Choosing an ERP software vendor has become a complicated task due to the availability of a large number of software solutions from various ERP vendors. Caterpillar Australia Ltd, the world's largest manufacturer of construction and mining equipment and industrial gas turbines, intends to implement an ERP system and therefore shortlisted three ERP vendors. This paper aspires to pick the most relevant and suitable ERP package for Caterpillar Australia Ltd, from amongst the three shortlisted vendors by using the analytic hierarchy process or (AHP).


In light of the competitive market conditions and changed business environment, companies have tried to transform themselves and increase revenues by cutting costs, reducing the processing time and by being more sensitive to customer expectations. Enterprise Resource Planning (ERP) systems are being more widely implemented by companies across sectors because they aid in integrating the various departments in a company, simplify the business process and furnish relevant data in an interface that is unique to each division or department. (Yusuf et al., 2004, Yao and He, 2000)

For an ERP implementation to be a success, companies need to strategize for managing the change in business process, choose the right ERP vendor and implement the appropriate and practical ERP package. In practice, selecting an ERP system is a complicated and time taking exercise due of the complexity of the current business scenario, limited resources and the sheer number of ERP vendors and packages available in today's market. But the priority and attention that should be given to select an appropriate ERP system are justified because it involves a sizable investment and the risk of the ERP system not meeting the company's objectives or exceeding the original budget. (Teltumbde, 2000) The current ERP systems in the market do not satisfy all the functional or business requirements of a company. (Sarkis and Sundarraj, 2000; Teltumbde, 2000; Hong and Kim, 2002) Therefore, there is a need for choosing an ERP package which most closely meets the requirements and then configuring it as per the practical needs of the company. This highlights the importance of having an adaptive ERP system and a responsive vendor.

While evaluating ERP systems many companies do not have an evaluation roadmap to do so. The task of selection gets even more complex because of the marketing done by the ERP vendors. Companies generally follow the regular or most often used evaluation benchmarks as opposed to framing case specific benchmarks that reflect the company's objectives and course of action. In such circumstances an ERP implementation is most likely to miss its performance target. Therefore, having an ERP selection roadmap is crucial in assessing whether an ERP system fits into a company's strategy. Implementing an ERP system goes much beyond than merely adopting an information technology tool. Kumar et al. (2002)

Implementing an ERP system requires suitable changes to be made to the business process and information technology. Motwani et al. (2002) A large number of companies adopt ERP systems in an impulsive manner without assessing its impact on the business or compatibility with their strategy. (Hicks and Stecke, 1995) This would lead to a failed project or the ERP systems may work in a manner that is contradictory to the goals of the company.


A review of the literature throws up many diverse models that are followed while choosing an ERP vendor. All models have their peculiar characteristics. [9] Every model also has its share of drawbacks. [10]

The Analytic hierarchy process or (AHP) is one of the well known models that are employed in resolving complex problems involving multiple criteria. The AHP was conceived by Thomas L. Saaty. This model facilitates the decision-makers to illustrate the complex issues in an order by listing the core objective, basis, other options and their correlation. The fundamental attributes of AHP are incorporating knowledge, understanding prospects and viewpoints of individuals in a rational manner.

AHP is capable of rating and comparing the processes of two or more systems. To start with, the task at hand is represented in a hierarchy. At the top of the hierarchy the purpose or intent behind the task is represented. The mid-levels of the hierarchy represent the criteria to be used in the decision making process. The bottom levels of the hierarchy represent the available options or alternatives to the system or vendor being considered.

The next stage in AHP involves comparing data in pairs by using a comparison matrix using Saaty's scale for pair wise comparison. In every level of the hierarchy, the weight of each element is calculated by analyzing the data in pairs.

The final stage in AHP involves the "Eigenvalue" method, wherein the comparative weight of the decision elements is predicted and aggregated to determine the rating of the decision alternatives. [25]


Following an AHP based model in selecting an ERP system has the following benefits:

  • An AHP based approach ensures that the goals or purposes of the ERP system are in harmony with organisational goals. It helps the project implementation team to comprehend the correlation between the objectives and evaluate their impact by linking them to the network structures.

  • The AHP model breaks down the task of choosing an ERP system, into smaller tasks, which makes it easier to understand its features and characteristics. Being aware of the framework of objectives aids the project team to recognize the needs of the company and create suitable system standards. In addition, such objectives also illustrate the way in which outcomes should be calculated and the important issues that need to be examined as part of the selection process.

  • AHP model can easily adapt in order to include additional characteristics or new members in the selection team. It can also expedite the selection team to reach a consensus.

  • The AHP model is capable of lowering the expenses involved in the selection stage as well as the unforeseen expenses that may be incurred during the implementation stage.

The ANP is a general form of the AHP (Saaty, 1996). Whereas AHP models a decision-making framework that assumes a unidirectional hierarchical relationship among decision levels, ANP allows for more complex interrelationships among the decision levels (also referred to as clusters) and attributes. ANP does not require the strictly hierarchical structure used with AHP. Two-way arrows (or arcs) represent interdependencies among attributes and attribute levels among levels, or if within the same level of analysis, a looped arc is used. The directions of the arcs signify dependence - arcs emanate from an attribute to other attributes that may influence it. The relative importance or strength of the impacts on a given element is measured on a ratio scale similar to AHP. The ANP is able to handle interdependencies among elements through the calculation of composite weights as developed in a supermatrix (Saaty, 1996). ANP for strategic alignment of ERP investments

ANP for strategic alignment of ERP investments

Applicability of ANP for SAM and ERP

It is proposed that SAM provides a sound and proven theoretical basis for building an ANP decision model, and that this decision model is especially applicable to pervasive enterprise systems such as ERP. Both ANP and AHP have been successfully used for building decision models in a wide range of decision domains, including strategic analysis of technology investments. However, the models presented in literature tend to be ad hoc, with no theoretic foundation for identifying the decision levels and clusters. The SAM provides this foundation. As discussed earlier, the SAM is a well-studied and widely accepted model. Its specific consideration of different levels of business and IT strategy, IT infrastructure and processes, and organizational infrastructures and processes helps ensure a fit of technology with the organization. Synergy exists between ANP and SAM in several ways. The four SAM domains presented can, with slight modifications, be represented as decision levels, as can the decisions within the domain, thus resulting in an ANP network. ANP supports the SAM by allowing for the consideration of interactions among and within the domains. While SAM is a strong theoretical model, there exists a need for implementation tools to support it and it is proposed that ANP can help fill this void. ERP systems, because of their pervasive impacts, must not be evaluated simply on traditional financial factors such as NPVand payback period. The systems' support for organizational strategies and their impacts on the organization must be considered. As discussed previously, the main reasons for disappointing ERP implementations is the failure to consider these effects. Many of these effects will be non-financial and non-quantitative. ANP allows for the integration of qualitative and quantitative factors. SAM again supports the explicit alignment of strategies to technology decisions.

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