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Chapter 2

Development of an

Enterprise Resource Planning System

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Chapter 2 Learning Objectives

• Identify the factors that led to the development of ERP systems

• Describe the distinguishing characteristics of ERP software

• Discuss the pros and cons of implementing an ERP system

• Summarize ongoing developments in ERP

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Introductions

• Businesses exist to make a profit

• Businesses strive to provide goods and services faster and cheaper than competition

• More efficient ways of accessing and sharing information will increase customer service and therefore profits

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Evolution of Information Systems

• Prior to 1960, all systems were paper-based

• Data entry, storage, retrieval were slow, labor-intensive processes

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Computer Hardware and Software Development

• The First Business Computers

• Computers Smaller and FasterMoore’s Law

• Software Proliferates

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Early Attempts to Share Data

• Client/Server• Scalability

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The Manufacturing Roots of ERP

• Materials Requirements Planning (MRP)

• Electronic Data Interchange (EDI)

• MRP - II

• Downsizing and reorganization drove the impetus for ERP

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ERP and SAP’s R/3

• Software to allow all business areas to be integrated

• Interactive and real-time processing

• Users interact with computer screen, not printed data

• Initially introduced R/2

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SAP’s R/3

• Open architecture

• Access common database

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Implementation

• Choosing modules

• Configuration options

• Unique features of SAP’s R/3

• Best-of-Breed Solution

• Accelerated SAP

• Customer Relationship Management

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ERP Significance

• Global integration

• Eliminates updating and repairing separate computer systems

• Allows managers to manage, not just monitor

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Cost of ERP

• Large company – $50-500 Million– $30 million in software– $200 million in consulting– $ millions for hardware– Implementation: 4-6 years

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Cost of ERP

• Medium sized companies– $10-20 million– 2 year implementation

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Questions about ERP

• Is it for every company?

• Is the software inflexible?

• How much profit should you expect?

• How long does it take to see an ROI?

• Why do some have more success?

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The Continuing Evolution of ERP

• Additional Capabilities

• The Internet

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Another Look at Consultants

• How does a consultant steer a client through an ERP implementation?– Identify what you want improved, set goals, and

calculate benefit

– Define standard procedures

– Plan for rollout far before it happens

– Set milestones

– Train everyone

– Don’t forget your customers

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Evaluating IT and ERP Software

http://www.technologyevaluation.com/

http://www.erpevaluation.com

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Chapter Summary

• Several factors led to development of ERP:– speed and power of hardware increased, cost

and size decreased– client/server architecture– sophisticated software development– growth of business size, complexity, and

competition

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Chapter Summary continued

• SAP AG produced an ERP program called R/3• Purchasing ERP software is expensive, with

spectacular payoffs and challenging implementation

• The future of ERP will focus on:– managing customer relationships

– improving planning and decision making

– linking operations to the Internet