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ERP WRAP UP Questions & Answers

What is ERP?

• It attempts to integrate all functions across a company onto a single computer system.

• Integrated software uses a single database so that various departments can more easily share information and communicate with each other.

• Integrated approach can have a tremendous payback if companies install the software correctly.

What is ERP?

Enterprise resource planning software or ERP, doesn't live up to its acronym. Forget about planning—it doesn't do much of that—and forget about resource, a throwaway term. But remember the enterprise part. This is ERP's true ambition.

It attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments' particular needs.

Christopher Koch Executive Editor, CIO

What is ERP?

What is ERP?

Is it for every company• ERP packages imply by their design a way

of doing business and require users to follow that way of doing business.

• Some business operations and some of it segments of operations might not be a good match for ERP requirements.

• It ‘s imperative for a business to analyze its business strategy, organization, culture, and operation before choosing ERP.

Is it for every company?

• Dow Chemical spent 7 years and .5 billion dollars implementing a main framed base and decided to start over again with a client server version.

• Implementation difficulties result when management does not fully understand its current business processes and cannot make implementation decisions in a timely manner.

How can ERP improve a company's business performance?

• If you use ERP to improve the ways your people take orders, manufacture goods, ship them and bill for them, you will see value from the software.

• If you simply install the software without changing the ways people do their jobs, you may not see any value at all

• ERP could slow you down by simply replacing the old software that everyone knew with new software that no one does.

What will ERP fix in business?

• Integrate financial information— ERP creates a single version of the truth (revenue).

• Integrate customer order information —ERP systems integrate information from the time a customer service representative receives order until the loading dock ships the merchandise and finance sends an invoice.

• Standardize and speed up manufacturing processes — Standardizing those processes and using a single, integrated computer system can save time, increase productivity and reduce head count.

What will ERP fix in business?

• Reduce inventory —ERP helps the material flow more smoothly, and it improves visibility of the order fulfillment process. To really improve the material flow of your supply chain, you need supply chain software integrated with ERP.

• Standardize HR information — Companies with multiple business units, HR may not have a unified process for dealing with employees‘ benefits and services. ERP can fix that.

Will ERP fit the ways I do business?

• The most common reason that companies walk away from ERP projects is that they discover the software does not support one of their important business processes.

• Company can change the business process to accommodate the software, or modify the software to fit the process.

• Put the enterprise into enterprise system

Is the software inflexible?

• Once an ERP system is in place, trying to reconfigure a system while retaining data is expensive and time consuming.

• Pre-implementation planning is very important.

• It’s much easier to customize an ERP program when the system is being configured and no data has been stored.

Is the software inflexible?• 1977 Dell Computer cancelled most of a two year old

R/3 project when test showed the software couldn’t handle anticipated sale volume.

• At that time, Dell’s operation was growing by 1 billion every 6 – 8 weeks.The company’s rapid growth would have meant constant and costly updating. Dell didn’t feel that any single vendor offered all the options they wanted.

• So Dell implemented flexible “middleware” software so they could buy software from a variety of vendors and make changes to their data that would keep them up with their rapid expansion.

How do I configure ERP software?• The packages are built from database tables,

which users must set to match the business processes.

• Figuring out precisely how to set all the switches in the tables requires a deep understanding of the existing processes being used to operate the business. Most ERP systems are shipped as a system in which customers must determine the settings that affect how their system behaves in line with their own business activities.

• Some ERP systems are preconfigured, allowing just hundreds of procedural settings to be made by the customer.

How do companies organize their ERP projects?

• The Big Bang — In this companies cast off all their legacy systems at once and install a single ERP system across the entire company. The speed of the new system may suffer because it is serving the entire company rather than a single department. ERP implementation requires a direct mandate from the CEO.

• Franchising strategy —This approach suits large or diverse companies that do not share many common processes across business units. Independent ERP systems are installed in each unit, while linking common processes, such as financial bookkeeping, across the enterprise.

• Slam dunk —ERP dictates the process design in this method, where the focus is on just a few key processes. The slam dunk is generally for smaller companies expecting to grow into ERP. The goal here is to get ERP up and running quickly and to avoid reengineering.

How long will an ERP project take?

• To do ERP right, the ways you do business will need to change and the ways people do their jobs will need to change too.

• IF your ways of doing business are working extremely well (orders all shipped on time, productivity higher than all your competitors, customers completely satisfied), in which case there is no reason to even consider ERP.

• The important thing is not to focus on how long it will take, but rather to understand why you need it and how you will use it to improve your business - ERP efforts usually run between one and three years.

Why do ERP projects fail so often?• ERP is a set of best practices and to get the most from

the software, you have to get users adopt the work methods outlined in the software. Normally users don't agree that the work methods embedded in the software are better than the ones they currently use. Users will resist using the software or will want IT to change the software to match the ways they currently do things. This is where ERP projects break down. Because ERP covers so much of what a business does, a failure in the software can bring a company to a halt, literally.

• The mistake companies make is assuming that changing user's habits will be easier than customizing the software. It's not. Getting users to use the software to improve the ways they do their jobs is by far the harder challenge. If your company is resistant to change, then your ERP project is more likely to fail.

Why do some companies have more success with ERP than others

• Usually a bumpy rollout and low ROI are due to people problems, not computer malfunctions:– Some executives blindly hope that the new software

will cure fundamental business problems that are not curable by any software.

– Some executives and IT managers don’t take enough time for a proper analysis during the planning and implementation phase.

– Some executives and IT managers skip on employee education and training.


• Some companies willingly part with funds for software and new hardware but don’t properly budget for employee training.

• ERP software is complex and needs adequate training

• Typical ERP training costs 10 – 20K per employee.

• Some analysts recommend allocating 11% of the project’s budget for training.


• Owens-Corning at first allocated 6% for training which resulted in not being enough at first.

• Incorrect data entry of customer orders resulted in a ripple effect that could not be corrected via reversing keystrokes or phone call.

• As a result, customers were getting incorrect orders or no orders.


• In the end, Owen-Corning has positive results after spending 4 years and $100 billion on its ERP implementation.

• In 1998 ERP software help save Owen_Corning $50 million in – Logistics– Material Management– Out Sourcing

What does ERP really cost?

• Total cost of ownership (TCO) of ERP, includes hardware, software, professional services and internal staff costs.

• Meta Group study among the 63 companies including small, medium and large companies , average TCO was $15 million (the highest was $300 million and lowest was $400,000). The TCO per user was $53,320.

What are the hidden costs of ERP?• Training Training is the unanimous choice of experienced ERP

implementers as the most underestimated budget item. It will be the best ERP investment you ever make.

• Integration and testing

Testing the links between ERP packages and other corporate software is another underestimated cost.

• Customization

Add-ons are only the beginning of the integration costs of ERP. Much more costly, is actual customization of the ERP software itself.

What are the hidden costs of ERP?• Data conversion

It costs money to convert customer and supplier records, product design data and the like, from old systems to new ERP. Companies are more likely to underestimate the cost of the convertion.

• Data analysis

Often, the data from the ERP system must be combined with data from external systems for analysis purposes. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget.

• Consultants Companies should identify objectives for which its consulting

partners must aim when training internal staff.

What are the hidden costs of ERP?• Replacing your best and brightest ERP success depends on staffing the project with

the best and brightest from the business and IS divisions. The software is too complex and the business changes too dramatic to trust the project to just anyone. Company must be prepared to replace many of those people when the project is over.

• Implementation can never stop Companies can't afford to send their project people

back into the business because there's so much to do after the ERP software is installed. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least

What are the hidden costs of ERP?• Waiting for ROI One of the most misleading legacies of traditional software

project management is that the company expects to gain value from the application as soon as it is installed. Most of the systems don't reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system.

• Post-ERP depression ERP systems often cause havoc in the companies that

install them. In a recent Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that they suffered a drop in performance when their ERP system went live.

When will the organization get payback from ERP ?

• Don't expect to revolutionize your business with ERP.

• It is a exercise that focuses on optimizing the way things are done internally rather than with customers, suppliers or partners.

• The exercise has a pretty good payback —a Meta Group study of 63 companies found that it took eight months after the new system was in (31 months total) to see any benefits. But the median annual savings from the new ERP system were $1.6 million.

How much profit should you expect?

• Benefits provided by an ERP system can be difficult to calculate because:– Sometimes ERP increases revenue and

decreases expenses in intangible ways that are difficult to measure.

– Some changes take place over such a long period of time that they are difficult to track


• Factors affecting the return on ERP investment:– ERP eliminates duplicated data, and there can be a

savings in operations expense. • One study indicated that 33% of companies said their ERP

systems significantly reduced their personal needs.

– ERP systems can help move goods and services through the pipeline faster, more sales can be generated.

– In some instances, a company that doesn’t implement ERP might be wedged out of business by competitors who have ERP. How do you calculate the monetary advantage of remaining in business?


– A smooth running ERP system can save a company’s personnel, suppliers, distributors, and customer much frustration – a benefit that is real but difficult to quantify.

– Because both savings and increased revenues occur over many years, it’s difficult to put an exact dollar amount accrued from the original ERP investment.

– Because ERP implementation take time, there may be other business factors affecting the company’s costs and profitability, making it hard to isolate the impact of the ERP system cost

How long does it take to see an ROI?

• ROI for an investment project is calculated by dividing the value of the project’s benefits by the value of the project’s cost.

• An ERP system’s ROI can be difficult to calculate because of so many intangible cost and benefits.

• Some companies don’t even try to make the calculation, on the grounds that the package is as necessary as having electricity (which is not justified as an investment project).

• Companies that do make the ROI calculation have seen radically different results.

How long does it take to see an ROI

• Successful– Autodesk ships 98% within 24hrs (vs. 2

weeks)– IBM’s Storage Systems Division

• Re-prices all its products in 5 minutes (vs. 5 days)• Ships replacement parts in 3 days (vs. 22 days)• Completes credit check in 3 seconds (vs. 20

minutes)

– Fujitsu Microelectronics• Reduced cycle time for filling orders to 1 day (vs.

18 days)• Close it financial books in 4 days (vs. 8 days)

How long does it take to see an ROI

• Reverse - Unsuccessful– A few companies claim that high ERP costs

adversely affected profits.– FoxMeyer claims that its SAP implementation

caused its bankruptcy.– Dell Computer claim ERP does not fit its

decentralized management.– Dow Chemical after 7 years, changed to client

server version.

How does ERP fit with e-commerce?• E-commerce means IT departments need

to build two new channels of access in to ERP systems—one for customers (otherwise known as business-to-consumer) and one for suppliers and partners (business-to-business).

• The difficulty of getting ERP and e-commerce applications to work together has led companies to consider software known alternately as middleware and EAI software.

• EAI can help solve many of the biggest integration woes that plague IT these days.

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