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Justify EMS expenditure; push-pull SCM

Short answer

ERP costs are justified by tangible savings (lower inventory, fewer staff) and intangible benefits; a distributor recovered NPR 20 million in three years by cutting inventory 20% and reducing order time from three to one day. In SCM push-pull view, push produces on forecast, pull on actual customer orders, with a boundary in between.

How can you justify the huge expenditures on an implementation of Enterprise Management Systems? Explain with practical example. Explain the push-pull view of Supply Chain Management System (SCM).

Justifying large EMS expenditure

Enterprise systems are costly (software license, hardware, consultants, customization, data migration, training, maintenance), so the cost is justified by tangible and intangible returns.

  1. Tangible benefits - lower inventory and carrying cost, reduced staff time through automation, fewer errors, faster order processing, reduced IT cost from replacing many legacy systems, lower procurement cost.
  2. Intangible benefits - better decisions, customer satisfaction, standard processes, improved image and flexibility.
  3. Strategic benefits - ability to expand, enter new markets and meet partner or legal requirements.
  4. Financial methods - ROI, payback period, NPV and total cost of ownership analysis, comparing cost against benefits over 5-7 years.
  5. Cost of not implementing - fragmented data, errors and lost competitiveness.

Example: a distribution company spent NPR 20 million on an ERP. It cut inventory by 20 percent, reduced order processing from 3 days to 1 day and removed 5 clerical posts, recovering the investment in about three years, while also getting accurate real-time reports.

Push-pull view of SCM

Supply Chain Management coordinates the flow of materials, information and money from suppliers to customers.

 Suppliers -> Manufacturer -> Distributor -> Customer
   |------ PUSH ------>|<------- PULL --------|
 (forecast driven)        (demand driven)
  • Push (make-to-stock): production and distribution are based on forecasts of demand. Suited to stable, predictable demand and economies of scale; risk is excess inventory.
  • Pull (make-to-order): production is triggered by actual customer orders (e.g. Dell). Lower inventory, high customisation; risk is longer lead time.
  • Push-pull boundary: many firms push upstream (parts and components by forecast) and pull downstream (final assembly on order).

✓ Answer checked by Claude Opus 5.5 (high effort)

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