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Introduction to ERP
Calculation systems
• 1950-80• Single purpose• Eliminate tedious human work• Examples: Payroll, General ledger,
Inventory• Technology used: Mainframes,
magnetic tapes, batch processing
Functional systems
• 1975-20??• Use computers to improve operations• Applications: Human resources, order
entry, manufacturing resource planning
• Technologies: Mainframes, PC’s, LAN’s
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
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
Integrated systems or
Enterprise Resource Planning System
What is ERP?
• ERP is a set of integrated business applications, or modules which carry out common business functions such as general ledger, accounting, or order management
• An ERP system is an attempt to integrate all functions across a company to a single computer system that can serve all those functions’ specific needs.
What is ERP?
• It may also integrate key customers and suppliers as part of the enterprise’s operation.
• It provides integrated database and custom-designed report systems.
• It adopts a set of “best practices” for carrying out all business processes.
ERP History
1960’s - Systems Just for Inventory Control1970’s - MRP – Material Requirement Planning (Inventory with material planning & procurement)1980’s - MRP II – Manufacturing Resources Planning (Extended MRP to shop floor & distribution Management.)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)
Vendors
An ERP Example: Before ERP
Customers
CustomerDemographic
FilesSales Dept.
Vendor
OrdersParts
Accounting
AccountingFiles
PurchasingPurchasing
Files
Order is placedwith Vendor
Invoicesaccounting
InventoryFiles
Warehouse
Checks for Parts
Calls back “Not in stock”
“We ordered the parts”
“We Need parts #XX”
“We ordered the parts”
Sends report
Sends report
Sends report
Ships parts
An ERP Example: After ERP
Database
Customers Sales Dept.
PurchasingWarehouse
Accounting
Vendor
Inventory DataIf no parts,
order is placedthrough DB
OrdersParts
Order is submittedto Purchasing.
Purchasing recordorder in DB
Order is placedwith Vendor
And invoices accounting
Financial Data exchange;Books invoice against PO
Books inventoryagainst PO
Ships parts
Selecting ERP Vendors
• Depending on your organization's size and needs there are a number of enterprise resource planning software vendors to choose from in the large enterprise, midmarket and small business ERP markets.
• Large Enterprise ERP (ERP Tier I)The ERP market for large enterprises is dominated by three companies: SAP, Oracle and Microsoft.
Selecting ERP Vendors
• Midmarket ERP (ERP Tier II)For the midmarket vendors include Infor, QAD, Lawson, Epicor, Sage and IFS.
• Small Business ERP (ERP Tier III)Exact Globe, Syspro, NetSuite, Visibility, Consona, CDC Software and Activant Solutions round out the ERP vendors for small businesses.
ERP Implementation Approaches
• The big bang – install a single ERP system across the entire organization
• Franchising – Independent ERP systems are installed in different units linked by common processes, e.g., bookkeeping.
• Slam dunk – install one or several ERP modules for phased implementation of key business processes.
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 Systems
• Improving integration, flexibility • Fewer errors • Improved speed and efficiency • More complete access to information• Lower total costs in the complete
supply chain• Shorten throughput times• Sustained involvement and
commitment of the top management
Benefits of ERP Systems (cont’d)
• Reduce stock to a minimum• Enlarge product assortment• Improve product quality• Provide more reliable delivery dates
and higher service to the customer• Efficiently coordinate global demand,
supply and production
Benefits of ERP Implementation(META Group Survey)
• Benefits are mostly in terms of cost containment rather than revenue increase.
• 53 companies (out of 63) reported annual savings of over $5 millions with the median annual saving of $1.6 million. Nine companies account for 73.4% of the reported savings.
• The study found that much of the ERP value is in indirect, non-quantifiable benefits.
• A number of companies surveyed had a negative net present value.
Major Challenges to ERP Implementation
• Limitations of ERP technical capabilities• Inconsistency with existing business
processes• Costs - implementation (hardware,
software, training, consulting) and maintenance
• Impact on organizational structure (front office vs. back office, product lines, etc.)
• Changes in employee responsibilities
Major Challenges to ERP Implementation
• Flexibility of software system upgrades
• Implementation timelines• Availability of internal technical
knowledge and resources• Education and training• Implementation strategy and
execution• Resistance to change
Hidden Costs of ERP
• Training• Integration and testing• Data conversion• Data analysis• Consultants• Replacing best and brightest staff after
implementation• Implementation teams can never stop• Waiting for ROI• Post-ERP depression
Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002.
Total Cost of ERP Ownership (in millions of $) - META Group Survey
System Medium Average Smallest Largest
Baan 16.1 13.6 0.8 26.5 JD
Edwards 3.9 5.7 0.8 21.6
Lawson 1.9 4.1 0.4 16.4
Oracle 5.4 11.2 1.4 42.8
PeopleSoft 7.4 15.5 1.3 58.6
SAP 13.9 52.2 0.8
308.2
SSA 1.7 7.6 0.7 29.6
From: “ Implementation Study Reveals Costs, Benefits,” The Performance Advantage, APICS, October 1999, p.7
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
ERP Implementation - Key Enablers (APQC Best-Practice Report)
• The organization is prepared for the change.• The executive leaders are active and visible in
their support.• The initiative is seen as a business imperative
by the organization.• The resources are available to conduct the
project completely.• A good packaged system is used and not
customized.• The user group is trained to use the software
before it is implemented.
Common Pitfalls
• Do not adequately benchmark current state
• Did not plan for major transformation• Did not have executive sponsorship• Did not adequately map out goals
and objectives• Highly customized systems to look
like old MRP systems
Survey of ERP implementations
Done by ittoolbox.com in 2004
For more detail:http://projectmanagement.ittoolbox.com/documents/research/
Overview
• 375 IT and business professionals • 52% anticipate budget increases for
new ERP implementations/new modules
• SAP and PeopleSoft/J.D. Edwards were cited as the most popular ERP packages
• 46% indicated that the main challenge to successful ERP implementations was inadequate definition of requirements and resistance to change
How would you characterize your budget for new ERP implementations/new modules deployments for 2004
compared to your budget in 2003?
Who is directly responsible for determining your ERP
implementations/new modules deployments?
Who are the other key decision-makers/influencers in decisions to add
new ERP packages/new modules?
Do you currently have an ERP package?
If your answer is "Yes", which ERP package(s) do you currently use?
Are you considering adding new modules to your existing ERP package?
If your answer is "Yes", which modules are you planning to add?
If you plan to deploy a new ERP package and/or add modules to your existing packages, when would this
implementation take place?
Who do you partner with for new ERP implementations and additions of new
modules?
What do you see as the main challenges to successful ERP implementations within your
organization?
For more details…
• http://projectmanagement.ittoolbox.com/documents/research/