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Chapter 12Integrating the Organization from End to End Enterprise Resource Planning1CLASSROOM OPENERGREAT BUSINESS DECISIONS Warren Buffet Decides to Invest in Berkshire HathawayIn 1962, Warren Buffett decided to invest in an ailing textile company called Berkshire Hathaway. Today, the company has a market capitalization of $60 billion, and Buffett is recognized as one of the greatest investors of all time. Buffett believes in focused investing and believes that all investors should look at five features:The certainty with which the long-term economic characteristics of the business can be evaluatedThe certainty with which management can be evaluated, both as to its ability to realize the full potential of the business and to wisely employ its cash flowsThe certainty with which management can be counted on to channel the reward from the business to the shareholders rather than to itselfThe purchase price of the businessThe levels of taxation and inflation that will be experienced and that will determine the degree by which an investors purchasing-power return is reduced from his gross returnOverall, Buffett uses information from every source to analyze and evaluate an investment. Without looking at a business from every angle, internally and externally, including customers, partners, and suppliers, it is impossible to gain an accurate assessment of the business. If a person could capture Warren Buffetts know how and put it in a data warehouse, they could make a small fortune.One of the greatest benefits of an ERP system is helping people understand how the organization is performing from an enterprise perspective. ERP systems provide organizations with information that was previously difficult if not impossible to obtain allowing the organization to perform more efficiently and effectively. Better performance usually means higher profits, which pleases stakeholders and investors.Learning Outcomes12.1Describe the role information plays in enterprise resource planning systems

12.2Identify the primary forces driving the explosive growth of enterprise resource planning systems

12.3Explain the business value of integrating supply chain management, customer relationship management, and enterprise resource planning systems

212.1 Describe the role information plays in enterprise resource planning systemsThe primary purpose of an ERP is to collect, update, and maintain enterprisewide informationAll of the functional departments access the same information when making decisions and solving problems12.2 Identify the primary forces driving the explosive growth of enterprise resource planning systemsERP is a logical solution to the mess of incompatible applications that had sprung up in most businessesERP addresses the need for global information sharing and reportingERP is used to avoid the pain and expense of fixing legacy systems12.3 Explain the business value of integrating supply chain management, customer relationship management, and enterprise resource planning systemsMost organizations piecemeal their applications together since no one vendor can respond to every organizations needs; hence, customers purchase multiple applications from multiple vendors. For example, a single organization might choose its CRM components from Siebel, SCM from i2, financial from Oracle, and human resources from PeopleSoft. These applications must be integrated in order to gain an enterprisewide view of the information.Enterprise Resource Planning (ERP)At the heart of all ERP systems is a database, when a user enters or updates information in one module, it is immediately and automatically updated throughout the entire system

3Why do organizations need integrations, if an ERP system contains one database that connects all applications together?Most organizations operate functional silos, and each department typically has its own systemsA company might purchase an ERP and then all of the functional silos would be on one system, however, this doesnt happen very often in the real worldMost organizations require anywhere from 10 to 100 to 1,000 different systems to run their businessFinding one system that could meet all the needs of an entire organization from billing to sales is almost impossible, sort of a utopiaAn organization can purchase an ERP and still have other applications running parts of its business (for example, taxation packages) that are not supported, or not supported well, by the ERP system

Enterprise Resource Planning (ERP) ERP systems automate business processes

4ERP systems automate business processes, for example, order fulfillmentWhen a CSR takes an order from a customer, he or she has all the information necessary to complete the order (the customers credit rating and order history, the companys inventory levels, and the delivery schedule) Since the company is using an ERP, everyone else in the company will automatically see the information that the CSR types into the ERP systemWhen one department finishes with the order, it is automatically routed via the ERP system to the next departmentTo determine where an order is at any point in time, a user only needs to login to the ERP system and track it down

Bringing the Organization Together ERP The organization before ERP

In most organizations, information has traditionally been isolated within specific departments, whether on an individual database, in a file cabinet, or on an employees PC. ERP enables employees across the organization to share information across a single, centralized database. With extended portal capabilities, an organization can also involve its suppliers and customers to participate in the workflow process, allowing ERP to penetrate the entire value chain, and help the organization achieve greater operational efficiency

When reviewing this diagram demonstrate to the students how each department has its own database separate from all other organizational departmentsAsk your student what types of problems could occur if all departments maintain their own database and systems?Update issuesRedundancyInaccurate information across databasesDifferent formats of information in the different databasesInability to access other department information and not being provided with a 360 degree view of the organizationDifferent customer information in different databasesCustomer contact from multiple departments with different messages

5Bringing the Organization Together ERP bringing the organization together

In most organizations, information has traditionally been isolated within specific departments, whether on an individual database, in a file cabinet, or on an employees PC. ERP enables employees across the organization to share information across a single, centralized database. With extended portal capabilities, an organization can also involve its suppliers and customers to participate in the workflow process, allowing ERP to penetrate the entire value chain, and help the organization achieve greater operational efficiency

When discussing this slide be sure to explain to your students how one database that supports the entire organization could eliminate many of the issues discussed on the previous slideAsk your students what issues could be caused by having one database that supports the entire organization?Not as flexible and far more difficult to changeMight not meet all department needs as well as an individual specific systemMultiple access levels increases security issuesEthical dilemmas from accessing different department information such as payroll

6The Evolution of ERP

This is an excellent diagram that displays where ERP started and where it is headedAsk your students what components might be included in an ERP system in the futureSecond Life componentWiki componentCollaboration component (IM)7Integrating SCM, CRM, and ERP SCM, CRM, and ERP are the backbone of e-business

Integration of these applications is the key to success for many companies

Integration allows the unlocking of information to make it available to any user, anywhere, anytime

8It might be a bit confusing to your student that many ERP vendors offer SCM and CRM componentsExplain to your students that these modules are typically not as functional or flexible as the modules offered by industry leaders who specialize in SCM and CRMA good analogy is to brand-name foods at a grocery storeA grocery store, such as Safeway, maintains all types of products Safeway offers its own products, such as Safeways spaghetti sauce and Safeways paper towels, (these are known as name brand products and usually offer a cost advantage)The store also carries products that are specific to a manufacturer, such as Ragus spaghetti sauce and Bountys paper towelsCustomers can choose to buy Safeways product (this is similar to product supplied by the ERP), or customers can choose to buy a specialty product that is usually more expensive but offers better quality, additional features, and better taste (such as Ragu)Explain to your students that ERP vendors carry SCM and CRM components, but they are usually not as good as the vendors that specialize in SCM and CRM components (Siebel CRM, i2 SCM)

Integrating SCM, CRM, and ERP SCM and CRM market overviews

9The leaders and their respective market share are displayed in the above figures

Integrating SCM, CRM, and ERP General audience and purpose of SCM, CRM and ERP

10This figure displays the primary users of each application along with the primary business benefit gainedIntegration Tools Many companies purchase modules from an ERP vendor, an SCM vendor, and a CRM vendor and must integrate the different modules togetherMiddleware several different types of software which sit in the middle of and provide connectivity between two or more software applications Enterprise application integration (EAI) middleware packages together commonly used functionality which reduced the time necessary to develop solutions that integrate applications from multiple vendors11One of the big selling points of an ERP or SCM system can be the EAI that is offered to easily integrate with other vendors modulesFor example, if a company is looking at purchasing Siebel CRM and they find out the Siebel has already built many integrations to PeopleSoft financials, it would be more inclined to purchase the productIntegration Tools Data points where SCM, CRM, and ERP integrate

12Companies run on interdependent applicationsIf one application of the company does not function well, the entire customer value delivery system is affectedThe world-class enterprises of tomorrow must be built on the function of world-class applications implemented todayEnterprise Resource Planning (ERP) ERP systems must integrate various organization processes and be:Flexible- must be able to quickly respond to the changing needs of the organization Modular and open-must have an open system architecture, meaning that any module can be interface, with or detached whenever required without affecting the other modules.

13Flexible must be able to quickly respond to the changing needs of the organizationModular and open must have an open system architecture, meaning that any module can be interface, with or detached whenever required without affecting the other modules. Some organizations will begin with buying two modules, such as accounting and sales, and then will add modules, such as CRM and SCM, as they gain confidence in their current modules. (Implementing in small pieces or phases companies do not want to buy the entire ERP and spend years implementing twenty different modules to find that it doesnt meet their need)Comprehensive must be able to support a variety of organizational functions for a wide range of businessesBeyond the company must support external partnerships and collaboration efforts

Comprehensive- must be able to support a variety of organizational functions for a wide range of businesses Beyond the company- must support external partnerships and collaboration efforts

Enterprise Resource Plannings Explosive GrowthSAP boasts 20,000 installations and 10 million users worldwide

ERP solutions are growing because: ERP is a logical solution to the mess of incompatible applications that had sprung up in most businesses ERP addresses the need for global information sharing and reporting ERP is used to avoid the pain and expense of fixing legacy systems

15There are an estimated 70,000 ERP installations worldwide with over 35 million usersOrganizations must have a finely tuned integration of business, technology, and process, such as Amazon, Dell, and Cisco, to compete:Streamlining supply chain operations (SCM)Improve customer loyalty (CRM)Gain visibility into enterprisewide information (ERP)

CLASSROOM EXERCISEDesigning a Digital Dashboard for an ERP SystemDigital dashboards offer an effective and efficient way to view enterprisewide information at near real-time. According to Nucleus Research, there is a direct correlation between use of digital dashboards and a companys return on investment (ROI), hence all executives should be using or pushing the development of digital dashboards to monitor and analyze organizational operations.Break your students into groups and ask them to develop a digital dashboard for an ERP system. Review the digital dashboards on page 98. Be sure your students have addressed all of the following in their digital dashboard:AccountingFinanceLogisticsProductionDistributionManufacturingHuman resourcesSCMCRM