Concepts, Functionality, and Cost Effectiveness of Internet-Oriented ERP Systems

Pertemuan 1 - 2

Matakuliah: M0594 / Enterprise SystemTahun : 2008

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Concepts, Functionality, and Cost Effectiveness

of Internet-Oriented ERP Systems• The Evolution from MIS and Logistics to ERP and

beyond• ERP implementation at different level sophistication• ERP Cost Effectiveness• Internet Oriented ERP Project Definition• How to Ascertain that Integrated Solutions Work

Well• The Synergy in Managing IT and Procurement

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The Evolution from MIS and Logistics to ERP and beyond

• Evolution of Information Technology in 1960s and 1970s• In 1960, DBMS• In 1970, MIS effort that attracted attention, including the following

logistics operations: analytical accounting, order handling, and inventory control– At the origin of the word logistics (noun, singular) is a Greek term

meaning something logical, but also a calculator and accountant.– Webster’s Dictionary defines logistics as the branch military

science having to do woth moving, supplying, and quartering troops

• During 1980s, the concepts underpinning MIS were extended beyond integrating discrete islands and providing some forms of seamless access to database

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• Then a new agent of transformation came along in the 1990s.

• By the mid to late 1990s, the Internet spawned a wave of innovation that required industry leaders to reinvent both internal and external business partnership or overtaken by competitors

• By 2001 this wave had hit all sectors of the economy: automobiles, aerospace, material systems, telecommunications, environmental services, and of course, technology

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After the advent of MIS, it should be expected that:– New integrative software systems are necessary– New systems are much more sophisticated than those

they replace– The software industry will come forward with valid

solutions

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ERP can be implemented at different levels of sophistication

• The effort that began a dozen years ago with ERP programming products and associated tools providing an off-the-shelf integrative solution has been long overdue.

• Looking at Exhibit 1.1 one sees that the functions shown in the middle layers evidently existed well before ERP software came into being

• The difference is that each way a discrete island, badly connected to the others, which significantly increased system complexity.

• One of the goals of ERP has been that of reducing this complexity to help better understand the evolution of business process and their new requirement in software support

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ERP can be implemented at different levels of sophistication

• The primary rule of system integration is that one should be able to make use of software subsystems working together without undue technical difficulties, a reduced systems functionality, inordinate implementation costs, or significant delays in deliverabes

• This is the principle, but not all vendors of ERP packages respect this rule.

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ERP Cost Effectiveness• Studies that have focused on the cost-effectiveness

of ERP implementation suggest that to make the system work into their applications environment, user organizations spend 200 to 800 percent more than they paid for their off-the-shelf software– The lower end of ratio (200 to 300 percent), more

or less homogeneous computer system solutions– The higher end (700 to 800 percent) exactly the

opposite approach, heterogeneous platforms.

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Implementation• The implementation of a core ERP system can take three months or

two years, depending on a number of reasons internal to the user organization. For example, the:– Effectiveness of project management entrusted with the task of

implementing ERP– Existence of regular, rigorous design reviews and subsequent

corrective action– Internal IT culture of working hard or taking it easy with

deliverables– Attention given by top management to getting results, as well as

on return on investment– Homogeneity or heterogeneity of the computer system

environment in existence

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Project Definiton for a successful Internet-Oriented Implementation of

ERP• From the beginning, a project must be defined in an accurate

and comprehensive manner, both in technical and cost/benefit terms.

• This requires a dual approach that includes a rich database on costs and schedules and an interactive design management definition process able to:– Provide firm, properly studied solutions to functional, cost,

and scheduling challenges– Reduce the risk of investing in new facilities and software

routines prior to having thought out of a valid solution• A surprising number of companies do not abide by the standard

described by the above two bullets. Therefore, it is not surprising that they have difficulty both in implementing ERP and in taking advantage of the Internet.

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Project Definiton for a successful Internet-Oriented Implementation of

ERP

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Project Definiton for a successful Internet-Oriented Implementation of

ERP• The multiplicity of Internet links increases the challenges of the message that the two bullets above have conveyed

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Project Definiton for a successful Internet-Oriented Implementation of

ERP• Whether or not they targeted Internet links with their

suppliers to attack the limitations of their legacy systems and processes, companies must use the best available enterprise solutions that, when properly implemented, can play the role of driver of organizational change. In addition to the ERP systems and the critical path method, examples of off-the-shelf software include:– Supply Chain Management (SCM)– Customer Relationship Management (CRM)

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How to ascertain that Integrated Solutions

Work Well in Daily Practice• People and companies participating in my research pressed the

point that effective solutions to Internet-oriented ERP challenges – from Manufacturing to Logistics – recast business and industry in a new pattern.

• They also warned that factual and documented optimization studies need far better information technology than has been classically provided through legacy data processing and mainframes or by means of client/server solutions done primarily for “me-too” reasons

• Top Tier Companies suchs as TIAA/CREF dedicate two thirds of their IT budgets to the service of management

• In contrast, the vast majority of companies spend no more than 5 percent of their IT budget on management information as well as on modeling and experimentation.

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How to ascertain that Integrated Solutions

Work Well in Daily Practice

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The Synergy in Managing IT and Procurement

• Some companies have introduced into their organization a new job: the Chief Web Officer (CWO).

• Others, such as General Electric (GE), have given the CIO responsibility of looking after the synergy of IT and procurement.

• Either way, job requirements must be met, and these include overseeing information systems and Internet strategies, creating and running the interwoven network of extrastructure, and forging flexible Internet Commerce links with business partners

• At GE, the CIO works closely with suppliers to get them seamlessly online and manages all links connected to GE’s massive procurement program. This synergy will, in all likelyhood, increase in the coming years because technology moves so fast. It will also become better focused because of Six Sigma

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The Synergy in Managing IT and Procurement

• The perspective of synergies continue to expand. As computers and communications become increasingly pervasive in our work, in our daily lives, and in our transportation environment, many instances of convergence are developing in the functionality of products and processes and the accompanying communications infrastructure

• There is no question that IT and internet solutions are merging. Personal computers function as Web access point, phones, entertainment outlets, and home automation controllers all the same time.

• See some examples on IBM, Bell Atlantic, Borden and Nike.