11

Enterprise Resource PlanningEnterprise Resource Planning

Wisnu CahyonoWisnu Cahyono

Wenbin LiWenbin Li

Erica PriceErica Price

Jurlian Jurlian

SitanggangSitanggang

April 25, 2007April 25, 2007

22

OverviewOverview

IntroductionIntroduction

Suppliers of ERPSuppliers of ERP

Implementation of ERPImplementation of ERP

Case StudiesCase Studies

33

ERP EvolutionERP Evolution

The Evolution of ERP Systems: A Historical Perspective, 2002

44

What is ERP?What is ERP?

ERP is a packaged business software system that enables ERP is a packaged business software system that enables a company to manage the efficient and effective use of a company to manage the efficient and effective use of resources (materials, human resources, finance, etc.) by resources (materials, human resources, finance, etc.) by providing a total, integrated solution for the organization’s providing a total, integrated solution for the organization’s information-processing needs. information-processing needs.

Fiona Fui-Hoon Nah et al, “Critical factors for successful implementation of enterprise systems” Business Process Management Journal, 2001

55

Before ERP ImplementationBefore ERP Implementation

Marketing and Sales

Financial Management

Human Resource Management

Operations Management

Customer Relationship Management (CRM)

Supply Chain Management (SCM)

Customers Suppliers Distributors

Witten Bentley Dittman, System Analysis and Design Methods, 6th, McGraw-Hill, 2004

Individualized Business Systems with no Central Database!!! Not Efficient!!

66

After ERP ImplementationAfter ERP Implementation

The Evolution of ERP Systems: A Historical Perspective, 2002

77

Legacy System

Logistics Ordering Finance HP/Payrroll

ERP System

http://www.sei.cmu.edu/plp/EI_IRAD/ERP-Solutions.pdf

Data Flow Before / After ERP ApplicationData Flow Before / After ERP Application

88

ERP ModulesERP Modules

www.networkdictionary.com/software/erp.php and http://projects.bus.lsu.edu/independent_study/vdhing1/erp/

mySAP ERP Demos

99

Typical Benefits of an ERP SystemTypical Benefits of an ERP System

Reductions:Reductions: Inventory: Inventory: ≥ 20%≥ 20% Material Cost: Material Cost: ≥ 5%≥ 5% Labor Cost: Labor Cost: ≥ 10%≥ 10%

ImprovementsImprovements Customer Service and Sales: Customer Service and Sales: ≥ 10%≥ 10% Accounting Control (Reducing the Accounting Control (Reducing the

days of outstanding receivables): days of outstanding receivables): ≥ ≥ 18%18%

Balance Sheet:Balance Sheet: Inventory Reduction Inventory Reduction and Accounts Receivableand Accounts Receivable

Income Statement:Income Statement: Inventory Inventory Reduction, Material Cost Reduction, Reduction, Material Cost Reduction, Labor Cost Reduction and Increased Labor Cost Reduction and Increased SalesSales

Reduction Benefits of ERP

0%

5%

10%

15%

20%

25%

Inventory Material Cost Labor Cost

% R

edu

ctio

n

Maximizing Your ERP System, Scott Hamilton, 2002

Based on Studies that surveyed manufacturers about the impact of ERP systems on firm performance. For all industries and company size

1010

Advantages of an ERP SystemAdvantages of an ERP System

The Evolution of ERP Systems: A Historical Perspective, 2002

These are the benefits that an industry standard ERP system may bring to an organization

1111

Potential Pitfalls of ERP ImplementationPotential Pitfalls of ERP Implementation

No executive sponsorNo executive sponsor Becomes a centralized Becomes a centralized

implementation in 1 department implementation in 1 department when it is really needs to be when it is really needs to be adapted by all departmentsadapted by all departments

No full-time project managerNo full-time project manager Lack of training for employeesLack of training for employees Proper research of vendors before Proper research of vendors before

selection of ERP packageselection of ERP package Lack of Budget – need to consider Lack of Budget – need to consider

software, consultants, employee software, consultants, employee training and upgrade coststraining and upgrade costs

Lack of thorough documentation Lack of thorough documentation when implementing the systemwhen implementing the system

Concentrating more on re-Concentrating more on re-engineering than Process engineering than Process EnhancementEnhancement

Biggest ERP Challenges

Lack of Project Resources, 19%

Not enough executive support,

0%

Lack of Employee Buy-In, 38%

Too small of a budget, 10%

Lack of ERP expertise, 33%

Weekly Poll Results, Eric Kimberling, Panorama Consulting Group, 11/7/06 and The Top 8 Pitfalls of ERP Implementation and How to Avoid Them,

Paul Nation, eSG enterprise Solution Group

Web Poll survey conducted by Panorama Consulting Group, n~50, conducted on 11/7/06

1212

Disadvantages of an ERP SystemDisadvantages of an ERP System

The Evolution of ERP Systems: A Historical Perspective, 2002

1313

Market Share of Packaged ApplicationMarket Share of Packaged Application

eProcurement6%SCM

6%

CRM18%

PLM5%

ERP65%

ERP Software Market grew to $25.4 Billion in 2005!!!

http://www.bptrends.com/publicationfiles/TB%20Wolf%20Pack%20Appl%20Market%20Size%204%2D5%2D031%2Epdf

1414

ERP Market Share Within the IndustriesERP Market Share Within the Industries

1515

OverviewOverview

Introduction

Suppliers of ERPSuppliers of ERP

Implementation of ERPImplementation of ERP

Case StudiesCase Studies

1616

Top 5 Revenue ShareTop 5 Revenue Share

ERP Software Market grew to $25.4 Billion in 2005!!!Source: AMR Research, 2006

SAP, 42%Growth Rate, 12%

Oracle, 20%Growth Rate: 110%

Other, 38%Growth Rate: /

1717http://new.quote.com/stocks/adv_chart.action?sym=ORCL

Intention to buy Retek Inc.

Peoplesoft(Jan 7, 2005)

Retek Inc(Apr.6, 2005 )

Siebel(June 2006)

HyperionTangosolLodestar

Pilot Software

SPL(Nov. 2006)

1818

                                                                                     

     

http://www.sap-centric-eam.com/2007/cartoon_dec.html

1919

Systems Applications and Products in Systems Applications and Products in Data ProcessingData Processing

http://www.sap.com/germany/company/investor/reports/gb2006/en/business/financial-summary.html

http://www.sap.com/usa/company/index.epx , http://www.nasdaq.com/asp/

Founded in 1972

Based in Waldorf, Germany

US Corporate Headquarters in Newtown Square, PA

39,300 employees in over 50 countries

Supports more than 38,000 customers, with over 121,000 installations in more than 120 countries and 31 languages (over 12 million daily users)

From small business to global enterprise (To-date: 65% of SAP customers are small & midsize companies)

Revenue 2006 = € 9,402 million (+10%) ~ $ 12.2 Billion

Net Income 2006 = € 1,871 million (+25%) ~ $ 2.4 Billion

2020

SAP Business Suite (CRM, ERP, SCM, PLM, SRM) SAP All-in-One (Mid-size company) SAP Business One (over 10,000 small businesses) Duet

Provides access to SAP business processes and data via Microsoft Office SAP xApps Composite Applications

Major business strategy of today: SAP Acquires Pilot Software (OLAP) on Feb 2007

To target mid-market companies to expand their market share All-in-One features integrated CRM, BI and analytics, and a redesigned user interface.

IBM and SAP announce the expansion of their partnership to reach midsize companies in Europe and Asia-Pacific (Apr 23, 2007)

ProductsProducts

http://www.sap.com/solutions/index.epx , http://www.forbes.com/markets/feeds/afx/2007/04/23/afx3640526.html

http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9011563

2121

http://www.oracle.com/corporate/story.html

Founded in 1977 World Headquarters in Redwood Shores, CA 55,000+ employees Used in 98 of the Fortune 100 companies First software company to develop and deploy 100

percent internet-enabled enterprise software across its entire product line

Revenue 2006 = $14.38 billion (+21.87%)

Net Income 2006 = $3.38 billion (+17.15%)

http://www.infoworld.com/article/05/06/29/HNoraclerevenuejumps_1.htmlhttp://news.com.com/Oracle+profit+rises+on+new+software+revenue/2100-1014_3-6087043.htmlhttp://www.nasdaq.com/asp/

2222

Oracle e-Business Suite (business applications for the enterprise)

JD Edwards World (IBM iSeries platform, small businesses)

JD Edwards Enterprise One (medium-end)

PeopleSoft Enterprise (high-end)

Retek Inc. - SCM (Apr.6, 2005, controls 92.8 percent of Retek shares)

Siebel – CRM Solution (4,000 customers)

Major business strategy of today:Major business strategy of today: Project Fusion (merged suite, 2008)

With strategic acquisitions, Oracle strengthens its product offerings, accelerates innovation, meets customer demand more rapidly, and expands partner opportunity.

Hyperion - producer of business-intelligence software

Tangosol Inc. - Memory Data Grid Leader: perform real time data analytics, grid based in-memory computations and high performance transactions

LODESTAR Corporation - a provider of meter data management and energy solutions for the utilities industry (Oracle's 29th buy in less than 3 years).

ProductsProducts

http://www.oracle.com/products/index.html#applications , http://www.oracle.com/corporate/acquisition.htmlhttp://www.oracle.com/products/index.html#applications http://www.itnews.com.au/newsstory.aspx?CIaNID=50355&src=site-marqhttp://news.com.com/Oracle+to+swallow+Siebel+for+5.8+billion/2100-1014_3-5860113.html , http://money.cnn.com/2004/12/13/technology/oracle_peoplesoft/ http://www.internetnews.com/bus-news/article.php/3582106 (Siebel) , http://new.quote.com/stocks/story.action?id=RTT704240824001488 (Lodestar)http://www.eweek.com/article2/0,1895,2099636,00.asp (Hyperion) , http://www.oracle.com/corporate/press/2007_apr/hyperion-clearances.htmlhttp://www.marketwatch.com/news/story/oracle-buy-hyperion-52-share-33/story.aspx?guid=%7BDD070F86-54F7-4709-A26A-12199FEB68B3%7D

2323

Other VendorsOther Vendors

: Industry tailored application (small-mid co)

: Distribution and Logistics (start up – large co)

: Industry solution (mid market)

: Industry, control and transportation (high-end)

: Manufacturers (mid market)

: - Microsoft Dynamics (mid-large company)- Retail Management System (small and mid-sized retailers)

http://www.microsoft.com/dynamics/default.mspx , http://www.lawson.com/ , http://www.sage.com/ http://www.epicor.com/www/products/enterprise/ , http://www.invensys.com/ , http://www.ssaglobal.com/ http://go.infor.com/docs/FINAL_Infor_Acquires_Extensity_and_Systems_Union.pdf

2424

OverviewOverview

Introduction

Suppliers of ERP

Implementation of Implementation of ERPERP

Case StudiesCase Studies

2525

Cost and Time of ERP ImplementationCost and Time of ERP Implementation

http://www.standishgroup.com/chaos/beacon_243.php

Average Cost: $9.1 millionAverage Time: at least 1 yearAverage Usage: 27.6% of ERP available functionality

Survey of 107 separate ERP applications

Cost Allocation

2626

Performance of ERP ImplementationPerformance of ERP Implementation

http://www.standishgroup.com

2727

Four–Phase Model of ERP ImplementationFour–Phase Model of ERP Implementation

Critical Success Factors for Enterprise Resource Planning Implementation and Upgrade, Journal of Computer Information Systems, 2006, Fiona Fui-Hoon Nah and Santiago Delgado

Chartering:Chartering: Decision define business case and solution constraintsDecision define business case and solution constraints

Project:Project: Getting system and end users up and runningGetting system and end users up and running

Shakedown:Shakedown: Stabilizing, eliminating “bugs”, getting to normal operation. Stabilizing, eliminating “bugs”, getting to normal operation.

Onward and Upward:Onward and Upward: System maintenance, users support, system upgrading and extension. System maintenance, users support, system upgrading and extension.

Critical Success Factors for ERP ImplementationCritical Success Factors for ERP Implementation

------- developed by Markus and Tanis in 1999------- developed by Markus and Tanis in 1999

2828

Importance of Critical Success Factors Across the Phase of ERP Implementation

1.5

2

2.5

3

3.5

4

Chartering Project Shakedown Onward & Upward

Phase

Imp

ort

ance

Sco

re

Business Plan or Vision Communication

TopManagement Support and Championship System Analysis, Selection and Technical Implementation

Change Management ERPTeam Composition, Skills and Compensation

Project Management

Survey in utility industry and non-profit organization

2929

Survey of 500 Separate ERP ImplementationsSurvey of 500 Separate ERP Implementations

Machinery Manufacturers

Metals and Metal Products

Automative

High Tech

CPG/Food&Beverage

Aerospace&DefenceMedical Devices

Other

0%

5%

10%

15%

20%

25%

30%

Industry

Geography

Asia Pacific14%

Europe17%

Middle East and Africa2%

South America1%

North America66%

Company Size (annual revenue)

Mid-Sized Enterprises

(US$ 1 billion - US$ 50 million)

51%

Larger enterpises ( > US$ 1 billion)

9%Small Enterprises (< US$ 50 million)

40%

3030

Business Drivers for ERP ImplementationBusiness Drivers for ERP Implementation

Survey of 500 corporations

3131

Software Selection for ERP ImplementationSoftware Selection for ERP Implementation

3232

Main Methods used in ERP ImplementationMain Methods used in ERP Implementation

3333

Challenges and Responses of ERP Challenges and Responses of ERP ImplementationImplementation

3434

Performance Improvement with ERP ImplementationPerformance Improvement with ERP Implementation

Laggard(30%): Laggard(30%): ERP implementations that are significantly behind the average ---poor performanceERP implementations that are significantly behind the average ---poor performance

Average(50%): Average(50%): ERP implementations that represent the average or normal---average performanceERP implementations that represent the average or normal---average performance

Best in Class(20%):Best in Class(20%): ERP implementations that are superior to the industry normal---top performance ERP implementations that are superior to the industry normal---top performance

3535

Expected and Actual ROI with ERP Expected and Actual ROI with ERP ImplementationImplementation

Laggard(30%): Laggard(30%): ERP implementations that are significantly behind the average ---poor performanceERP implementations that are significantly behind the average ---poor performance

Average(50%): Average(50%): ERP implementations that represent the average or normal---average performanceERP implementations that represent the average or normal---average performance

Best in Class(20%):Best in Class(20%): ERP implementations that are superior to the industry normal---top performance ERP implementations that are superior to the industry normal---top performance

3636

OverviewOverview

Introduction

Suppliers of ERP

Implementation of ERPImplementation of ERP

Case StudiesCase Studies

3737

Case 1 – FoxMeyer Drugs Case 1 – FoxMeyer Drugs

FoxMeyer Drugs was the nation’s fourth largest FoxMeyer Drugs was the nation’s fourth largest Wholesale Distributor of Drugs and Beauty aids, Wholesale Distributor of Drugs and Beauty aids, based in Dallasbased in Dallas

Has 23 distribution centersHas 23 distribution centers Major Product: Wholesale distribution of drugs & Major Product: Wholesale distribution of drugs &

beauty aids beauty aids Customers/serves: Drugs stores, Chains, hospitals, Customers/serves: Drugs stores, Chains, hospitals,

care facilitiescare facilities Revenue (1995): $ 5 Billions => 1996 Sold for just$ Revenue (1995): $ 5 Billions => 1996 Sold for just$

80 Millions 80 Millions The VP of IT Department report to COO The VP of IT Department report to COO

Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

FoxMeyer Drug Co.

3838

Case 1 : FoxMeyer DrugsCase 1 : FoxMeyer DrugsWhy they want to implement ERP?Why they want to implement ERP?

FoxMeyer expected high growth in drug FoxMeyer expected high growth in drug salessales

To increase efficiencyTo increase efficiency Their Unisys computer systems were Their Unisys computer systems were

reaching the end of their life and the vendor reaching the end of their life and the vendor was discontinuing support.was discontinuing support.

FoxMeyer expected the project to save $ 40 FoxMeyer expected the project to save $ 40 M annually (Promised benefits).M annually (Promised benefits).

Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

FoxMeyer Drug Co.

3939

Case 1 : FoxMeyer DrugsCase 1 : FoxMeyer Drugs Project Scope, Time, & Cost Project Scope, Time, & Cost

Project: The Delta IIIProject: The Delta III Project scope: ERP R/III Edition & Warehouse Project scope: ERP R/III Edition & Warehouse

Automation SystemAutomation System Time & budget estimation:Time & budget estimation: - 18 Months- 18 Months

- 15 Millions- 15 Millions Actual project delivery date & cost:Actual project delivery date & cost:

- 24 Months- 24 Months- Over 100 Millions- Over 100 Millions

Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

FoxMeyer Drug Co.

4040

Case 1 : FoxMeyer DrugsCase 1 : FoxMeyer Drugs Suppliers/Vendors Suppliers/Vendors

SAP: Provide ERP Version R/3 ProjectSAP: Provide ERP Version R/3 Project Pinnacle: Provide Warehouse Automation Pinnacle: Provide Warehouse Automation

SystemSystem Anderson Consulting: Perform IntegrationAnderson Consulting: Perform Integration

Source: Source: Judy E. Scott, The University of Texas at Austin

FoxMeyer Drug Co.

4141

Case 1 : FoxMeyer DrugsCase 1 : FoxMeyer Drugs Which ERP Function Module are Which ERP Function Module are

Applied? Applied?

SAP R/3 Edition:SAP R/3 Edition: Financials and Controlling (FICO)Financials and Controlling (FICO) Human Resources (HR)Human Resources (HR) Materials Management (MM)Materials Management (MM) Sales and Distribution (SD)Sales and Distribution (SD)

Source: Judy E. Scott, The University of Texas at Austin

FoxMeyer Drug Co.

4242

Case 1 : FoxMeyer DrugsCase 1 : FoxMeyer Drugs ERP Implementation ERP Implementation

Source: delivery.acm.org

FoxMeyer Drug Co.

4343

Case 1 : FoxMeyer DrugsCase 1 : FoxMeyer Drugs Why this project is a failure? Why this project is a failure?

The customers less commitmentThe customers less commitment The scope of the project was riskyThe scope of the project was risky FoxMeyer was over expectationsFoxMeyer was over expectations The new system initially could only process The new system initially could only process

100,000 orders/night compared to 420,000 orders 100,000 orders/night compared to 420,000 orders with the previous systemwith the previous system

FoxMeyer management did not feel it knew FoxMeyer management did not feel it knew enough to cope with the Consultant and the enough to cope with the Consultant and the VendorsVendors

FoxMeyer did not have the necessary skill in FoxMeyer did not have the necessary skill in househouse

The project spin out of controlThe project spin out of controlSource: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

FoxMeyer Drug Co.

4444

Case 1 : FoxMeyer DrugsCase 1 : FoxMeyer Drugs Lessons Learned Lessons Learned

Respond to environmental and strategic changes at Respond to environmental and strategic changes at more tactical (project) levelsmore tactical (project) levels

Recognize the importance of organizational culture; Recognize the importance of organizational culture; foster an open culture and encourage open foster an open culture and encourage open communicationcommunication

Take a realistic view of the role technology can play Take a realistic view of the role technology can play in supporting your firm’s strategy; engage in a in supporting your firm’s strategy; engage in a strategy of “small wins” to leverage knowledge strategy of “small wins” to leverage knowledge gainedgained

Manage the project; employ a strong project leader Manage the project; employ a strong project leader and well defined methodology.and well defined methodology.

Source: April 2002/vol. 45 No. 4 Communications of the ACM

FoxMeyer Drug Co.

4545

Case 2 – Schnucks Case 2 – Schnucks

Founded in St. Louis in 1939Founded in St. Louis in 1939 Major Departments: Groceries, Bakery Goods, Florist, and Major Departments: Groceries, Bakery Goods, Florist, and

PharmacyPharmacy Has more than 100 stores in Missouri, Illinois, Indiana, Has more than 100 stores in Missouri, Illinois, Indiana,

Wisconsin, Tennessee, Mississippi and Iowa Wisconsin, Tennessee, Mississippi and Iowa 2006 Revenues – 2.4 Billion2006 Revenues – 2.4 Billion IT department has 90 peopleIT department has 90 people

About 30 of the 90 are developersAbout 30 of the 90 are developers Mark Zimmerman is the VP of IT and he reports to the President Mark Zimmerman is the VP of IT and he reports to the President

of the company, Todd Schnuck .of the company, Todd Schnuck .

4646

Case 2: Schnucks Case 2: Schnucks Why they needed ERPWhy they needed ERP

Needed to upgrade their system to be Y2K ready and wanted to Needed to upgrade their system to be Y2K ready and wanted to have a relational database (UNIX) to get off the mainframe have a relational database (UNIX) to get off the mainframe system. system. Benefit: Provided single point of data entry for all of their financial Benefit: Provided single point of data entry for all of their financial

information. information. Business Drivers: Standardization of processes and linking of operations Business Drivers: Standardization of processes and linking of operations

Implemented PeopleSoft Financial (general ledger, fixed assets, Implemented PeopleSoft Financial (general ledger, fixed assets, AR, AP) – Financial Module of ERPAR, AP) – Financial Module of ERP Selected between Oracle and PeopleSoftSelected between Oracle and PeopleSoft Decision factors: ease of use and meeting IT needsDecision factors: ease of use and meeting IT needs PeopleSoft provided better ease of modification and had slightly better PeopleSoft provided better ease of modification and had slightly better

costcost Project started in fall of 1998 and completed in October 1999 on Project started in fall of 1998 and completed in October 1999 on

time. time. Budget Estimate had 2 components – Purchase price of the Budget Estimate had 2 components – Purchase price of the

software and the consultantssoftware and the consultants

4747

Case 2: SchnucksCase 2: SchnucksImplementation of the Financial Module Implementation of the Financial Module

Used a combination of PeopleSoft software, Used a combination of PeopleSoft software, consultants and in-house personnel to implement consultants and in-house personnel to implement the systemthe system Critical success factors used:Critical success factors used:

Top Management SupportTop Management Support Minimum CustomizationMinimum Customization Focused on Training for EmployeesFocused on Training for Employees Used a full-time Project Manager Used a full-time Project Manager

Critical success factors not used:Critical success factors not used: Sufficient prior ERP knowledge – underestimated budget and Sufficient prior ERP knowledge – underestimated budget and

staff neededstaff needed Cross-functional team for implementationCross-functional team for implementation Accurate documentation of implementation – need this for Accurate documentation of implementation – need this for

upgrades, especially if staff if lostupgrades, especially if staff if lost

4848

Case 2: Schnucks Case 2: Schnucks Improvements/DisappointmentsImprovements/Disappointments

Biggest ImprovementsBiggest Improvements Provided more timely and accurate financial status and Provided more timely and accurate financial status and

analysis with no wait for ITanalysis with no wait for IT Provided a new technology for IT to learn and was easier Provided a new technology for IT to learn and was easier

to useto use Better access to data, query capacity and learned Better access to data, query capacity and learned

controls and provided Y2K compliancecontrols and provided Y2K compliance

Biggest DisappointmentsBiggest Disappointments On-going costs for software On-going costs for software Underestimated the needs and costs for the Underestimated the needs and costs for the

infrastructure of the new softwareinfrastructure of the new software Not enough expertise at the time of implementationNot enough expertise at the time of implementation Need more training resourcesNeed more training resources

4949

Case 2: Schnucks Case 2: Schnucks Changes from ImplementationChanges from Implementation

Before ERP Before ERP ImplementationImplementation All financial data was All financial data was

running off a mainframe running off a mainframe system (Legacy)system (Legacy)

Not Y2K CompliantNot Y2K Compliant Financial Status and Financial Status and

Analysis was timely for Analysis was timely for executives to complete executives to complete because of poor access to because of poor access to datadata

IT had little knowledge of IT had little knowledge of ERP systemsERP systems

After ERP ImplementationAfter ERP Implementation All financial data came from All financial data came from

a relational database (UNIX)a relational database (UNIX) System was Y2K CompliantSystem was Y2K Compliant Financial Status and Analysis Financial Status and Analysis

was more efficient and was more efficient and accurate for executives accurate for executives because they had access to because they had access to the data w/o IT’s helpthe data w/o IT’s help

IT gained experience in IT gained experience in Oracle technologyOracle technology

5050

Case 2: Schnucks Case 2: Schnucks Our Lessons Learned Our Lessons Learned

Be aware of the on-going costs of an ERP systemBe aware of the on-going costs of an ERP system Take the time to research vendors, analyze your Take the time to research vendors, analyze your

needs and understand ERP systems before starting needs and understand ERP systems before starting implementationimplementation

Keep accurate documentation during Keep accurate documentation during implementation to be used for upgradesimplementation to be used for upgrades

Have sufficient staff before implementation of the Have sufficient staff before implementation of the systemsystem

5151

Case 3 – PT. PLN (Persero) Case 3 – PT. PLN (Persero)

PT. PLN is the Indonesian state-owned electricity PT. PLN is the Indonesian state-owned electricity company.company.

Has 25 regional units across all the 32 provinces in Has 25 regional units across all the 32 provinces in IndonesiaIndonesia

2005 Revenues – Rp 76,5 Trillion ( ~ US$ 8 Billion )2005 Revenues – Rp 76,5 Trillion ( ~ US$ 8 Billion ) IT department in Head-office has 45 peopleIT department in Head-office has 45 people

The Deputy Director of IT Strategy reports to the The Deputy Director of IT Strategy reports to the Director of Marketing & Customer ServiceDirector of Marketing & Customer Service

Source of case information: Poedji WisaksonoSource of case information: Poedji Wisaksono HR Information System Manager in the Head office and he HR Information System Manager in the Head office and he

reports to the Deputy Director of Human Resource Development reports to the Deputy Director of Human Resource Development System.System.

One of the change agents for ERP Implementation in the One of the change agents for ERP Implementation in the companycompany

5252

( Why implement ERP? )

5353

Case 3: PT. PLN Case 3: PT. PLN Project Scope and Schedule Project Scope and Schedule

Vendor selection in February 2004 - April 2005Vendor selection in February 2004 - April 2005 Project started in May 2005 Project started in May 2005 Go Live: Go Live:

Finance Module: April ‘06 & July ‘06Finance Module: April ‘06 & July ‘06 Material Module: April ‘06 & July ‘06Material Module: April ‘06 & July ‘06 Human Resource Module: December ‘05, April ‘06 & July Human Resource Module: December ‘05, April ‘06 & July

’06’06 ERP BudgetERP Budget

IT budget for the development of the ERP system is US$ IT budget for the development of the ERP system is US$ 25 million.25 million.

in which, in which, $ 15.4 Million$ 15.4 Million was allocated to was allocated to 4 Pilot Project Units:4 Pilot Project Units: ----- Head Office----- Head Office----- Bali Distribution Unit----- Bali Distribution Unit----- Jakarta Distribution Unit----- Jakarta Distribution Unit----- Load Control Center (P3B) Unit----- Load Control Center (P3B) Unit

5454

Case 3: PT. PLN Case 3: PT. PLN Software Selection Software Selection

Vendor selection: Vendor selection: February 2004 - April 2005February 2004 - April 2005 Accenture (Consultant)Accenture (Consultant) SAP (Application)SAP (Application) HP (Hardware)HP (Hardware) Oracle (Database)Oracle (Database)

Reason of Software Selection:Reason of Software Selection: FunctionalityFunctionality Total Cost of OwnershipTotal Cost of Ownership Ease & Speed of ImplementationEase & Speed of Implementation Best PracticeBest Practice

5555

Case 3: PT. PLN - ERP ApplicationCase 3: PT. PLN - ERP Application

ESS (Employee Self-Service)

Direct information and Direct information and services for employeesservices for employees

PLN - IT System

ERP Back Office

Finance Module

Material Module

HR Module

SEM / BW (Strategic Enterprise Management /

Business Warehouse)

- Financial Management Report- Material Management Report - HR Management Report

Management

Functional / Operational

All Employees

5656

Case 3: PT. PLN Case 3: PT. PLN Method UsedMethod Used

Deploying through consultant agencyDeploying through consultant agency

After ERP Go-Live:After ERP Go-Live: Has a Helpdesk of 7 persons in Head OfficeHas a Helpdesk of 7 persons in Head Office

User SupportUser Support

Has a developer team of 30 persons preparing Has a developer team of 30 persons preparing for the Onward and Upward phase:for the Onward and Upward phase: System maintenance, system upgrading and System maintenance, system upgrading and

extensionextension

5757

Four–Phase Model of ERP ImplementationFour–Phase Model of ERP Implementation

Critical Success Factors for Enterprise Resource Planning Implementation and Upgrade, Journal of Computer Information Systems, 2006, Fiona Fui-Hoon Nah and Santiago Delgado

Shakedown:Shakedown: Stabilizing, eliminating “bugs”, getting to normal operation. Stabilizing, eliminating “bugs”, getting to normal operation.

Employees were not completely ready for the new systemEmployees were not completely ready for the new system Not enough expertise at the time of implementationNot enough expertise at the time of implementation Need more training resourcesNeed more training resources Still needs to implement both legacy and new system for Finance and Human ResourcesStill needs to implement both legacy and new system for Finance and Human Resources Change managementChange management

Case 3: PT. PLN Case 3: PT. PLN Critical Success FactorsCritical Success Factors

------- developed by Markus and Tanis in 1999------- developed by Markus and Tanis in 1999

5858

Case 3: PT. PLN Case 3: PT. PLN ChallengesChallenges

Challenges:Challenges: Customization Related ChallengesCustomization Related Challenges TrainingTraining Little flexibility in adapting to business Little flexibility in adapting to business

processesprocesses Lengthy or incomplete integrationsLengthy or incomplete integrations

Responses to challenges:Responses to challenges: Aligning software capabilities to business Aligning software capabilities to business

processesprocesses Use external consultantsUse external consultants Wrap existing applications with web services Wrap existing applications with web services

360 degree assessment360 degree assessment

5959

Case 3: PT. PLN Case 3: PT. PLN Changes from ImplementationChanges from Implementation

Before ERP Before ERP ImplementationImplementation Data are not standardizedData are not standardized Data input redundancyData input redundancy Uses several applications Uses several applications

for reportingfor reporting

After ERP Implementation (Still After ERP Implementation (Still in the verge of implementing in the verge of implementing ERP)ERP) In the transition period: Still In the transition period: Still

uses both ERP and legacy uses both ERP and legacy applicationsapplications

Better access to dataBetter access to data Acquiring new technologyAcquiring new technology Reduced FTE (Full Time Reduced FTE (Full Time

Equivalent)Equivalent) Increase ITO (Inventory Turn Increase ITO (Inventory Turn

over)over) Reduced Inventory Level (more Reduced Inventory Level (more

control on inventory)control on inventory) Cuts transactions and Cuts transactions and

administration worksadministration works

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ACCENTURE HUMAN CAPITAL DEVELOPMENT FRAMEWORK

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Case 3: PT. PLN Case 3: PT. PLN Lessons learnedLessons learned

Replacing the legacy system cannot be Replacing the legacy system cannot be done after the implementation of the pilot done after the implementation of the pilot projectproject

Extensive training for employeesExtensive training for employees

Management Support is neededManagement Support is needed

Changing application needed data Changing application needed data cleansingcleansing

Development of the Human CapitalDevelopment of the Human Capital

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Case 1 – FoxMeyer Case 1 – FoxMeyer Drugs (1993)Drugs (1993)

Case 2 – SchnucksCase 2 – Schnucks

(1999)(1999)Case 3 – PLN (2006)Case 3 – PLN (2006)

RevenueRevenue ~ $ 5 Billion~ $ 5 Billion ~ $ 2.4 Billion~ $ 2.4 Billion ~ $ 8 Billion~ $ 8 Billion

Reason for Reason for ERPERP

Increase the salesIncrease the sales Increase the efficiencyIncrease the efficiency Replaced legacy systemReplaced legacy system Increase profitIncrease profit

To become Y2K compliant To become Y2K compliant and replace legacy systemsand replace legacy systems

- Have a controlled and - Have a controlled and standardized environmentstandardized environment- Implementing adopted Best - Implementing adopted Best PracticesPractices- Get a better operation and - Get a better operation and control mechanism control mechanism

TimeTime 24 months24 months ~ 1 year~ 1 year 18 months18 months

VendorVendor SAPSAP PeopleSoftPeopleSoft SAPSAP

Project CostProject Cost Over $100 millionOver $100 million Unknown $15.4 million$15.4 million

ModulesModules Warehouse AutomationWarehouse Automation FinancialFinancial Human ResourcesHuman ResourcesMaterial Material FinancialFinancial

Methods usedMethods used - ERP Vendor and - ERP Vendor and consultantconsultant

- ERP Vendor and consultant- ERP Vendor and consultant - ERP consultant- ERP consultant

ClassClass FailureFailure AverageAverage AverageAverage

OutcomesOutcomes COO ResignCOO Resign$ 34 M charge for $ 34 M charge for inventory and order mix-inventory and order mix-upsupsBankruptcyBankruptcySues Anderson Sues Anderson ConsultantConsultantSues SAPSues SAP

Became Y2K compliantBecame Y2K compliantFinancials became more Financials became more timely and accurate – faster timely and accurate – faster analysisanalysisIT gained new technology IT gained new technology knowledgeknowledge

Pilot projectPilot project in 4 units in 4 unitsPotential outcome :Potential outcome :- Reduced FTE (Full Time - Reduced FTE (Full Time Equivalent)Equivalent)- Increase ITO (Inventory Turn - Increase ITO (Inventory Turn over)over)- Reduced Inventory Level- Reduced Inventory Level

Case ComparisonsCase Comparisons

FoxMeyer Drug Co.

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Future of ERP SystemsFuture of ERP Systems

                                                                                                                                                                                          

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Future Goals of ERP Future Goals of ERP

There is a movement toward a global ERP system, which There is a movement toward a global ERP system, which is a key factor shaping the future of ERPis a key factor shaping the future of ERP

Companies want to have fewer and fewer ERP systems Companies want to have fewer and fewer ERP systems running – meaning eventually they only want to open one running – meaning eventually they only want to open one application to get any information they need.application to get any information they need.

There is a shift toward creativity around product There is a shift toward creativity around product strategies rather than the current productsstrategies rather than the current products

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Questions???Questions???