Introduction to ERP

Agenda Introduction History of organizational systems Functional systems ERP – Definition Value Chain ERP Vendors Core ERP Modules ERP Disadvantages Conclusion

History of organizational systems

Calculation systems Functional systems Integrated systems

Calculation systems

1950-80 Single purpose Eliminate tedious human work Examples: Payroll, General ledger,

Inventory Technology used: Mainframes,

magnetic tapes, batch processing

A System/370 Model 145 (1970’s)

removable-disk hard drives

Hard drives

A very nice-looking magtape-drive

Magtapes

Batch processing

Printer800 lines/minute with 48 character train, 136 columns with 6 or 8 lines per inch spacing

Stack of Computer Printout Paper

Functional systems

1975-20?? Use computers to improve

operations Applications: Human resources,

order entry, manufacturing resource planning

Technologies: Mainframes, PC’s, LAN’s

Common Departments Working Interdependently

THE SOLUTION: MANAGEMENT INFORMATION SYSTEMS

Minicomputer

Functional systems

Typically contained within a department

Islands of automation Applications independently

developed and deployed Driving force: availability of mini-

computers

Functional system applications

Human resources System Accounting and finance systems Sales and marketing System Operations management System Manufacturing Systems

Human Resources

Recruiting Compensation Assessment Development and Training Planning

Accounting and Finance

General Ledger Financial Reporting Costing Budgeting Accounts Payable Accounts receivables

Sales and Marketing

Lead tracking Sales forecasting Customer management

Operations

Order management Inventory management Customer service

Manufacturing

Inventory Planning

Types of Organizational information Systems

Administrative systems Scheduling / Transaction systems Value oriented systems Reporting and controlling systems Analysis and information systems Planning and decision support

systems(From Business Process Engineering by

A.W. Scheer)

Problems with function based application

Sharing of data between systems Data duplication Data inconsistency Applications that don’t talk to one another Limited or lack of integrated information Isolated decisions lead to overall

inefficiencies Increased expenses

Solution to disparate systems?

Integration Consolidation Right-sizing Business Process Redesign Enterprise wide system

Legacy Systems

Each department has its own system Infrastructure specific Inefficient processes Potential for inaccuracies

Limitations of Legacy Systems Legacy systems used in large enterprises

of the 1970s and 1980s have limitations. They were developed in-house or by

different vendors using several different DBMSs, languages and packages

Difficult to increase the capacity of such systems or unable to upgrade them with the organization’s business changes, strategic goals and new information technologies

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Enterprise System Approach

Internally focused systems

Support functional areas, business processes and decision-making within an organization

New information (value) is added at every step

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Externally Focused Systems

Coordinate business activities with customers, suppliers, business partners and others who operate outside the organization

The Need for Integrated Enterprise Systems

Advantages of integrated systems Centralized point of access

Conversion needed

Enterprise Resource Planning (ERP) vendors offer different modules Components that can be selectively

implemented E.g., modules of mySAP business suite

The Rise of Enterprise Systems

Packaged applications Written by third-party vendors Used by many different organizations Useful for standardized, repetitive tasks Cost effective E.g., Microsoft Money and Quicken

Custom applications Developed exclusively for a specific organization Designed for particular business needs Higher development costs

Integrated systems or

Enterprise Resource Planning System

Introduction

Enterprise Resource Planning: a process of planning and managing all resources and their use in the entire enterprise

ERP System is an enterprise-wide information system designed to coordinate all the resources, information, and activities needed to complete business processes such as order fulfilment or billing.

ERP Systems Defined (cont.)

“ERP (enterprise resource planning systems) comprises of a commercial software package that promises the seamless integration of all the information flowing through the company–financial, accounting, human resources, supply chain and customer information” (Davenport, 1998).

“ERP systems are configurable information systems packages that integrate information and information-based processes within and across functional areas in an organization” (Kumar & Van Hillsgersberg, 2000).

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“One database, one application and a unified interface across the entire enterprise” (Tadjer, 1998).

“ERP systems are computer-based systems designed to process an organization’s transactions and facilitate integrated and real-time planning, production, and customer response” (O’Leary, 2001).

ERP Objective

To integrate all departments and functions across a company onto a single computer system that can serve all of the enterprise’s needs

For example, improved order entry allows immediate access to inventory, product data, customer credit history, and prior order information

This availability of information raises productivity and increases customer satisfaction

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Evolution of ERP

1960’s - Systems Just for Inventory Control

1970’s - MRP – Material Requirement Planning (Inventory with material planning & procurement)

1980’s - MRP II – Manufacturing Resources Planning (Extended MRP to shop floor & distribution Mgnt.)

Mid 1990’s - ERP – Enterprise Resource Planning (Covering all the activities of an Enterprise)

2000 onwards – ERP II – Collaborative Commerce (Extending ERP to external business entities)

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ERP: Bringing the Organization Together

ERP – integrates (or integrated set of IT systems) so that employees can make enterprise wide decisions by viewing enterprise wide information on all business operations (enterprise wide information)

Keyword in ERP is “enterprise”

ERP systems focus on all processes, departments and operations for the entire enterprise

Best Practices-Based Software

Most ERP vendors build best practices into their ERP systems Identify business processes in need of change Future updates are smoother if businesses

change their business processes to fit with ERP systems

Is following the best practices always the best strategy? If companies have competitive advantage

from unique business processes

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Supply Chain

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VALUE CHAIN ANALYSIS – EXECUTING BUSINESS STRATEGIES

Business process – A standardized set of activities that accomplish a specific task, such as a specific process

Value chain analysis – Views a firm as a series of business processes that each add value to the product or service

Value Chain

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• Flow of information through a set of business activities– Core activities – functional areas that process inputs

and produce outputs– Support activities – enable core activities to take place

VALUE CHAIN ANALYSIS – EXECUTING BUSINESS STRATEGIES

Porter’s Value Chain

Core Activities

Inbound logistics activities Receiving and stocking raw materials, parts and

products Cisco – delivery of electronic components from

suppliers Operations and manufacturing activities

Order processing and/or manufacturing of end products

Dell – component parts assembled to make products Outbound logistics activities

Distribution of end products Amazon.com – delivery of books to customers

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Core Activities (cont.) Marketing and Sales activities

Presale marketing activities (e.g., creating marketing brochures)

Amtrak – use of IS to update prices and schedules

Customer service activities Postsale activities HP – downloads related to purchased

products

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Support Activities Administrative activities

Support of day-to-day operations (for all functional areas)

Infrastructure activities Implement hardware and software needed

Human resource activities Employee management

Technology development activities Design and development of applications to support the

primary activities Procurement activities

Purchasing of goods and services (inputs into the primary activities)

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What is ERP? Enterprise Resource Planning Support business through optimizing,

maintaining, and tracking business functions

Broken down into business processes HRM Distribution Financials Manufacturing

What makes ERP different Integrated modules Common definitions Common database Update one module, automatically

updates others ERP systems reflect a specific way of

doing business Must look at your value chains, rather

than functions

Benefits of ERP Common set of data Help in integrating applications for

decision making and planning Allow departments to talk to each other Easy to integrate by using processed

built into ERP software A way to force BPR (reengineering) Easy way to solve Y2K problem

Vendors

ERP Vendors There were five dominating ERP software suppliers:

SAP, Oracle, PeopleSoft, Baan and J.D. Edwards. They controlled more than 60% of the multi- billion

dollar global market. Each vendor had a specialty in one particular

module area such as Baan in manufacturing, PeopleSoft in human resources management, SAP in logistics, and Oracle in financials

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SAP AG

SAP AG (“Systeme, Anwendungen, und Produkte in Datenverarbeitung”), or Systems, Applications and Products in Data Processing

In 1979, SAP launched SAP R/2, a mainframe-based ERP In 1992 SAP R/3 was launched based on client/server By 1999 SAP became the third largest software vendor in the

world and the largest in the ERP sector with a market share of about 36% serving over 17,000 customers in over 100 countries.

In 1999 SAP extended the ERP functions by adding CRM, SCM, sales-force automation and data warehousing.

SAP’s Internet-enabled ERP solutions are provided by the recently launched ERP product called mySAP.COM

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Oracle Corporation

founded in 1977 in the USA, is best-known for its database software and related applications and is the second largest software company in the world after Microsoft.

second to SAP in the enterprise systems category with over 5,000 customers in 140 countries.

Oracles ERP system is known as Oracle Applications, having more than 50 different modules in six major categories: finance, accounts payable, human resources, manufacturing, supply chain, projects and front office.

Now taken over PeopleSoft and JD Edwards

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PeopleSoft Inc.

Started in 1987 in California, with specialization in human resource management and financial services modules.

Enterprise solutions from PeopleSoft include modules for manufacturing, materials management, distribution, finance, human resources and supply chain planning.

One of the strengths of PeopleSoft is the recognition by its customers that it is flexible and collaborative

In 2005 PeopleSoft became a part of Oracle offering PeopleSoft 9

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J.D.Edwards founded in 1977 in Denver (cofounded by Jack Thompson,

Dan Gregory and C. Edward McVaney) with long experience of supplying software for the AS/400 market.

Its ERP product called OneWorld is “capable of running on multiple platforms and with multiple databases, ... [and] revolutionizes enterprise software by liberating users from inflexible, static technologies

The product includes modules for finance, manufacturing, distribution/logistics and human resources, quality management, maintenance management, data warehousing, customer support and after-sales service

Now a part of Oracle offering JD Edwards EnterpriseOne and JD Edwards World

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Baan

Found in 1978 with expertise in software for the manufacturing industry

ERP solution areas that Baan covers include finance, procurement, manufacturing, distribution, integration and implementation, planning, sales, service and maintenance, business portals, collaborative commerce and business intelligence.

Bought by Infor in 2006

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Microsoft Business Solutions Great Plains Dynamics

Technology

Support

Costs

5 Strategic5 StrategicRequirementRequirementLevelsLevels

FunctionalityGoal:Goal:To select theTo select theMost Suitable Software Most Suitable Software Package SolutionPackage Solution

Vendor

ERP Product selection Criteria

Current Situation

JD Edwards was merged with PeopleSoft Then PeopleSoft was merged with Oracle in 2005 Baan was bought by Invensys (in 2000), then SSA

Global Technologies (in 2003) and changed the name to SSA ERP

SSA ERP was acquired by Infor in 2006 Now 3 largest ERP companies:

SAP : logistics Oracle : financial, HRM Infor: manufacturing

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Difficulty in implementation

Very difficult Extremely costly and time intensive Typical: over $10,000,000 and over

a year to implement Company may implement only

certain modules of entire ERP system

You will need an outside consultant

Core and Extended ERP Components

Core components – support primary internal activities

Extended components – support primary external activities

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ERP Systems and Organizations Generally a misleading perception that ERP system

can improve organizations’ functionalities overnight. Achieving all-round cost savings and service

improvements is very much dependent on: how good the chosen ERP system fits to the organizational

functionalities and how well the tailoring and configuration process of the

system matched with the business culture, strategy and structure of the organization.

ERP system is expected to improve both backbone and front-end functions simultaneously.

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ERP Characteristics

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Integrated System

Real Time

Best PracticeCustomizing

(Configuration)

Process Oriented

ERP Characteristics (cont.) Modular design comprising many distinct business

modules such as financial, manufacturing, accounting, distribution, etc.

Use centralized common DBMS Integrated modules provide seamless data flow

among the modules, increasing operational transparency through standard interfaces

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Generally complex systems involving high cost Flexible and offer best business practices Require time-consuming tailoring and

configuration setups for integrating with the company’s business functions

Work in real time with online and batch processing capabilities

They are Internet-enabled

ERP Characteristics (cont.)

Core ERP Modules

Accounting management Financial management Manufacturing management Production management Transportation management Sales & distribution management Human resources management Supply chain management Customer relationship management E-Business

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ERP AdvantagesWhat benefits How

Reliable information access

Common DBMS, consistent and accurate data, improved reports.

Avoid data and operations redundancy

Modules access same data from the central database, avoids multiple data input and update operations.

Delivery and cycle timereduction

Minimizes retrieving and reporting delays.

Cost reduction Time savings, improved control by enterprise-wideanalysis of organizational decisions

Easy adaptability Changes in business processes easy to adapt and restructure.

Improved scalability Structured and modular design with

Improved maintenance

Vendor-supported long-term contract as part of the system procurement

Global outreach Extended modules such as CRM and SCM

E-Commerce, e-business

Internet commerce, collaborative culture

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ERP DisadvantagesDisadvantages How to overcome

Time-consuming Minimize sensitive issues, internal politics and raise general consensus

Expensive Cost may vary from thousands of dollars to millions. Business process reengineering cost may be extremely high

Conformity of the modules

The architecture and components of the selected system should conform to the business processes, culture and strategic goals of the organization

Vendor dependence Single vendor vs. multi-vendor consideration, options for “best of breeds,” long-term committed support.

Features and complexity

ERP system may have too many features and modules so the user needs to consider carefully and implement the needful only

Scalability and global outreach

Look for vendor investment in R&D, long-term commitment to product and services, consider Internet-enabled systems

Extended ERP Capability

Consider middle-ware and extended modules SCM.

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Conclusion?