seminar: installation
DESCRIPTION
TRANSCRIPT
Hour 5: ERP System Installation
Special IS Project
In-house: massive IS project, heavy system design features
ERP Implementation Project
• If vendor system– Much less system design than otherwise– Vendor software already programmed
• Only need interfaces
– Have help from vendor, consultants– Opportunities to outsource
ERP as an IS Project
• At least 7 optional ways to implement ERP• Outsourcing (ASP) the easiest
– But risky
• Next easiest is single vendor source without modifications– Not necessarily least expensive, nor greatest
benefits
• All others involve significant IS project
Relative Use of ERP Implementation StrategiesMabert et al. [2000]
Strategy %
Single vendor package-internal modifications 50
Single vendor package 40
Vendor packages-internal modifications 5
Best-of-Breed 4
In-house plus special packages 1
Total in-house development 0.5
Implementation Strategy Use
• Dominant strategy in manufacturing:– Single vendor– Over half added internal modifications
• Very few best-of-breed
• Almost none developed totally in-house
IS/IT Project Management Results
• Conventional IS/IT projects have trouble with time, budget, functionality
• ERP projects have slightly more structure, but still face problems– Underestimation of required time common– Vendors have made easier & faster– Enhancement of systems another trend
• Reintroduces time problem
Systems Failure Method
• systematic method for analysis of failure• successfully applied - wide variety of situations• by reviewing past failures, avoid future failure• as organizations rely more on computers, there
is a corresponding increase in significant business interruptions
• yet of 300,000 large & mid-sized computer system installations, <3% had disaster recovery plans
Failures in Planning
• negative disasters: decision culminating in physical result, later substantially modified, reversed or abandoned after heavy resource commitment– power generation facility on campus
• positive disasters: decision culminating in physical results implemented despite heavy criticism, subsequently felt by many informed people to have been a mistake– Anglo-French SST; BART in San Francisco
Failures of Projects
• information technology• 1992 - London Ambulance Service
– 1.5 million pound system on line 26 Oct 1992– immediately lost ambulances– <20% of dispatched ambulances reached
destinations within 15 minutes of summons– (before system, 65% met 15 minute standard)
Failures of Projects
• Some never work• others over budget, very late, or both• others perform less than design• others meet design specifications, but
maintenance & enhancement nightmares
System Failure Method
• failure is regarded as an outputof transformation processed from system
• place trial system boundaries around situation– experiment with various configurations– reach conclusion about system– need to model system in some detail
• at different levels• be careful not to make too fine, lose important inter-
relationships
common results
failure commonly a result of• organizational structure deficiencies
– lack of performance-measuring, control• no clear statements of purpose• subsystem deficiencies• lack of effective communication between subsystems• inadequate design• insufficient consideration of environment; insufficient resources• imbalance of resources production quantity; test quality
FoxMeyer Drug
Large drug distributor
Wanted to implement ERP
FoxMeyer Corp
• Holding company in health care services• wholesale distribution of drugs & beauty aids
• served drug stores, chains, hospitals, care facilities
• US: 23 distribution centers
• Sought market niches, such as home health care
FoxMeyer
• Due to aging population & growth in health care, expected high growth
• Market had extreme price competition, threatening margins
• Long-term strategies: – efficiently manage inventory
– lower operating expenses
– strengthen sales & marketing
– expand services
Prior FoxMeyer IS
• 3 data processing centers, linked
• included electronic order entry, invoice preparation, inventory tracking
• 1992 began migration of core systems
• Benefits not realized until system fully integrated
FoxMeyer Process
• Customer fills out electronic order• Order sent to 1 of the 3 data processing centers• Orders sent to the appropriate distribution center
(within 24 hours)• Orders filled manually and packaged• Had just completed national distribution center
with multiple carousels & automated picking• Could track inventory to secondary locations
New System
• Needed new distribution processes & IS to capitalize on growth
• Wanted to be able to undercut competitors• Replacing aging IS key
• PROJECT: 1994 - hoped to save $40 million annually (estimated cost $65 million)– complete ERP installation & warehouse
automation system (another $18 million)
FoxMeyer Project
• Select ERP– hundreds of thousands of transactions– meet DEA & FDA regulations– benchmarked & tested for months– picked SAP R/3– hired Andersen Consulting to integrate– hired Pinnacle Automation for warehouse
automation system
Operations
• FoxMeyer expected the new systems to improve operational efficiency
• Signed several giant contracts– counted on savings, underbid competitors
• Counted on being up and running in 18 months
Problems
• SAP & warehouse automation system integration– two sources, two installers - coordination
problems
• New contracts forced change in system requirements after testing & development underway
• Late, Over budget– SAP successfully implemented
Outcomes
• Lost key customer - 15% of sales• To recoup, signed new customer, expected $40 million
benefit from ERP immediately - pushed ERP project deadline ahead 90 days, no time to reengineer
• Warehouse system consistently failed– late orders, incorrect shipment, lost shipments– losses of over $15 million
• August 1996 filed for Chapter 11– McKesson bought
McKesson Followup
• Mid-1990s started implementation of SAP R/3– Cancelled project in 1996 after spending $15 million
• 1997 acquired FoxMeyer– Carefully designed new R/3 implementation
– Dropped a number of modules
– Implemented modules one at a time
– Cautious rollout schedule, rigorously followed
– Separate testing group formed
– At last report $50 million system on time, in budget
McKesson
• Massive changes in 3,000 end user jobs
• Careful analysis of changes– Surveys– Focus groups– Demonstrations– Computer-based training
Lesson
• Implementing ERP a major undertaking
• Can easily bankrupt a company
• However, it can also be done– Opportunity for great benefits
System Architecture & ERP
• System architecture displays computer systems used to support organization
• Open systems architecture allows greater integration possibilities– Important in supply chains, e-business
• ERP systems initially quite closed
Open Architecture
• Many external systems being added to ERP– CRM– Supply chain– Internet for e-business
• Need to integrate independent ERPs across organizations– Messaging services used
Analysis & Design Control Frameworks
• Traditional standards for application development• ERP implementation usually involves installation
of vendor software– Still need for treatment as installation project
• Early in project, extensive customization needed– The more system flexibility, the more difficulties in
implementation
– Object-oriented framework benefits extension, tailorability, customizability
Application Service Providers
• Outsource ERP• Popular
– Unocal pared IT staff 40% in two years– Focus on core competencies, shed cost centers
• Many specific functions can be outsourced• Outsourcing benefits
– Speed– Organization lacks IT skills
• ASP the most popular way to outsource
ASP Risks
• Your applications and data are controlled by others
• Service failures out of your control
• Confidentiality failure a possibility
• Performance issues possible
Relative Implementation Effort
Method In-House Vendor Consultant
Single vendor package-internal modifications
Significant Heavy Heavy
Single vendor package Significant+ Heavy Heavy +
Vendor packages-internal modifications
Significant+ Moderate Heavy +
Best-of-Breed Significant ++ Moderate Heavy +
In-house plus special packages Excruciating None Maybe
Total in-house development Painful Moderate Maybe
Application Service Provider Light None To select
Implementation Effort
• Implementing ERP places strain on in-house information systems groups
• Consultants are expensive– Sometimes need special expertise
• Tradeoff: control vs. time & cost
Summary
• ERP driven by idea of quality software support
• Software quality has long been important
• Many ERP implementation strategies available
• Tradeoff in control vs. time & cost