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Enterprise Resource Planning

Enterprise Resource Planning. Wisnu Cahyono Wenbin Li Erica Price Jurlian Sitanggang. April 25, 2007. Overview. Introduction Suppliers of ERP Implementation of ERP Case Studies. ERP Evolution. The Evolution of ERP Systems: A Historical Perspective, 2002. What is ERP?.

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Enterprise Resource Planning

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  1. Enterprise Resource Planning Wisnu Cahyono Wenbin Li Erica Price Jurlian Sitanggang April 25, 2007

  2. Overview • Introduction • Suppliers of ERP • Implementation of ERP • Case Studies

  3. ERP Evolution The Evolution of ERP Systems: A Historical Perspective, 2002

  4. What is ERP? ERP is a packaged business software system that enables a company to manage the efficient and effective use of resources (materials, human resources, finance, etc.) by providing a total, integrated solution for the organization’s information-processing needs. Fiona Fui-Hoon Nah et al, “Critical factors for successful implementation of enterprise systems” Business Process Management Journal, 2001

  5. Marketing and Sales Financial Management Human Resource Management Operations Management Before ERP Implementation Customer Relationship Management (CRM) Supply Chain Management (SCM) Suppliers Distributors Customers Individualized Business Systems with no Central Database!!! Not Efficient!! Witten Bentley Dittman, System Analysis and Design Methods, 6th, McGraw-Hill, 2004

  6. After ERP Implementation The Evolution of ERP Systems: A Historical Perspective, 2002

  7. Data Flow Before / After ERP Application http://www.sei.cmu.edu/plp/EI_IRAD/ERP-Solutions.pdf

  8. ERP Modules mySAP ERP Demos www.networkdictionary.com/software/erp.php and http://projects.bus.lsu.edu/independent_study/vdhing1/erp/

  9. Reductions: Inventory: ≥ 20% Material Cost: ≥ 5% Labor Cost: ≥ 10% Improvements Customer Service and Sales: ≥ 10% Accounting Control (Reducing the days of outstanding receivables): ≥ 18% Balance Sheet: Inventory Reduction and Accounts Receivable Income Statement: Inventory Reduction, Material Cost Reduction, Labor Cost Reduction and Increased Sales Typical Benefits of an ERP System Based on Studies that surveyed manufacturers about the impact of ERP systems on firm performance. For all industries and company size Maximizing Your ERP System, Scott Hamilton, 2002

  10. Advantages of an ERP System These are the benefits that an industry standard ERP system may bring to an organization The Evolution of ERP Systems: A Historical Perspective, 2002

  11. Potential Pitfalls of ERP Implementation • No executive sponsor • Becomes a centralized implementation in 1 department when it is really needs to be adapted by all departments • No full-time project manager • Lack of training for employees • Proper research of vendors before selection of ERP package • Lack of Budget – need to consider software, consultants, employee training and upgrade costs • Lack of thorough documentation when implementing the system • Concentrating more on re-engineering than Process Enhancement Web Poll survey conducted by Panorama Consulting Group, n~50, conducted on 11/7/06 Weekly Poll Results, Eric Kimberling, Panorama Consulting Group, 11/7/06 and The Top 8 Pitfalls of ERP Implementation and How to Avoid Them, Paul Nation, eSG enterprise Solution Group

  12. Disadvantages of an ERP System The Evolution of ERP Systems: A Historical Perspective, 2002

  13. Market Share of Packaged Application ERP Software Market grew to $25.4 Billion in 2005!!! http://www.bptrends.com/publicationfiles/TB%20Wolf%20Pack%20Appl%20Market%20Size%204%2D5%2D031%2Epdf

  14. ERP Market Share Within the Industries

  15. Overview • Introduction • Suppliers of ERP • Implementation of ERP • Case Studies

  16. Top 5 Revenue Share ERP Software Market grew to $25.4 Billion in 2005!!! Source: AMR Research, 2006

  17. Pilot Software Intention to buy Retek Inc. SPL (Nov. 2006) Hyperion Tangosol Lodestar Siebel (June 2006) Retek Inc (Apr.6, 2005 ) Peoplesoft (Jan 7, 2005) http://new.quote.com/stocks/adv_chart.action?sym=ORCL

  18. http://www.sap-centric-eam.com/2007/cartoon_dec.html

  19. Systems Applications and Products in Data Processing • Founded in 1972 • Based in Waldorf, Germany • US Corporate Headquarters in Newtown Square, PA • 39,300 employees in over 50 countries • Supports more than 38,000 customers, with over 121,000 installations in more than 120 countries and 31 languages (over 12 million daily users) • From small business to global enterprise (To-date: 65% of SAP customers are small & midsize companies) • Revenue 2006 = € 9,402 million (+10%) ~ $ 12.2 Billion • Net Income 2006 = € 1,871 million (+25%) ~ $ 2.4 Billion http://www.sap.com/germany/company/investor/reports/gb2006/en/business/financial-summary.html http://www.sap.com/usa/company/index.epx , http://www.nasdaq.com/asp/

  20. Products • SAP Business Suite (CRM, ERP, SCM, PLM, SRM) • SAP All-in-One (Mid-size company) • SAP Business One(over 10,000 small businesses) • Duet • Provides access to SAP business processes and data via Microsoft Office • SAP xApps Composite Applications • Major business strategy of today: • SAP Acquires Pilot Software (OLAP) on Feb 2007 • To target mid-market companies to expand their market share • All-in-One features integrated CRM, BI and analytics, and a redesigned user interface. • IBM and SAP announce the expansion of their partnership to reach midsize companies in Europe and Asia-Pacific (Apr 23, 2007) http://www.sap.com/solutions/index.epx , http://www.forbes.com/markets/feeds/afx/2007/04/23/afx3640526.html http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9011563

  21. Founded in 1977 • World Headquarters in Redwood Shores, CA • 55,000+ employees • Used in 98 of the Fortune 100 companies • First software company to develop and deploy 100 percent internet-enabled enterprise software across its entire product line • Revenue 2006 = $14.38 billion (+21.87%) • Net Income 2006 = $3.38 billion (+17.15%) http://www.oracle.com/corporate/story.html http://www.infoworld.com/article/05/06/29/HNoraclerevenuejumps_1.html http://news.com.com/Oracle+profit+rises+on+new+software+revenue/2100-1014_3-6087043.html http://www.nasdaq.com/asp/

  22. Products • Oracle e-Business Suite (business applications for the enterprise) • JD Edwards World (IBM iSeries platform, small businesses) • JD Edwards Enterprise One (medium-end) • PeopleSoft Enterprise (high-end) • Retek Inc. - SCM (Apr.6, 2005, controls 92.8 percent of Retek shares) • Siebel – CRM Solution (4,000 customers) • Major business strategy of today: • Project Fusion (merged suite, 2008) • With strategic acquisitions, Oracle strengthens its product offerings, accelerates innovation, meets customer demand more rapidly, and expands partner opportunity. • Hyperion - producer of business-intelligence software • Tangosol Inc. - Memory Data Grid Leader: perform real time data analytics, grid based in-memory computations and high performance transactions • LODESTAR Corporation - a provider of meter data management and energy solutions for the utilities industry (Oracle's 29th buy in less than 3 years). http://www.oracle.com/products/index.html#applications , http://www.oracle.com/corporate/acquisition.html http://www.oracle.com/products/index.html#applicationshttp://www.itnews.com.au/newsstory.aspx?CIaNID=50355&src=site-marq http://news.com.com/Oracle+to+swallow+Siebel+for+5.8+billion/2100-1014_3-5860113.html , http://money.cnn.com/2004/12/13/technology/oracle_peoplesoft/http://www.internetnews.com/bus-news/article.php/3582106(Siebel) , http://new.quote.com/stocks/story.action?id=RTT704240824001488(Lodestar) http://www.eweek.com/article2/0,1895,2099636,00.asp(Hyperion) , http://www.oracle.com/corporate/press/2007_apr/hyperion-clearances.html http://www.marketwatch.com/news/story/oracle-buy-hyperion-52-share-33/story.aspx?guid=%7BDD070F86-54F7-4709-A26A-12199FEB68B3%7D

  23. Other Vendors : - Microsoft Dynamics (mid-large company) - Retail Management System (small and mid-sized retailers) : Industry tailored application (small-mid co) : Distribution and Logistics (start up – large co) : Industry solution (mid market) : Industry, control and transportation (high-end) : Manufacturers (mid market) http://www.microsoft.com/dynamics/default.mspx , http://www.lawson.com/ , http://www.sage.com/http://www.epicor.com/www/products/enterprise/ , http://www.invensys.com/ , http://www.ssaglobal.com/ http://go.infor.com/docs/FINAL_Infor_Acquires_Extensity_and_Systems_Union.pdf

  24. Overview • Introduction • Suppliers of ERP • Implementation of ERP • Case Studies

  25. Cost and Time of ERP Implementation Average Cost: $9.1 million Average Time:at least 1 year Average Usage: 27.6% of ERP available functionality Cost Allocation Survey of 107 separate ERP applications http://www.standishgroup.com/chaos/beacon_243.php

  26. Performance of ERP Implementation http://www.standishgroup.com

  27. Critical Success Factors for ERP Implementation Four–Phase Model of ERP Implementation ------- developed by Markus and Tanis in 1999 Chartering: Decision define business case and solution constraints Project: Getting system and end users up and running Shakedown: Stabilizing, eliminating “bugs”, getting to normal operation. Onward and Upward: System maintenance, users support, system upgrading and extension. Critical Success Factors for Enterprise Resource Planning Implementation and Upgrade, Journal of Computer Information Systems, 2006, Fiona Fui-Hoon Nah and Santiago Delgado

  28. Survey in utility industry and non-profit organization

  29. Survey of 500 Separate ERP Implementations

  30. Business Drivers for ERP Implementation

  31. Software Selection for ERP Implementation

  32. Main Methods used in ERP Implementation

  33. Challenges and Responses of ERP Implementation

  34. Performance Improvement with ERP Implementation Laggard(30%): ERP implementations that are significantly behind the average ---poor performance Average(50%): ERP implementations that represent the average or normal---average performance Best in Class(20%): ERP implementations that are superior to the industry normal---top performance

  35. Expected and Actual ROI with ERP Implementation Laggard(30%): ERP implementations that are significantly behind the average ---poor performance Average(50%): ERP implementations that represent the average or normal---average performance Best in Class(20%): ERP implementations that are superior to the industry normal---top performance

  36. Overview • Introduction • Suppliers of ERP • Implementation of ERP • Case Studies

  37. FoxMeyer Drug Co. Case 1 – FoxMeyer Drugs • FoxMeyer Drugs was the nation’s fourth largest Wholesale Distributor of Drugs and Beauty aids, based in Dallas • Has 23 distribution centers • Major Product: Wholesale distribution of drugs & beauty aids • Customers/serves: Drugs stores, Chains, hospitals, care facilities • Revenue (1995): $ 5 Billions => 1996 Sold for just$ 80 Millions • The VP of IT Department report to COO Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

  38. FoxMeyer Drug Co. Case 1 : FoxMeyer DrugsWhy they want to implement ERP? • FoxMeyer expected high growth in drug sales • To increase efficiency • Their Unisys computer systems were reaching the end of their life and the vendor was discontinuing support. • FoxMeyer expected the project to save $ 40 M annually (Promised benefits). Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

  39. FoxMeyer Drug Co. Case 1 : FoxMeyer DrugsProject Scope, Time, & Cost • Project: The Delta III • Project scope: ERP R/III Edition & Warehouse Automation System • Time & budget estimation: - 18 Months - 15 Millions • Actual project delivery date & cost: - 24 Months - Over 100 Millions Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

  40. FoxMeyer Drug Co. Case 1 : FoxMeyer DrugsSuppliers/Vendors • SAP: Provide ERP Version R/3 Project • Pinnacle: Provide Warehouse Automation System • Anderson Consulting: Perform Integration Source: Source: Judy E. Scott, The University of Texas at Austin

  41. FoxMeyer Drug Co. Case 1 : FoxMeyer DrugsWhich ERP Function Module are Applied? SAP R/3 Edition: • Financials and Controlling (FICO) • Human Resources (HR) • Materials Management (MM) • Sales and Distribution (SD) Source: Judy E. Scott, The University of Texas at Austin

  42. FoxMeyer Drug Co. Case 1 : FoxMeyer DrugsERP Implementation Source: delivery.acm.org

  43. FoxMeyer Drug Co. Case 1 : FoxMeyer DrugsWhy this project is a failure? • The customers less commitment • The scope of the project was risky • FoxMeyer was over expectations • The new system initially could only process 100,000 orders/night compared to 420,000 orders with the previous system • FoxMeyer management did not feel it knew enough to cope with the Consultant and the Vendors • FoxMeyer did not have the necessary skill in house • The project spin out of control Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

  44. FoxMeyer Drug Co. Case 1 : FoxMeyer Drugs Lessons Learned • Respond to environmental and strategic changes at more tactical (project) levels • Recognize the importance of organizational culture; foster an open culture and encourage open communication • Take a realistic view of the role technology can play in supporting your firm’s strategy; engage in a strategy of “small wins” to leverage knowledge gained • Manage the project; employ a strong project leader and well defined methodology. Source: April 2002/vol. 45 No. 4 Communications of the ACM

  45. Case 2 – Schnucks • Founded in St. Louis in 1939 • Major Departments: Groceries, Bakery Goods, Florist, and Pharmacy • Has more than 100 stores in Missouri, Illinois, Indiana, Wisconsin, Tennessee, Mississippi and Iowa • 2006 Revenues – 2.4 Billion • IT department has 90 people • About 30 of the 90 are developers • Mark Zimmerman is the VP of IT and he reports to the President of the company, Todd Schnuck .

  46. Case 2: Schnucks Why they needed ERP • Needed to upgrade their system to be Y2K ready and wanted to have a relational database (UNIX) to get off the mainframe system. • Benefit: Provided single point of data entry for all of their financial information. • Business Drivers: Standardization of processes and linking of operations • Implemented PeopleSoft Financial (general ledger, fixed assets, AR, AP) – Financial Module of ERP • Selected between Oracle and PeopleSoft • Decision factors: ease of use and meeting IT needs • PeopleSoft provided better ease of modification and had slightly better cost • Project started in fall of 1998 and completed in October 1999 on time. • Budget Estimate had 2 components – Purchase price of the software and the consultants

  47. Case 2: SchnucksImplementation of the Financial Module • Used a combination of PeopleSoft software, consultants and in-house personnel to implement the system • Critical success factors used: • Top Management Support • Minimum Customization • Focused on Training for Employees • Used a full-time Project Manager • Critical success factors not used: • Sufficient prior ERP knowledge – underestimated budget and staff needed • Cross-functional team for implementation • Accurate documentation of implementation – need this for upgrades, especially if staff if lost

  48. Case 2: Schnucks Improvements/Disappointments • Biggest Improvements • Provided more timely and accurate financial status and analysis with no wait for IT • Provided a new technology for IT to learn and was easier to use • Better access to data, query capacity and learned controls and provided Y2K compliance • Biggest Disappointments • On-going costs for software • Underestimated the needs and costs for the infrastructure of the new software • Not enough expertise at the time of implementation • Need more training resources

  49. Before ERP Implementation All financial data was running off a mainframe system (Legacy) Not Y2K Compliant Financial Status and Analysis was timely for executives to complete because of poor access to data IT had little knowledge of ERP systems After ERP Implementation All financial data came from a relational database (UNIX) System was Y2K Compliant Financial Status and Analysis was more efficient and accurate for executives because they had access to the data w/o IT’s help IT gained experience in Oracle technology Case 2: Schnucks Changes from Implementation

  50. Case 2: Schnucks Our Lessons Learned • Be aware of the on-going costs of an ERP system • Take the time to research vendors, analyze your needs and understand ERP systems before starting implementation • Keep accurate documentation during implementation to be used for upgrades • Have sufficient staff before implementation of the system

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