investigation of the critical success factors. The second one is critical success factors investigation, where literature review on critical success factors in information systems projects and interviews of different stakeholders are performed and the critical success factors framework is developed to determine the relevant factors and classify them into taxonomies. The third phase is the critical success factors relevance, where literature review on critical success factors rankings and quantitative analysis are carried out and the last phase is critical success factors management to effectively manage the determined factors. In our research, only the first two phases have been carried out since the remaining two are not part of the requirements of our project.
At this point we should present how the state of the art and the critical success factors phases were carried out in greater detail. We will begin with the state of the art phase since this is the first phase. Literature review on WMS implementation and warehousing was carried out through the database of ISI Web of Knowledge by considering academic articles and conference proceedings in English. To set a more solid ground for the critical success factors research, observations of the storage and picking processes in the non tobacco warehouse were performed and process maps using this input were created to identify the non value adding activities. Moreover, an interview was taken from the logistics manager to better understand the triggers of the WMS implementation project, the requirements of this research project and the expected results. The end outcome of the state of the art phase was to gain greater knowledge on WMS implementation and warehousing and understand the complexity of such projects.
In the critical success factors identification phase, additional literature on critical success factors for WMS implementation was looked for through ISI Web of Knowledge, as in the previous case. However, the returned literature was very limited so the research topic was replaced with critical success factors for ERP implementation since both topics refer to information systems projects that share similar requirements. After identifying the critical success factors in the literature by taking into consideration the scope of this project as indicated in the expected results section, their criticality was determined by considering their frequency of occurring and they were divided into taxonomies. Feedback was given by the project team later on, which was used to finalize our framework.
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accurately described. Secondly, transferability is also present since the outcome could be generalized to other companies that share the same contingencies as Karelia Tobacco. Last but not least, the multi method approach has stimulated the interest for further research.
On the other hand, cognitive bias might have influenced the conversations with the project team, the members of which might have been reluctant in uncovering the real situation in the warehouse however, since different data collection methods were used, it is believed that this bias has been eliminated.
5.3.
Summary
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Chapter 6.
Design of framework and discussion
In this chapter, the preliminary framework will be designed based on the data collected through the literature review. Moreover, the taxonomies created and their ranking will be discussed to obtain a better understanding of the success factors that are critical to the implementation of WMS. The preliminary framework will be reviewed and if needed, will be altered by the company so that the final framework will be presented. Any changes will be explained and justified. Furthermore, new process maps for the processes of storage and picking will be created to show what the improved situation would be after a successful WMS implementation and UML class diagrams will be used to show the business logic behind the improved processes.
6.1.
Preliminary framework
The critical success factors were spotted in the literature that was published after and including the year of 2000. Only those critical success factors that are focused on the implementation phase of an information systems project were selected. These factors were ranked based on their frequency of occurrence in the literature and divided into taxonomies. The higher the ranking of the factors is, the more important the taxonomy in which they are in is for the success of the implementation project. We should note that the factors referring to small and medium enterprises or enterprises that are located in Greece or other developing countries were assigned greater weight by considering them as having occurred twice instead of one time in order to double their frequency weight since they would be more relevant to the case of Karelia Tobacco, which is a medium enterprise in a developing country.
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Business plan and vision 14%
Business process reengineering and minimum customization 13% Team composition, competence and compensation 10%
Project management and evaluation 9%
User training and education 7%
Top management support and commitment 7%
Software analysis, testing and troubleshooting 6%
Change management programme 5%
Enterprise wide communication and cooperation 4%
Organizational culture 4%
Vendor support 4%
Use of consultant 4%
Careful selection of software 4%
System quality 4%
Appropriate business and IT legacy systems 3%
Project champion 1%
User involvement 1%
Figure 15. Dezdar and Sulaiman (2009) Frequency analysis of CSFs for ERP implementation used in literature (1999-2008) adapted for the years (2000-2011) for the project in question
As can be seen on this table the darker the colour of the taxonomies is, the more important for the success of the WMS implementation they seem to be. The top taxonomy scored a frequency of 14% while the last taxonomy scored a frequency of 1%. Therefore, it was decided to colour the taxonomies with frequency between 10%-14% with dark blue, those with frequency between 5%-9% with light blue and those with frequency between 1%-4% with an even lighter blue.
33 throughout the implementation phase on a continuous basis. The B taxonomies are important but not as important as the A taxonomies so the company should perform its checks less often for example once a month to ensure that it has complied with them. Finally, the C taxonomies are the least important, although absolutely needed since the project could fail without them, so they should be checked less frequently for example once every two months and not once every six months since the implementation time has been estimated to be five months. However, the taxonomy of careful selection of software can only be implemented once since changing the software after implementation would result in additional costs and lack of faith of the employees involved in the project .
6.2.
Description of taxonomies
Business plan and vision (A item)
A clear vision and detailed business plan are needed to direct the WMS project throughout its implementation phase. In order for the clear vision to be successful, it should be converted into something measureable and desirable targets should be set (Al-Mashari et al., 2003). Moreover, such a vision should be in line with the overall vision of the company, supported by managers and communicated throughout the organization so that it becomes shared (Umble et al., 2003). Such measures and targets could be part of a business plan. The business plan should include both tangible and intangible details. Some examples of such details are strategic and financial benefits, the risks and costs involved, the resources that will need to be utilized as well as a break-down of the time needed for the completion of the implementation and definitions of deliverables (Loh and Koh, 2004).
Business process reengineering and minimum customization (A item)
34 Team composition, competence and compensation (A item)
The WMS implementation team should consist of highly skilled people. They should be selected based on their past performance, reputation, flexibility and skills. The management of the company should be in constant communication with them but at the same time give them room for empowerment to make decisions rapidly. (Umble et al., 2003) The team members should be both company employees and consultants. This way, they can exchange their knowledge and learn from each other. The company employees can provide the consultants with a view of the company, the warehouse and its processes and its needs and the consultants can provide the company employees with technical knowledge. (Loh and Koh, 2004)
The team members should be working on the implementation project full time and set it as their top priority. Work should be done on site and meetings should take place on a regular basis to ensure the exchange of knowledge and a smooth execution of the implementation plan. (Loh and Koh, 2004)
Regarding the compensation of the team members, it should provide the team members with the incentive to successfully implement WMS on time and within budget. (Loh and Koh, 2004)
Project management and evaluation (B item)
The establishment of the scope of the WMS implementation should be performed and the project controlled. Decisions that need to be made have to do with the degree of business process reengineering needed, the number of users, allocation of the authority to make changes such as inventory status and so on. If any changes occur during the implementation phase, the benefits that will come with these changes should be evaluated. Deliverables should be short and achievable in order for success to become apparent early. The work completed and the budget spent should be checked on a regular basis and compared against the targets that have been set. (Loh and Koh, 2004) To sum up, the objectives of the project need to be defined, a work and resource plan need to be developed and the progress of the project should be tracked continuously. (Umble et al., 2003)
User training and education (B item)
35 a whole. Acquiring the knowledge of using WMS in such a short time might be difficult so the training of the users should be continued after the implementation phase. (Bingi et al., 1999) Consultants should play a key role in the training of the users since they are the ones who can transfer their expertise in WMS to the users. (Al-Mashari et al., 2003)
Top management support and commitment (B item)
Top management should approve the WMS project. In our case however, the WMS was initiated by top management so this is not an issue. To ensure the support of the project team and the users, top management needs to publicly characterize it as a top priority project. Moreover, they should be very committed to the project and not hesitate to provide the resources needed for it. (Loh and Koh, 2004) Their input when reengineering processes is valuable since their permission will be asked for so they need to be in the position to support such changes. Furthermore, if the project team is directed by a project champion, he or she should come from top management. (Umble et al., 2003) It is through the top management that the vision of the project will be determined and communicated throughout the company. Apart from playing a key role in visioning, resourcing and business process reengineering, top management also plays a key role in resolving conflicts, overcoming problems and encourage cooperation between the team members. In short, top management directs the whole implementation project (Al-Mashari et al., 2003) and is involved in every single sub-phase of the implementation project (Bingi et al., 1999).
Software analysis, testing and troubleshooting (B item)
The architecture of the WMS should be developed to consider the implementation requirements and avoid reconfiguration in every sub-phase of the implementation as much as possible. The software needs to be tested before going live to ensure that data was migrated correctly and the functionality is the desired one. Moreover, troubleshooting should be taken care of by working closely with the vendor or consultant. Responses to problems should be quick and when it is difficult to resolve them patience is needed (Loh and Koh, 2004).
Change management program (B item)
