Enterprise resource planning Intro · Enterprise Resource Planning (ERP) Enterprise resource planning (ERP) ERP is an integrated solution to the problem of how to control all major

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H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S

Enterprise resource planning

IntroMatti Rossi, Professor

Helsinki School of Economics Information Systems


Contents

Intro to ERP Systems

Philosophy of ERP

ERP and ecommerce

Key components

Evolution of ecommerce

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Why ERP?

SAP alone is used by more than 60% of the major firms.

In 1995 SAP generated 90% of their revenues from global companies

Now there is a trend toward automating SME’s and mid-sized companies


Why you should know about it?

Regardless of the management function you are involved in, you will need to know how to use information from ERP systems

ERP system implementation and application is key to the survival of global organizations

The choices made when implementing these systems could make or break your business. e.g. see Hershey case

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Evolution of Enterprise Information Systems


(Hannus, 1993)

Service strategies-separation of service channels and customers’ service needs and their efficient integration

Customer centric-IT in customer relationships -strategic applications

User centric- DSS- office automation and PCs

Information centric-data bases and MIS -integration of subsystems

Routine and task centric- production systems- administrative IS

1960 200019801970 1990

Develo

ping t

he

organ

izaito

n intern

ally o

nlyDev

elopin

g also

inter

-

organ

izatio

nal d

istrib

ution

of w

ork

Phasing of IS Utilization

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The Evolution of Integrated Systems


Functional MISsSales forecast by region generated by marketing MIS.

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Enterprise Resource Planning (ERP)

Tries to support all major processes of an enterprise

In an integrated system all data is stored and managed by the system

There is one interface to all information systems in an organisation

Supposedly there are fewer redundancies

The systems should be easier to learn and manage

The systems need to be integrated to support information flow across the enterprise


Enterprise Resource Planning (ERP)Enterprise resource planning (ERP)

ERP is an integrated solution to the problem of how to control all major business processes with a single software architecture in real time. It is a process of planning and managing all resources and their use in the entire organization.

Leading ERP software producers

- SAP, Oracle, J.D. Edwards, Computer Associates, People Soft

Main Objective of ERP

to integrate all departments & functions across a company onto a single computer system.

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Benefits of Systems Integration (Sandoe & Saharia 2001)

Tangible Benefits

Inventory reduction

Personnel reduction

Productivity improvement

Order management improvement

Financial-close cycle improvements

IT cost reduction

Procurement cost reduction

Revenue/profit increases, etc.

Intangible Benefits

Information visibility

New/improved processes

Customer responsiveness

Standardization

Flexibility

Globalization and business performance


ERP Enables Standardization

The same practices and work arrangements can be employed at multiple locations.

This allows firms to bring those locations with substandard processes in line with other more efficient locations.

Now the customer interface is the same across the organization.

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Benefits of ERP systems Integrated information from every company operation is available

Transfer of needed information from one company area to another is automatic

By reducing manual operations, such as information conversion from one functional area’s systems to another, errors are substantially reduced, and the information is more reliable

The integrated information used for day-to-day management is comprehensive, accurate, and reliable


Benefits continue

The integrated information for strategic and long range planningis comprehensive, accurate and reliable

The use of production capacity and allocating it for a changing product mix is relatively easy

Because of the integration, employee decisions are easier to make, thereby empowering them

The software can handle multiple languages, multiple tax and regulatory codes, multiple currencies, and other requirements ofthe many countries in which a company does business

All of the above benefits result in increased management controland reduced costs

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Business Process Rationales

Designed to aim at specific improvements in efficiencies or cost savings or revenue enhancements.

Typically include a specific number

For example, “decrease inventory by 40%”

Can provide guidance regarding design


Business Process Rationales:Personnel Reduction

“We will have fewer accountants and probably have fewer information systems people. Because one of the things we are considering is contracting out a chunk of that function. A great deal of what we do, we have cost accountants do, lots of things, not just by hand, it is not that primitive, they do a lot of work that won’t need to be done once SAP is implemented.”

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Business Process Rationales:Productivity Improvements

“To get the project (cost) justified we intentionally focused on the tangible items the board would understand and that we could clearly articulate and make commitments to deliver.” (Owens Corning)

• A one percentage point cost reduction deriving from global economies of scale in raw material purchases

• A one percentage point cost reduction deriving from fewer warehouses and lower freight cost

• Improvement in reliability-oriented maintenance generating lower plant maintenance costs


Business Process Rationales:Financial Close

Firms often specify speeding the closing process as a goal

One firm wanted to cut their closing time from 24 days to 6 days.

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Strategic Rationale

Choose ERP to implement a specific strategy

As part of an E-business strategy, a firm could implement an ERP system

As part of a strategy to focus on the consumer, a firm could implement “Available to Promise” (ATP)


Competitive Rationale

“A lot of ERP purchases are premised on the need to just stay in business.”

The competition has it can take two approaches

Implement because the competition has it

Focus on why the competition has it and see if it fits your company and what benefits can be gathered

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Cost is Serious

After cost of ownership is $15 million, typically at a cost of $53,320 per user, according to a Meta Study.

ERP costs can run 2-3% of revenues

The implementation takes from 6 months to 2 years

Severe changes into operation of the company and employee skill needs

Most projects fail…


Transformation of companies

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ERP and Reengineering

ERP implementation usually forces reengineering

ERP is an electronic “harness” for your business processes

The processes need to be tailored and streamlined before the ERP implementation!

The ERP can enable or constraint the implementation


Technology and re-engineering

A particular technology (or portfolio of technologies) is chosenas a tool to facilitate reengineering.

Thus, reengineering choices are a function of the technologies chosen.

The technology drives the reengineering

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”Old economy” company

Lähde: McLean, Turban & Wetherve, 1999


certificationauthorities

banksproducers-suppliersmarketplace

producers-designersmarketplace

EDI

Team workDigital design

Lifecycle management

buyers-producersmarketplace

WWW; XML;agents

Trust&

securityRelationshipmanagement

Digital simulation Office Furniture Buyers

Dynamic Value Markets & Networks

Source: eEurope initiative

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Networked versus hierarchical organisations


Ope

ratio

ns

Serv

ice

Sale

s

...

Functions arecontrollingactivities

...

Main processes are identified,functions still dominating

Ope

ratio

ns

Serv

ice

Sale

s

...

Sales process

Order-delivery process

Customer service process

Main processes areguiding activities

Ope

ratio

ns

Serv

ice

Sale

s

From Functions to Process-based and Customer-driven Organization

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Product or Business Units

Func

tions

or C

ount

ries

/ Reg

ions

80s: Vertical (Functional)

Structures

90s: Globale Matrix

Structures

00s:Global E-BusinessNetwork Structures

Sub-supplierSub-

supplierSub-

supplierSub-

supplier

BrandOwnerBrandOwner

Sub-supplierSub-

supplier

Distr.PartnerDistr.

PartnerDistr.

PartnerDistr.

Partner

CustomersCustomers E-M

arke

t / P

rivat

e Ex

chan

ge

TransactionProcessingEnvironment

ManagementFocus

ManagementSystembased on

Legacy Systems

Margins / CostManagement

Financial Reporting

Integrated ERP Systems

Value Based Management/ Portfolio Management

EIS / Data Warehousing

Hybrid E-Business Systems

VBM II/ Value Network Management

Integrated Analytics

SystemsupplierSystemsupplier

SystemsupplierSystemsupplier

Changes in organization structure

Source SAP a/g


ERP functionality and processes

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How Does An ERP System Work?

Information is input one time and selected information cascades through the system, rather than requiring re-inputting

e.g., Sales call information, cascades to sales information, which cascades to billing info.

Business events are integrated into processes

Associated with order processing are a number of functions, including Sales and Distribution, Planning and Production, Materials Management, and Financials

Source: O’Leary 2000


Real Time Information

ERP provides a clearing house of real time up-to-date information necessary for e-commerce

Inventory Information (so they know what is available to sell)

Pricing Information

Configuration Information (necessary for requirements planning)

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Access from anywhere

Ideally, users can access the ERP system over the Internet in order to place orders

As said yesterday, most systems still assume office & fixedline connections

There is a trend toward thinner clients


ERP system

Production Distribution Sales

Supplier Customer

Procurement

Employees Resources Equipment

Project management

Financial control and planning

Cust. serviceMaintenance Quality control

Supply chain management & planning

Business warehouse

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FinancialFinancial controlcontrolLogisticsLogistics

AccountingBusiness Business processprocess

DokumentsDokuments

ReportsReports

PCPC

FIFI

COCO

SLSL

ExtExt..***

Integration in SAP

Source: SAP Ag


InventorySourcing

InventorySourcing DeliveryDelivery BillingBilling Customer

PaymentCustomerPayment

Sales OrderProcessing

Sales OrderProcessing

Pre-SalesActivities

Pre-SalesActivities

Planning, Reporting and AnalysisPlanning, Reporting and Analysis

Requirementfor Goods/ Services

Requirementfor Goods/ Services

PurchaseOrder

PurchaseOrder

GoodsReceiptGoodsReceipt

InvoiceVerification

InvoiceVerification

VendorPaymentVendor

Payment

Planning, Reporting and AnalysisPlanning, Reporting and Analysis

Management and Operations

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..........................

..........................

..........................

. . . . . . .

. . . . . . .

Warehouse

• Packing

• Shipping papers • Goods issue

Salesorder

• Picking

• Update stock• Post general ledger

Delivery

• Create delivery

..........................

..........................

..........................

. . . . . . .

. . . . . . .

..........................

..........................

..........................

. . . . . . .

. . . . . . .

Example: Delivery


Sales event flow

. Order

. . Delivery

. . . Bill

. . Return

. . . Return Delivery

. . . . Reinbursement

Returns

Order Delivery Billing

Return delivery

Hyvityslasku

Offer

Document flow

..

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Ecommerce and ERP and EAIEvolution of integrated systems


E-Commerce Applications

Sell SideE-commerce

Buy SideE-commerce

B

S B

B

B

S

BS

S

S

CRM SCM

Source Moore 2000

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E-commerce Portals

Sell Side Buy Side

ProcurementPortals

DistributionPortals

b

b

b

b

SS

S

b

b

bb

DPs

s

s

s

BB

B

s

s

ss

PP

Source Moore 2000


i2: TradeMatrix.com

TelcoSupplier.com

• Planning• Procurement• Fulfillment• Commerce• Etc.

• Spot market purchases• RFP/RFQ• Auctioning of excess material• Demand Aggregation• Industry-specific content

(Component/Suppliercatalogue)

• Etc.

Privatemarketplaces

Industry publicmarketplaces

key supplier.com

Marketplace-to-marketplace connection• Access to all vertical marketplaces

tradeMatrix Marketplace-to-marketplace connection• Access to all vertical marketplaces• Enables access to horizontal

marketplaces and their completerange of services (logistics, etc.)

HighTech Matrix

Trade Matrix

Freight MatrixTeleco Matrix

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E-Commerce Exchanges

ExchangesSell Side Buy Side

ProcurementPortals

DistributionPortals

b

s

s

b

B

Xs

b

b

s

S

SB

B

S

SB

Source Moore 2000


Stages of electronic business

Electroniccommerce

Electronicbusiness

Networkeconomy

Processes Nonintegratedprocesses for e-commerce

Integrated coreand serviceprocesses

Partly shared andoutsourced

Technology Storefront Integration withERP systems

Common standardsand platforms

Customerrelationship

Nonintegrated Continuous andtight

Managed bycustomer and/orinfomediaries

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Conclusions

ERP must be preceded with a process change

Change takes time and must be planned for

The implementer should be aware of the financial and operational costs

The costs and benefits should be measured

This is not a technology solution!


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Matti RossiHelsinki School of Economics P.O. Box 1210FIN-00101 HelsinkiFinlandEmail: [email protected]: +358-9-43138996Fax : +358-9-43138777

http://www.hkkk.fi/~mrossi

Contact information


Links to exchanges

B-to-b in general

http://www.manufacturing.net/magazine/purchasing/

CommerceNet

http://www.commerce.net/

GE Capital

www.gecapital.com

MRO.com

www.mro.com

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Technology providers

SAP: www.mysap.com

Ariba: www.ariba.com

i2: www.i2.com


CASE

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ERP and Customer Ordering

Facilitating commerce is one of the most important tasks in commerce

Unfortunately, it often is filled with errors.

For example, Cisco found that 25% to 33% of the orders made by faxes had errors in them.

How could e-commerce solve the problem?

What was the problem?


What is the Impact of Errors? Errors ultimately can delay the shipment or cause an error in the

pricing.

As customers found out about errors in the orders, they found itnecessary to contact Cisco about their orders to make sure that orders got in the system correctly

These requests required increases in Cisco’s personnel in order to respond to customer inquiries, raising costs and slowing down the process of getting goods to the customer.

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En example from Cisco’s Internet Business

Solution Portfolio …

Develop-ment

Mfg. Mktg. Sales Support

Customer Care

InternetCommerceMktg.

Employee Workforce Optimization

Supply Chain Management

Encompass 5 web applications that cross the entire Cisco value system


One of Cisco’s first E-Commerce Applications

Using the web, customers were able to gather information from Cisco’s ERP system that would allow them to track and price their orders to see if they were correct and to see what the status was

Information was available seven days a week and twenty-four hours per day.

This reduced Cisco’s need to have personnel available to help track the orders and answer customer questions. Customer support had been shifted to the customer.

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Problem Detection:Problem Detection:CiscoWorksCiscoWorks

Problem Notification: Bug Alerts1 Problem Notification: Bug Alerts1

Problem Identification: Problem Identification: Bug NavigatorBug Navigator

Operation Support Operation Support Software Library Software Library

The Early Cisco Connection Online (CCO)

Problem Resolution: Open Problem Resolution: Open Forum, Troubleshooting EngineForum, Troubleshooting Engine

Installation and Configuration Installation and Configuration DocumentationDocumentation

In 1994, Cisco Began with a Simple Customer Care Application …

Goal: To provide technical assistance, automate customer care, improve customer satisfaction in the midst of a shortage of skilled engineers.


How to proceed

Perhaps a more important question was “How can you eliminate errors to begin with?” In Cisco’s second year, their goal was to eliminate the errors and allow the customer to make anytime anywhere ordering over the Internet

Accessing information from the ERP customers were permitted to originate, configure, price and place the order.

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ConfigurationConfiguration1’1’

Service OrderService Order

Order StatusOrder Status11

Order PlacementOrder Placement

PricingPricing

InvoiceInvoice

In mid-1996, Cisco Introduced Early iCommerce

Functionality to the CCOAdded Cisco Connection Online (CCO) Functionality


How did they get customers to use it?

Cisco guaranteed that pricing and configuration would be accurate, if the customer used the web application. Within only four months in 1996, 10% of the orders were done over the Internet. By 1999, 85% of the orders came in over the Internet

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Community portal for specific users:- New Hires- Sales- Engineering

Cisco LOBs

What’s New Segment

Standard Footer / Page Owner

Corporate NewsCisco My Yahoo!

Employee Workforce Optimization Activities

Directory and organization chart

Travel/expense

Benefits enrollment

Cisco My Yahoo!

Training registration

Stock information

Online Procurement

Online recruiting

In early 1995, Cisco Began to

Web-Enable All Employee Activities

In early 1995, Cisco Began to

Web-Enable All Employee Activities


A Summary of the Financial Impact behind Cisco’s Internet

Business Solutions ...Financial Contribution

Customer Care Customer Care •• Headcount AvoidanceHeadcount Avoidance•• Software DistributionSoftware Distribution•• Document PublishingDocument Publishing

$75,000,000$75,000,000$250,000,000$250,000,000$40,000,000$40,000,000

Employee ServicesEmployee Services•• Online HiringOnline Hiring•• Productivity IncreaseProductivity Increase

$8,000,000$8,000,000$4,000,000$4,000,000

Supply Chain ManagementSupply Chain Management•• Reduced Operating Cost Reduced Operating Cost •• Increased ContributionIncreased Contribution

75,000,00075,000,000100,000,000100,000,000

Internet CommerceInternet Commerce•• Headcount Avoidance Headcount Avoidance $12,000,000$12,000,000

TotalTotal $550,000,000 + $550,000,000 +

“Old World” Processes

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Integration & Sharing of Information

Purchasing is done using Cisco’s system and not the customer’s system so the customer needs to put the same information in their own ERP system

How could we facilitate optimal sharing of the information?


Solution: Allow access to Cisco’s systems The information about catalogs, prices & configurations is

shared by Cisco & key customers

Once a day, new configuration, order and pricing information is made available to those special customers

Now customer can use their internal systems for ordering

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ERP & Vendor Managed Inventories

Under Cisco’s model, the customer does the ordering

However, in many settings, the order process has been shifted from the customer to the vendor

E.g. See case on Tuesday


How is VMI Accomplished? VMI is accomplished by providing vendors real time access to

necessary information.

Access must be electronic and the information must be up-to-date or else the quality of the inventory decisions can be limited, a particularly important limitation when the vendor is managing the inventory.

In an ERP-based world there are two solutions designed to facilitate VMI:

Integrating through access to ordering data

Direct ERP to ERP connection.

Documents

Enterprise resource planning Intro · Enterprise Resource Planning (ERP) Enterprise resource planning (ERP) ERP is an integrated solution to the problem of how to control all major