Evolving ERP Systems: Historical Development and Industry-Specific Customization

1. Hour 2: ERP Modules Historical development

2. Historical • Initial Computer support to business • Easiest to automate – payroll & accounting • Precise rules for every case • Early 1970s • centralized mainframe computer systems • MIS systematic reports of financial performance • Variance analysis between budget and actual

3. MRP • Material requirements planning • Inventory reordering tool • Evolved to support planning • MRPII extended to shop floor control

4. SAP Modules

5. Comparative Modules

6. Industry-Specific Focus • Each vendor has turned to customized ERP products to serve industry-specific needs • Examples given from BAAN, PeopleSoft • Microsoft also has entered the fray

7. BAAN Industry-Specific Variants

8. PeopleSoft Industry Solutions

9. Microsoft Great Plains Business Solutions

10. Relative ERP Module Use(Mabert et al. 2000; Olhager & Selldin, 2003)

11. Relative Module Use • Mabert et al. (2000) surveyed Midwestern US manufacturers • Some modules had low reported use (below 50% in red) • Financial & Accounting most popular • Universal need • Most structured, thus easiest to implement • Sales & Marketing more problematic

12. Why Module Use? • Cost: • Cheaper to implement part of system • Conflicts with concept of integration • Best-of-Breed concept: • Mabert et al. found only 40% installed system as vendor designed • 50% used single ERP package; 4% used best-of-breed • Different vendors do some things better • Conflicts with concept of integration

13. Middleware • Third-party software • Integrate software applications from several vendors • Could be used for best-of-breed • Usually used to implement “add-ons” (specialty software such as customer relationship management, supply chain integration, etc.)

14. Customization • Davenport (2000) choices: • Rewrite code internally • Use existing system with interfaces • Both add time & cost to implementation • The more customization, the less ability to seamlessly communication across systems

15. Federalization • Davenport (2000) • Roll out different ERP versions by region • Each tailored to local needs • Core modules shared • some specialty modules unique • Used by: • Hewlett-Packard • Monsanto • Nestle

16. EXAMPLES • Dell Computers • Chose to not adopt • Siemens Power Corporation • Implementation of selected modules

17. Dell Computers Evaluation of SAP R/3

18. Need to continue project evaluation • Initial project adoption • 1994 Dell began implementation of SAP R/3 enterprise software suite • Spent over 1 year selecting from 3,000 configuration tables • After 2 year effort ($200 million), revised plan • Dell business model shifted from global focus to segmented, regional focus

19. Rethinking • In 1996 revised plan • Found SAP R/3 too inflexible for Dell’s new make-to-order operation • Dell chose to develop a more flexible system rather than rely on one integrated, centralized system

20. Best-of-Breed • I2 Technologies software • Manage raw materials flow • Oracle software • Order management • Glovia software • Manufacturing control • Inventory control • Warehouse management • Materials management • SAP module • Human resources

21. Core Competencies • Glovia system interfaced with • Dell’s own shop floor system • I2 supply chain planning software • This retained a Dell core competency • Would have lost if adopted publicly available system

22. Points • Demonstrates the need for speed • Prolonged installation projects become outdated • Need to continue to evaluate project need after adoption • Tendency to stick with old decision • But sunk cost view needed • Demonstrates need to maintain core competitive advantage • Adopting vendor ERP doesn’t

23. Siemens ERP ImplementationHirt & Swanson (2001) Nuclear fuel assembly manufacturer Engineering-oriented

24. Siemens Power Corporation • 1994 Began major reengineering effort • Reduced employees by 30% • 1996 Adopted SAP R/3 system • Replacement of IS budgeted at $4 million • Some legacy systems retained

25. Siemens Modules • FI Finance • CO Controlling • AR Accounts receivable • AP Accounts payable • MM Materials management • PP Production planning • QC Quality control

26. Implementation • To be led by users • Project manager from User community • Consultant hired for IT support • IS group only marginally involved

27. Project Progress • Oct 1996 Installed FI module • Sep 1997 Installed other modules • On time, within budget

28. Permanent Team • Made project team a permanent group • Project manager had been replaced • 2nd PM retained • SAP steering committee • SAP project team formed

29. SAP steering committee • 7 major user stakeholders • Guided operating policy • major expenditures • major design changes

30. SAP project team formed • 15 members from key user groups • part-time • Trainer • User help • Advisors to middle management

31. Training • End users became more proficient with time • Average of 3 months to learn what needed • Management training took longer • Management didn’t understand system well • Often made unrealistic requests

32. Operations • During first year • Major errors in ERP configuration • Evident that users needed additional training • New opportunities to change system scope suggested • Two years after installation • R/3 system upgrade

33. Summary • Core idea of ERP complete integration • In practice, modules used • More flexible, less risk • Can apply best-of-breed concept • Ideal, but costly • Related concepts • Middleware – integrate external software • Customization – tailor ERP to organization • Federalization – different versions of ERP in different organizational subelements