Enterprise Resource Planning

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Enterprise Requirements Planning

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Managerial Questions

What is ERP? How will it help my business? What are its costs? What are the risks?

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What is an ERP? Enterprise-wide system that integrates the

business functions and processes of an organization

Integration of business functions into one seamless application

Usually runs on a relational database Replaces countless departmental and

workgroup information systems

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What is an ERP? Links business processes Maintains audit trail Utilizes a common information system Implementation normally involves

BPR: Business Process Reengineering Difficult to Implement Correctly – Railroad

Tracks

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Before/After ERP

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Evolution of ERP 1960’s: Inventory Control Systems 1970’s: MRP: Material Requirement

Planning 1980’s: MRPII: MRP & Distribution 1990’s: MRPII ERP with introduction

of other business functions CRM’s

Today: Web Enabled ERP – Connecting ERP Externally

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Factors Along the Path to ERP The development of client-server architecture

…and later the n-tier client-server architecture The rush to replace out-dated and non-Y2K

compliant systems. The desire to have integrated systems within

the firm. The desire to get out of the application

development "business".

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SAP: An ERP in Profile Flagship products are MySAP ERP and Duet

(with Microsoft) The largest ERP company in the world;

world’s 3rd largest software company! 12 million users, 36,000 customers, 100,600

installations, 1,500 partners world-wide

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Core Modules of SAP

Finance Human Resources Corporate Services (asset management,

project management, etc.) Operations (manufacturing, sales, service,

logistics, etc.)

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Other SAP Modules Portals Supply chain/Supplier relationship

management Customer relationship management Product life cycle Business intelligence

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ERP Vendor Landscape

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E-business Application Architecture

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Interfaces… The goal in ERP is to sunset as many systems

as possible But some systems will remain

Need to build interfaces these systems More interfaces built/maintained

more complexity of the ERP implementation

higher cost.

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…and “Bolt-ons” Core ERP functions may be augmented by “bolt-

ons” (specialized functionality above and beyond that of the ERP)

Four major areas: Supply Chain Management (SCM) Product Lifecycle Management (PLM) Customer Relationship Management (CRM) Business Intelligence (BI)

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ERP Enterprise Architecture

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How SAP Works

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Issues with SAPCultural Issues System designed in North America or

Western Europe Embodies best practices from ‘home’ country

– based on ‘home’ country assumptions Practices and assumptions may not transfer

across borders

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Costs of ERP Meta Group survey of 63 companies (small to

large, range of industries) Average of $15 M per firm (range $400,000 -

$300M) On average the TCO is $53,000 per user Media annual savings: $1.6M Requires two-years of implementation and

integration

Source: CIO.com: "The ABCs of ERP"

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Costs of ERP (cont’d)Average Cost To Install ERP

Expenditure Amount (millions) Percentage

Hardware 1.46 13.8

Software 1.86 17.5

Internal Staff 2.46 23.2

Professional Services 4.82 45.5

Source: CIO Magazine Oct. 15, 1999

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Benefits of ERP - Promised Shorter order cycle time Increased productivity Lower IT costs Better cash management Reduced personnel

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Benefits of ERP - Actual

Expected and Actual Benefits

Benefit Expected Actual

Shorter cycle time 19% 31%

Improved productivity

24% 31%

Lower IT costs 24% 11%

Better cash management

24% 13%

Personnel reduction

43% 33%

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Reasons to Adopt ERP One face to the customer Knowing “what is possible” in terms of

organizational inventory Eliminating redundancy Consolidation

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Reasons to Adopt ERP (cont’d) Handle growth Reduce stress on existing IT Avoid legacy systems Modernizing

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Reasons Not to Adopt

Cost Loss of competitive advantage Resistance to change Poor cultural fit

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Alternatives? Open Source ERP (+ Support Vendors)

e.g. GNU Enterprise, Apache OFBiz ERP for SMEs

less expensive systems with fewer "bells and whistles"

ERP ASPs (Application Service Providers) ASPs will host and maintain the software for you

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Post-ERP? Service-Oriented Architectures (SOA) hold

some promise as the natural evolution from ERP

The foundation of SOA is standardization based upon web services interoperability standards.

SOA does not replace ERP provides the ability to “loosely couple” services

(business functions). 

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Before/After