1 erp – enterprise resource planning presented by: david giles matthew haack lerue holbrooke
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1
ERP – Enterprise Resource Planning
Presented By:
David GilesMatthew Haack
LeRue Holbrooke
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Topics of our presentation
• Overview of ERP
• Best Practices of implementing ERP
• Summary of ERP Vendors
• Case studies of ERP Implementations
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What is ERP?
• Enterprise Resource Planning is the implementation of software that allows companies the ability to integrate their software to work more efficiently and hopefully provide better customer service.
• Integrates several business functions: Finance, Accounting, Logistics, HR, Sales & Marketing, ETC…
Davenport, Thomas. “Putting The Enterprise Into The Enterprise System” Harvard Business Review. July-August 1998. pp. 121-131
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How does ERP work
• The simplest way to describe ERP is to think of it like a building block that you can add to on any side.
• These building blocks are known as modules that work together by sharing information.
• The information that the modules share can vary from finance to manufacturing and all points in between.
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Before ERP
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Enterprise Resource Modules
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ERP Model
Employees
Managers andStakeholders
CentralDatabase
ReportingApplications
HumanResource
ManagementApplications
FinancialApplications
ManufacturingApplications
InventoryAnd SupplyApplications
HumanResource
ManagementApplications
ServiceApplications
Sales andDelivery
Applications
Sales ForceAnd CustomerService Reps
Customers Back-officeAdministratorsAnd Workers
Suppliers
Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 1998.
Employees
Managers and
Stakeholders
CentralDatabas
e
ReportingApplications
HumanResource
ManagementApplications
FinancialApplications
ManufacturingApplications
InventoryAnd SupplyApplications
HumanResource
ManagementApplications
ServiceApplications
Sales andDelivery
Applications
Sales ForceAnd CustomerService Reps
Customers Back-officeAdministratorsAnd Workers
Suppliers
Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 1998.
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History of ERP
Thin Client
Client Server
Mainframe
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Where is ERP headed
• Enterprise Resource Planning will become more and more prevalent in the business world as prices for technology reduce and software vendors try to find new customers.
• ERP will also be moved back onto a central computer such as a host so that more customers can use their ERP software anywhere.
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Project Lifecycle
www.peoplesoft.com
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ERP Implementation Best Practices
1. Business process review / re-engineering
2. Establish knowledgeable project team3. Ensure software compatibility with
industry practices and requirements4. Prepare organization for change 5. Establish sufficient training methods6. Perform gradual implementation7. Keep short project lifecycles
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Promised Benefits of ERP
• Improved Productivity– What was the improved productivity at MEMC?
• Improved Customer Demand Management
• Cost Reductions
• Manufacturing Efficiencies
Seewald, N., “Enterprise Resource Planning Tops Manufacturers’ IT Budgets,” Chemical Week, New York, Sep 11, 2002, Vol. 164, Issue 35, p.34
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Hidden Costs of ERP
• Organizational Culture Change
• Testing
• Data Conversion
• Data Analysis
• Transition From Outside Consultants
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Hidden Cost of Training
• Costs usually underestimated
• Owens-Corning– Original Estimate – 6% of Project Budget– Actual Results – 13% of Project Expense
• Train the Trainers
White, J.B., D. Clark and S. Ascarelli. “The German Software Is Complex, Expensive, and Wildly Popular.” Wall Street Journal, March 14, 1997, A1, A12.
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Hidden Costs of Integration
• Typically 30% of Project Cost
• Unplanned customizations raise cost
• Incremental integrations more successful
Vowler, J. “You Cannot Afford to Ignore Integration.” Computer Weekly, June 3, 1999, 44.
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ERP Overview of Vendors
PeopleSoft / JD Edwards
SAP
Oracle
Baan, IFS, Great Plains, Lawson, et. al.
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ERP Vendor Revenues (2002)
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
Revenue (In Billions US$)
Oracle
SAP
PeopleSoft/ JDEdwards
Per each companies FY 2002 annual report www.sap.com www.oracle.com www.peoplesoft.com
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ERP Vendor Net Incomes (2002)
$0.0
$0.3
$0.6
$0.9
$1.2
$1.5
$1.8
$2.1
$2.4
$2.7
Net Income (In Billions US$)
Oracle
SAP
PeopleSoft/ JDEdwards
Per each companies FY 2002 annual report www.sap.com www.oracle.com www.peoplesoft.com
19Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04
ERP By Customer Size (2003 Data)
20Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04
ERP By Company Type (2003 Data)
21Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04
ERP Functions Utilized (2003 Data)
22Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04
Costs of ERP By Vendor (2003 Data)
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CASE STUDY
FoxMeyer Drug
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Enterprise Resource Modules
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FoxMeyer Drug
•Formerly $5 billion in revenue (1995)
•2400 employees in 21 states
•Pharmaceutical products
•Major customers – hospitals & universities
•4th largest distributor of pharmaceuticals in U.S.Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5 th Americas Conference Milwaukee WI Aug. 1999
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FoxMeyer – Why ERP?
•Align technology with business strategy
•Basic strategy of growing the business
•Unisys mainframe nearing capacity – orders including more than 300,000 items each day
•Decided client/server was best option
•Project “Delta III” initiated in 1993
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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“Delta III” Project Plan
•18 months
•$65 million cost
•Estimated $40 million in annual savings
•Outsourced to Andersen Consulting (now Accenture) and Pinnacle Automation
•CEO & CIO were co-project champions
Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5 th Americas Conference Milwaukee WI Aug. 1999
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FoxMeyer Drug Consultants
•Andersen Consulting (Accenture)–Provided Implementation Support–On-Site staff of 50 people at one point
•Pinnacle Automation–Supplied conveyor equipment–Supplied Warehouse Automation System
•SAP – Provided ERP package
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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Why Pinnacle Warehousing?
•FoxMeyer required software capable of:–High volume of transactions–Complex pricing models
•SAP not a leader in warehouse management at the time.
•SAP could have provided software, but at a high cost.
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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Recipe For Disaster?
•Two software systems (SAP & Pinnacle)
•Two consulting firms (Andersen & Pinnacle)
•Highly complex pricing models
•High frequency of daily transactions
•Short project timeline of 18 months
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Delta III Project Results
•6 months late – finished late 1995
•Project Costs over $100 million ($35 million greater than original plan)
•Bankruptcy in 1996
•$40 million in projected annual savings never realized
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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What Went Wrong?
•Management Failures:
–University Healthcare Consortium
–Treatment of Warehouse Employees
–Lack of internal IT involvement
Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5 th Americas Conference Milwaukee WI Aug. 1999
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University Healthcare Consortium (UHC)
•Nationwide network of teaching hospitals
•July 1994 agreement–FoxMeyer given contract to sell to UHC–Projected annual sales of more than $1 billion
•Agreement never led up to potential
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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UHC Changed Project Focus
•Original goal was to supplement mainframe capacity
•Sheer volume of UHC deal required immediate volume capacity increases
•Delta III project timeline accelerated
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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FoxMeyer’s Distribution Network Prior to ERP
•23 Distribution Centers
•Customer completed electronic order
•Orders filled manually at each site
Olson, David Louis. Introduction to Information Systems Project Management. Publisher: McGraw-Hill/Irwin; Book and CD-ROM edition (August 14, 2000) ISBN: 0072424206
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New Warehouse Plan
•1 national distribution center (Ohio)
•Automated order fulfillment
•Cashflow savings from better inventory management
Olson, David Louis. Introduction to Information Systems Project Management. Publisher: McGraw-Hill/Irwin; Book and CD-ROM edition (August 14, 2000) ISBN: 0072424206
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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Warehousing Transition
•Ohio warehouse opened 3 months late
•Automated system not 100% functional
•Workers not properly trained on new system
•Old mainframe system ran out of capacity before completion
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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Warehouse Workers
•Morale problems with closure of old warehouses
•Orders were half-filled or not filled at all
•Shipments to new warehouse damaged and unfit for sale
•Large inventory shrink - $34 million
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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Andersen’s View
According to Andersen Spokesperson:
“We delivered, the work we performed was successfully completed, and we were paid in full.”
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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Pinnacle’s View
According to Christopher Cole, COO of Pinnacle Automation:
“…the problem wasn’t the [automation equipment]; it was the way that they [FoxMeyer] were running orders through the system.”
“the old mainframe system choked and died.”
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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SAP Perspective
Peter Dunning Executive VP of Global Accounts with SAP:
“It’s one of those stories where the operation was a success, and the patient died.”
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
42
Outside Perspective
According to Adam Feinstein, research associate at Salomon Brothers:
“They spent a lot of money and tried to put together a progressive management information system, but they overspent and bit off more than they could chew.”
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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Summary of viewpoints
•Andersen was happy to get paid and was not concerned enough about Pinnacle.
•Pinnacle blamed old systems and warehouse workers for their system failures.
•SAP software worked, but not fully integrated as a true ERP solution
•FoxMeyer absent from viewpoints because of a lack of internal involvement
Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37
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Lessons Learned
•Perform BPR prior to project•Use realistic objectives•Do not rush projects without testing•Provide adequate training at all levels•Prepare Organization For Change•Gradual Implementation is beneficial•Re-evaluate Sourcing Strategies•De-Escalation cannot be ruled out
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What Happened After Bankruptcy?
•After bankruptcy, a holding company called Avatex bought majority share of remaining value.
•McKesson (former #1 competitor) announced intent to purchase remaining assets in October 1996
•FoxMeyer is no more
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The University of Missouri System
Source: www.system.missouri.edu
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The University of Missouri — Columbia
Predominantly a residential campus.
Fall 2003 enrollment — 26,80520,441 undergraduate 6,354 graduate & professional
5,107 teaching and research staff 6,605 administrative and support staff
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University of Missouri — Kansas City
Mixed residential/commuter campus. 36% of the students attend part-time
•Fall 2003 enrollment 14,244 6,850 undergraduate5,038 graduate & professional
•2,368 teaching and research staff •1,763 administrative and support staff.
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University of Missouri — Rolla
Institution of science and engineering
The enrollment Fall 2002 was 5,240 3,849 undergraduate1,391 graduate
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University of Missouri — St Louis
Large non-traditional student population59% of students enrolled part-time
The enrollment for Fall 2003 was 15,605 (12,630 undergraduate, 2,975 graduate).
1,412 teaching and research staff 1,135 administrative and support staff.
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PeopleSoft and University of Missouri
• How many people here are familiar with the PeopleSoft implementation on campus?
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University of Missouri
• “Identify the Problem”
– Select the problem to be analyzed– Clearly define the problem and establish a precise
problem statement– Set a measurable goal for the problem solving
effort– Establish a process for coordinating with and
gaining approval of leadership
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University of Missouri
December 1996
Administrative Systems Project Committee (ASP) was established
January 1997The Board of Curators approved implementation of the University wide Administrative Systems Project, an effort to improve the University's basic administrative and support services and processes. The goal of the project was to transform significantly the business procedures and administrative systems that support the University's core missions – teaching, research and service -- resulting in cost savings and improved recruitment of students and staff.
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University of Missouri
“They are too paper intensive, require numerous approvals, take an inordinate amount of time to complete and are supported by computer hardware and software that is as much as 20 years old”
James McGill, UM Executive Vice President
“The recommended strategies are to redesign processes to meet customer needs”
James McGill, UM Executive Vice President
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University of Missouri
The Committee developed a vision statement:
“The business processes and administrative systems project must focus first on policy, organization structure and process technology (I.e., new software and hardware) should be viewed as an enabler”
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University of Missouri
December 1997
The Board of Curators authorized implementation of the recommendations of the Administrative Systems Project to improve the core administrative and support processes and replace the related information systems.
The Administrative Systems Project will be phased in over a period of four to five years.
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University of Missouri
The project goals included:
• Reducing paperwork• Eliminating redundant or unnecessary
procedures• Replacing a patchwork of outdated, standalone
data systems with a unified, compatible information network
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University of Missouri
In March 1998, the University purchases the following PeopleSoft modules:
Human Resources
Human Resources
Payroll
Benefits
Student Administration
Admissions
Student Records
Financial Aid
Student FinancialsFinance
General Ledger Budgets
Accounts Payable Grants
Accounts Receivable
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University of Missouri
July 1998 The Board of Curators approved a contract to hire KPMG as the Administrative Systems Project Implementation Partner for the implementation of PeopleSoft software.
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University of Missouri
• “Analyze the Problem”– Identify the processes that impact the problem and
select one– List the steps in the process as it currently exists– Collect and analyze data related to the problem– Identify root causes of the problem
• “Develop A Solution”– Generate potential solutions that will address the
root causes of the problem
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University of Missouri
October 1998
Dozens of representatives from all four campuses, Health Services, Outreach & Extension and Systems Administration examined ways to simplify and standardize processes through “fit/gap” workshops in each of the Human Resources, Financial Services, and Student Services areas
Established Initial Project Plan
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University of Missouri
• “Implement a Solution”
– Implement the chosen solution on a trial or pilot basis
– Identify systemic changes and training needs for full implementation
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University of Missouri
Proposed Date
Module Actual
July 2000 General Ledger July 2001
November 2000 Budgets February 2001
April 2001 Purchasing July 2002
July 2001 Payables, Asset Management
July 2002
July 2002 Receivables, Billing, Inventory,
Finance Modules
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University of Missouri
Proposed Date
Module Actual Date
January 2001
Base HR, Base Benefits, Payroll, Pension
January 2002
February 2001
Recruit Workforce – Rolla
March 2001 Recruit Workforce - UMSL, UMKC, O&E
April 2002
April 2001 Recruit Workforce - UMC, Hospital
July 2001 Benefits Administration
February 2002
Human Resources Management
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University of Missouri
Proposed Date
Module Actual Date
July Recruiting
September Admissions, student financials (app fees)
September 2002
January/February
Financial aid (except loans)
February Records, student financials (fees, payment)
May Financial aid (loans) February 2003
Student Administration
UMR started July 2001
UMSL, UMKC, UMC started July 2002
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University of Missouri
Best Practices• Create knowledgeable project team• Review business processes in granular detail • Recognize management style of Senior
Management• Compare processes and function of software
to corporate processes and function of corporation
• Interview current users of the software in your industry
• Request on-site demonstration
• Keep implementation lifecycles short. Preferably about 6 months
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Combined Case Study Best Practice List
Best Practices FoxMeyer
UMSL
Business Process Review / Re-engineering
No Yes
Establish Knowledgeable Project Team
Yes Yes
Perform Gradual Implementation No YesPrepare Organization (Change Management)
No ?
Keep project lifecycles short Yes NoEnsure software is compatible with industry
No Yes
Establish training methodologies No Yes
Relax and imagine yourself in an island paradise far, far away….
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