Introduction to ERP - Stu

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/