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Enterprise Resource Planning

December 4, 2006

Jun HanRongbi Liu

Brandon Swanner Shicheng Yang

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Overview

1111 What?

3333 How?

2222 Why?

4444 Case study

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What is ERP?

Outline Definition Understanding ERP Framework & Modules History of ERP

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Definition of ERP

A software that attempts to integrate

all departments and functions across

a company onto a single computer system that can serve all those departments’ particular needs.

Source: Christopher Koch “The ABCs of ERP” http:// www.CIO.com

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Before

Logistics/Manufacturing system

Operations

Accountant

Financial systemSales/Marketing system

Sales representative

Demand Planner

Customer service

Service representative

Source: David Simchi-Levi, etc “designing and Managing the Supply Chain”, first edition

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An example---Order fulfillment

Source: http://webprofesores.iese.edu/Valor/Docs/EMBA/Intro%20ERPs.pdf

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After

Single-point-of-contact

Sales representative

Procurement

Service representative

Demand Planning

Manufacturing

Distribution

Controlling

Financing

Source: David Simchi-Levi, etc “designing and Managing the Supply Chain”, first edition

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An example---Order fulfillment

Source: T. Davenport “putting the enterprise into the enterprise system” HBR 1998

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ERP Philosophy

sales

Pur. Mfg.

Log.

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Core Components of ERP

Sales and marketing Master scheduling Purchasing Bill of materials Materials requirements planning Capacity requirements planning Accounts payable/receivable Distribution ……

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Interface of Modules

Source: http://www.crisoft.ro/Engleza/prod&serv/cros.html

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Enterprise Applications Interface Landscape

ERPIntra-organization

CRMInter-organization

SCMInter-organization

Applicationanalytical

tools

Back office system

Front office system

Front office system

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Enterprise Applications Architecture

ERPInfrastructure

Business Excellence

DSS BI E-C…… ……DSS BI

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IT system goals

E-Commerce Analytical Tools

Standardization / Integration

Collect Access Analyze

InfrastructureMeans

Goals

Source: David Simchi-Levi, etc “designing and Managing the Supply Chain” first edition

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ERP

Expansion

MRPⅡMRP

1970s 1980s 1990s1960s

IC

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ERP

1111 What?

3333 How?

2222 Why?

4444 Case study

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Why ERP?

• ERP enabler• Benefit • Current status• Metrics to success• Solution

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To Keep Ahead Of Competition! To make use of the advantages of ERP! To enhance the core competency!

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How can ERP help you ?---Integration of Information Systems

Manufacturing

Local purchasing, invoice verification

Inventory management Internal sales, shipping

and billing Profit/loss Capacity utilization

Headquarter • Information systems• Project Mgmt• Inventory• Purchasing• Sales• Budget • Cash Management

Marketing/Sales• Sales, shipping and billing• Purchasing of trading goods• Inventory Management• Customer service

http://www.kraansys.com/download/New-ERP.ppt

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How can ERP help you ?---Streamline or Reengineering Process

Source: Gargeya, Vidyaranya, & Brady, Cydnee (2005). “Success and failure factors of adopting SAP in ERP system implementation,” Business Process Management Journal, 11(5), pp. 501-516.

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Metrics Tied to Success

Source : http://www.aberdeen.com/summary/report/benchmark/RA_ERP_CJ_3361.asp

Sample:N>500

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The Percentage and Age of ERP Implementations

• 91% of the sample (n>500) have implemented ERP(including MRP)• 24% of them still had the first ERP system implemented• 42% of their current ERP had replaced home-grown or custom developed applications• Only 34% of their current implementation as a replacement of another ERP.

Source :http://www.aberdeen.com/summary/report/benchmark/RA_ERP_CJ_3361.asp

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The Number of ERP Packages Implemented

As ERP implementations have been aging ,they also been proliferating•71% of large companies have two or more ERP packages implemented across the enterprise and 26% with four or more. (large company is the revenue over 1b,small company with revenues less than $50M.).

(Total sample n>500,large company 9%,mid-size:51%)

Source:http://www.aberdeen.com/summary/report/benchmark/RA_ERP_CJ_3361.asp

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Current Release Status

•77% of respondents were not currently implemented on the latest release•Only 23% of respondents were currently implemented on the latest release.

Source:http://www.aberdeen.com/summary/report/benchmark/RA_ERP_CJ_3361.asp

Sample n>500

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Versions – Plan of Action

• In the aggregate 40% anticipate keeping current versions of existing implementations •14% across all companies have a replacement strategy •Almost 45% plan to upgrade to latest release.

Source:http://www.aberdeen.com/summary/report/benchmark/RA_ERP_CJ_3361.asp

Total sample n>500,<2yrs:9%,2~5yrs:18%,5~10yrs:33%,10~15yrs:18%,>15yrs:13%

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The Factors Impacting ERP Strategies

For the aging and proliferation of ERP and its consolidating market,what business drivers are impacting the formulation of ERP strategies?

Source:http://www.aberdeen.com/summary/report/benchmark/RA_ERP_CJ_3361.asp

N>500

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ERP

1111 What?

3333 How?

2222 Why?

4444 Case study

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Do We Make or BuyIn house development ERP package

Time consuming Ready made projects

Needs only customization

Documentation is difficult Documentation is part of system

Maintenance depends on individuals

Company takes care of

EDI modification to be taken of EDI compatible

Each unit follows different software option

The package itself is designed as enterprise package

Latest developments to be studied before implementation

Constant updates assured

Source: http://www.erpfans.com

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ERP Implementation Challenges and Responses

Source : AberdeenGroup 2006,www.aberdeen.com

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ERP Implementation - Considerations

Important factors; Success or Failure?Definitions, spectrum?

Needs of the company Complexity of the ERP Phased vs “Big Bang”

Scope Creep

Source: Gargeya, Vidyaranya, & Brady, Cydnee (2005). “Success and failure factors of adopting SAP in ERP system implementation,” Business Process Management Journal, 11(5), pp. 501-516.

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ERP Implementation – 6 Factors

Six factors – SAP study

Source: Gargeya, Vidyaranya, & Brady, Cydnee (2005). “Success and failure factors of adopting SAP in ERP system implementation,” Business Process Management Journal, 11(5), pp. 501-516.

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Top 5 in revenue

Y1999, account for 59% J.D. Edwards Baan Oracle PeopleSoft SAP

Y2005, account for 72% SAP Oracle Sage Group Microsoft SSA Global

Source: http://www.networkworld.com/news/2005/061505-sap-erp.html

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Top 5 Revenue Share

Source: http://www.amrresearch.com/Content/view.asp?pmillid=19840

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- Just the Facts Founded 1977 55,000 + employees Used in 98 of the

Fortune 100 companies

Market share Innovation

100% Internet

Acquisition of PeopleSoft

http://www.oracle.com/corporate /story.html?_template=/ocom/printocom

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- Choices

Oracle e-Business suite - City of Memphis PeopleSoft Enterprise JD Edwards Enterprise One JD Edwards World Siebel

http://www.oracle.com/applications/apps_product_list.html; Accessed 11/30/06http://www.oracle.com/customers/index.html; Accessed 12/1/06

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- Just the Facts Systems, Applications,

& Products in Data Processing

Founded 1972 Based in Germany 38,400 employees in

50 countries 36,200 customers 12 million users 100,600 installations

Market share – 29%

http://www.sap.com/usa/company/index.epx; Accessed 11/30/06SAP, Annual report: http://www.sap.com/company/investor/reports/ annualreport/2005/pdf/2005_SAP_Annual_Report.pdf

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- Choices Powered by NetWeaver mySAP Business Suite/All-in-One

mySAP Business One

DuetJoint effort – SAP and Microsoft

SAP xApps Composite ApplicationsDemo - http://

www.sap.com/usa/solutions/xapps/index.epx Other companies

PepsiCo, Tyson Foods, U.S. Department of the Interior

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SAP Business Modules

The best-run businesses run SAP!The best-run businesses run SAP!

Source: ttp://www.cbe.wwu.edu/misclasses/mis320S06lab/erp/intro_files/intro.htm

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♫ Hey Big Vendor...♫ - What is the Difference?

Started as individual, specific applications SAP is the leader – superior marketing? Unique products? SAP – integration Acquire vs. expand

Source: Hill, Sidney (2004). “The Big Three: market powers, distinctly different, MSI. Vol 22(5), p 46

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♫ Hey Big Vendor...♫ - What is the Difference?

ERP Customer Survey - http://www.180systems.com/ERPcustomersurvey.phpMid-market – better scores

Why?

Small – better scores

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ERP

1111 What?

3333 How?

2222 Why?

4444 Case study

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Case Studies

Few companies are making full use of their enterprise resource planning systems, despite the high cost of the software and the length of time an implementation can take

In a survey of 100 global or panEuropean companies by PMP Research, just 5% of those polled said they were using their ERP software to its full extent.

Most users customise the software, with only 12% installing ERP packages "out of the box". Once installed, more than 50% of companies said it was hard to make changes to ERP software in order to meet any changes in business processes or requirements.

more than 50% of the companies surveyed did not measure their return on investment from business applications,

Arif Mohamed. Firms failing to fully exploit ERP systems  Computer Weekly. Sutton: Jan 17, 2006. pg. 8, 1 pgs

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Case 1 – The Hershey Company

•History and Background

•Founded in 1893; largest chocolate producer in US

•Revenue = $4 Billion

•Employees = 13,000 in 90 countries

•First ERP attempt in 1999

•Cost = $120 Million

•MalfunctionSource: http://www.thehersheycompany.com/

Failed ERP gamble haunts Hershey, Computerworld; Framingham; Nov 1, 1999; Craig Stedman;

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ERP Software – SAP, Siebel, and Manugistics

In 1999 Hershey deployed a $112 million dollar ERP system made up of parts from SAP, Siebel, and Manugistics. SAP - main components of the system Siebel – Customer relationship management (CRM) Manugistics - Supply chain management (SCM)

Failed ERP gamble haunts Hershey, Computerworld; Framingham; Nov 1, 1999; Craig Stedman;

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What Went Wrong?• Mistakes

• Scheduled for 4 years; reduced to 30 months • Decided to go live in July for Halloween, • “Big Bang” implementation

• Outcomes• Could not deliver all orders on time• 19% sales loss for Halloween & Christmas seasons• 12% revenue loss for 1999• Stock price fell 8% due to reduced investor confidence• Reduced analyst confidence

Failed ERP gamble haunts Hershey, Computerworld; Framingham; Nov 1, 1999; Craig Stedman;

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Lessons Learned

Hershey didn’t seem to need this ERP system implemented so quickly, and certainly didn’t plan accordingly.

Don’t rollout an ERP system before a critical business season.

The system provided by 3 different vendors should be rolled out in a more staggered fashion.One rollout at a timeTime needed for training

Successful upgrade 3 years later in 2002

Source: http://www.erpchannel.com/archives/erp-gone-wrong/lessons-from-hershey/: ; Accessed on November 25, 2006.

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Case 2 - KV

History & BackgroundStarted more than six decades ago. Offers 15 drug delivery technologies, in

four principal areas, used in most of the company's more than 130 generic and non-branded drugs and 14 branded drugs that are sold today.

Net revenue (2006) = approx. $400 Million

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IT and Business Department

There are about 50 employees in IT department. There are about 8.6 million budget. There are about 1100 computers Today KV has more than 1,000,000 square feet

of predominantly owned facility space located in 15 different locations.

Vice president (CIO) in Business Technology (IT) directly report to senior vice president and/or CEO

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JD Edwards World at KV Implementation began 2000 Implementation finished 2003

Implementation fees = approx. $3 Million License fees = approx. $1 Million

Ongoing cost of approx. $1 Million Updated from A7.1 service pack to A8.1

service pack in 2006

About 900 users in 15 locations

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JD Edwards at KV

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ERP at KV

JD Edwards World was built for the IBM iSeries (AS/400) platform,

JD Edwards Worlds includes Financials, Purchasing, Manufacturing, Sales&Distribution, Inventory, Fixed Assets, Human Resources and Returns

ACOM, Varsity, Ingas, Kronos,

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JD Edwards World A8.1

Distribution / LogisticsRepetitive, Process, & Improved Enablement

of Lean Manufacturing & DistributionLoad & Delivery Management / Bulk

ProcessingElectronic CommerceFinancial Consolidations

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Outcomes With ERP to automate processes, the benefits are as

follows: Increase inventory turns Increase inventory accuracy rate Reduce inventory costs Improve customer service Reduce setup times Reduce paper work reduced. Provide a unified customer database usable by all applications Provide greater and effective control on account. Faster response and follow ups to customers Improves supply demand linkage with remote locations and

branches in different locations

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Case 3 - ALMAB History & Background

Almab, a pseudo-name, is a leading newspaper company that operates in one of the Asian countries.

Headquartered in the Capital with 52 offices in more than eleven major cities.

Publishes more than 67 publications nationwide and has the highest number of readers among the English publications in the country.

Over 80% of Almab's revenue is generated from advertising.

Source: Business Transformation Through ERP: A Case Study of an Asian Company Alemayehu Molla, Arjun Bhalla. Journal of Information Technology Case and Application Research. Marietta: 2006. Vol. 8, Iss. 1; p. 34 (21 pages)

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Research Questions

Research questions addressed in this paper are:

(1) What are important contextual characteristics that influence transformation?

(2) What are organizational dynamics that are key indicators that transformation is happening?

(3) What key lessons can be drawn in terms of achieving and sustaining Information Technology (IT)-enabled organizational transformation?

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THE SEVEN "S" FRAMEWORK The role of IT in organizational transformation

can be captured in terms of its influence on key organizational dimensions outlined as Seven "S"s - strategy, structure, systems, staff, skill, style, and shared values.

The Seven S framework stresses that organizational effectiveness depends on the interaction between all the Ss of an organization. These elements are interconnected and must be coordinated properly to avoid conflicts and bottlenecks.

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ERP Implementation

SAP implementation began in the first quarter of 2000.

The main departments to be integrated via the implementation were the Classifieds, Display, Finance, Production and Print departments

An implementation team comprised of senior managers, heads of various departments.

Users from various departments were brought to the head office to test the system and participate in the training of trainers.

The system went live on time after 14 months in the 2nd quarter of 2001.

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Data Collection and Analysis

The data were collected using Retrospective participant observation

Based on experiences at ALMAB over 3 years Unstructured interview and Document analysis – Seven “S”

1) Strategy2) Structure3) System4) Staff5) Skill6) Style7) Shared value

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Pre-ERP Data Transfer

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Post-ERP Data Transfer

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Pre and Post-ERP Comparison

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Pre and Post-ERP Comparison -Continued

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Practical Implications - Six Practical Lessons

Mustering the momentum for transformation Effective managerial coordination Investing in human resources development Building mutual relationship within and with

partner organizations and understanding of the organizational processes

Assimilation of ERP Emphasis placed on organizational learning

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Conclusion

It might be difficult to put a dollar value on the benefits that can be derived from ERP.

The business transformation of Almab is greatly enabled by ERP but its cause might not necessarily be attributed to ERP only.

The Seven S dimensions provide an effective utility to conduct such observations.

As a result, Almab's senior mangers believe that the ERP system has provided them with significant competitive gains in terms of "speed, efficiency and turnaround time".

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Case ComparisonsCase 1 - Hershey Case 2 -KV Case 3 - Almab

Revenue ~$ 4 billion ~$ 400 million ~ $ 1 billion

Reason for ERP Not clear. Replace legacy systems to provide global business processes

Replace legacy systems to provide integration processes

Replace legacy systems to provide business processes

Cost of ERP $ 112 million 3 - 5 million N/A

Time Scheduled 4 years Actually 30 months

~ 2 years 14 month

Outcomes MalfunctionCause order-

processing problems

Success Provide a unified

customer database usable by all applications

Faster response and follow ups to customers

Improves supply demand linkage

Increase in inventory turns

Reduction in administration costs

Better order fulfillment rates

Success Increase in inventory

turns Reduction in

administration costs Better order

fulfillment rates

Business Transformation N/A N/A Significant

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The Future of ERP

Source:http://itmanagement.earthweb.com/erp/article.php/11072_3643966_1; Accessed on December 2, 2006.

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The Future

Ultimate goal – All for oneOpen one application and get whatever

information you need.

Big vendors “fishing in smaller ponds” Creativity and innovation rather than current

product

Source:http://itmanagement.earthweb.com/erp/article.php/11072_3643966_1; Accessed on December 2, 2006.