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Enterprise Resource Planning (ERP)

Enterprise Resource Planning (ERP). Doug Anderson William Hodge Raj Vardhan. How ERP Affects Managers. Finance Production Human Relations Customer relations Sales Warehousing/Inventory Manufacturing Purchasing. Definition. “ERP (enterprise resource planning)

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Enterprise Resource Planning (ERP)

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  1. Enterprise Resource Planning (ERP) Doug Anderson William Hodge Raj Vardhan

  2. How ERP Affects Managers • Finance • Production • Human Relations • Customer relations • Sales • Warehousing/Inventory • Manufacturing • Purchasing

  3. Definition • “ERP (enterprise resource planning) • A business strategy that integrates manufacturing, financial and distribution functions to dynamically balance and optimize the enterprise's resources. • An integrated application software suite that balances manufacturing, distribution and financial business functions. ERP is the technological evolution of manufacturing requirements planning (MRP) II through the introduction of relational database management systems (RDBMSs), computer-aided software engineering (CASE), fourth-generation language (4GL) development tools and client/server architecture. When fully implemented, ERP can enable enterprises to optimize their business processes and allows for necessary management analysis and appropriate decision making in a quick and efficient manner. As more-robust technology is implemented, ERP improves an enterprise's ability to react to market changes.” – Gartner Group Source: www4.gartner.com/6_help/glossary/GlossaryMain.jsp, viewed 10/13/03

  4. ERP Scope MANUFACTURING FINANCIAL DISTRIBUTION HUMAN RELATIONS ERP SALES INVENTORY WAREHOUSING

  5. ERP Scope Sources: www.sap.com/businessmaps/pdf/Industrial_Machinery_&_Components_Solution_Map.pdf , viewed 10/13/03

  6. ERP Evolution • Manual records • Separate Inventory control & Production control • 1960s – Material Requirements Planning (MRP) • Use bill of material, inventory, and schedule to plan production • 1970s – Closed loop MRP • Adds sales & operations planning, master production scheduling, & capacity requirements planning to MRP • 1980s – Manufacturing Resource Planning (MRP II) • Business planning, production planning (sales & operations planning), master production scheduling, MRP, capacity requirements planning, and the execution support systems for capacity and material • 1990s – Enterprise Resource Planning (ERP) • MRP II with graphical user interface, relational database, use of fourth-generation language, and computer-assisted software engineering tools in development, client/server architecture, and open-system portability • Sources: • Preston W. Blevins, “Enterprise Resource Planning (ERP): An Executive Perspective—An Update”, APICS 2000 International Conference Proceedings, pp. 208-216 • George W. Plossl, “Making ERP Systems Really Work”, APICS 2000 International Conference Proceedings, pp. 122-125 • APICS Online Dictionary, members.apics.org/Publications/dictionary Viewed 10/29/03

  7. Sophistication Levels • Data Management System • Organization views ERP as a large repository for organizational data • Data printed on reports & distributed • No analysis • Software Modules/Shared Database • All systems use same data • Most common perception • Manufacturing Philosophy • Collection of Rules & Procedures for planning & reporting Source: Karl M. Kapp, Maximizing Your ERP System”, APICS 2002 Conference Proceedings, Paper #B-02

  8. Sophistication Levels • Business Philosophy • Upper Management sets parameters, thresholds, etc. • Organization relies on ERP for information and direction • Begins to provide a strategic advantage • Knowledge Management System • Use of information to make intelligent and timely decisions • Contains information, alerts, & reports to provide decision makers with accurate, up-to-date information Source: Karl M. Kapp, Maximizing Your ERP System”, APICS 2002 Conference Proceedings, Paper #B-02

  9. ERP Suppliers • SAP • PeopleSoft • J.D. Edwards (PeopleSoft) • Oracle • Baan (SSA Global) • Computer Associates • IFS • Microsoft (Axapta, Great Plains, Navision) • Manugistics • Agilisys many others…

  10. ERP Market • Manufacturing Sector • 1999: $15 B (Peak) • 2002: $8.5 B • 2007: $11.9 B (Proj.) • 5.8% growth Sources: David Kodama, “Jump Starting ERP”, Managing Automation, March, 2002; www.arcweb.com/common/inc/news_win2.asp?ID=328, Viewed 10/18/03

  11. ERP Market • Historical Market • Large manufacturing companies (“Tier 1”) • $15 B at peak (1999) • Driven by Y2K concerns • Historical Results • “Incredibly risky” for early adopters • “bet-our-company” type of failure • Heavy reliance on consultants significantly increased project costs Sources: www.arcweb.com/common/inc/news_win2.asp?ID=328, Viewed 10/18/03; Carol V. Brown, Iris Vessey, “Managing the Next Wave of Enterprise Systems: Leveraging Lessons from ERP”, MIS Quarterly Executive, Vol. 2, No. 1, March 2003

  12. ERP Market • Future Market • Mid-size companies (“Tier 2”) • 2002 – 41% of total market, 6.3% growth • ERP Services • Tier 1 – re-architecting solutions • Tier 2 – 68% of total revenue • Pre-packaged solutions • Portal solutions • Europe, Middle East, and Africa Sources: www.arcweb.com/common/inc/news_win2.asp?ID=328, Viewed 10/18/03

  13. Points to Ponder • Structured Methodology – Strategy • People • Process focused

  14. ERP – Points to ponder - II • 1) assess the risks of the change up front (the most serious are the changes needed in the business, not the changes in the technology), • (2) mitigate the causes of highest risk at the front end and as the project progresses, • (3) adjust the method of managing the project to minimize the remaining risks. Sources: www.misqe.org/jsp/showabstract.jsp?ob1=26&ob2=4

  15. Selection Criteria • Functional Specs - what you want to do with the software and what the software will accomplish. (If you don't spend time and money every vendor in the market is a candidate in your list !)

  16. ERP and Windows OS • Due to changes in Windows operating systems ERP companies are not able to use the same software to include the modern technological changes and hence they spend a fortune on developing new codes every 5 years. • This results in huge software budgets apart from the networking expenses and hence the total operating budgets are increasing year after year.

  17. Case Study

  18. Company Info • Index Membership: S&P 600 Small Cap • Sector: Capital Goods • Industry: Construction Services • Employees (last reported count):1,938 Source: Jacob Thomas Interview, 10/29/03

  19. Financial Results • Sales and Service Billings increased while the Profits were gradually decreasing. • Two companies were acquired within the same period. • New European operations started. Source: Jacob Thomas Interview, 10/29/03

  20. Project • Project Sponsor • CFO • Project Manager • Project Director • Original Project Schedule • Duration: 9 Months • Original “Go Live” Date: September 30, 2001 • Original Project Budget • $ 300,000 • Conversion of Payroll Module from World to One World software of JD Edwards ERP. Source: Jacob Thomas Interview, 10/29/03

  21. Selection • Selection Team • Business units • Insituform East (sister company) • IS Department • Proposals • J.D. Edwards selected since JD Edwards was the main vendor for all the other modules. Source: Jacob Thomas Interview, 10/29/03

  22. Selection • Modules selected: • Payroll • Human Resources • All other modules will reside on the World Software while the above two alone will be on the One World Software – Such systems are called Co-existence systems – They use the same DB2 database while the front end programs are coded in C ++ in the One World Software Source: Jacob Thomas Interview, 10/29/03

  23. Implementation • Both the Payroll and HR to go live together. • 10 consultants were used. • Software customized to meet all requirements. • Couple of Project Directors were involved. • Target to go live was Sept 2001 – Went live in Dec 2001. • Took 3 more months to iron out the rest of the issues. Source: Jacob Thomas Interview, 10/29/03

  24. Project Results • Original Project Budget - $ 300,000 • Final Project Cost - $ 600,000 • Functionality - > 85 % of desired functionality within one year. • Future Projects – To move all the other modules to One World. Target date to complete the project is June 2005. Source: Jacob Thomas Interview, 10/29/03

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  35. Case Study

  36. Company Info • Privately held • Sector – Services • Industry – Printing and Distribution • Employees – Around 500 • Operations in US and UK

  37. Financial Results • Sales for year 2002 – 330 Million • Budget for IS for 2002 – 20 Million • Sales for year 2001 - 343 Million • Budget for IS for 2001 – 18 Million • 2002 - Lost some major clients to competitors due to higher prices on warehousing and product distribution.

  38. Project • Project Sponsor • CFO • Project Manager • IS Director • Original Project Schedule • Duration: 15 Months • Original "Go Live" Date – April 1999 • Original Project Budget • $ 8 Million • Conversion of Legacy system to JD Edwards ERP

  39. Selection • Selection Team Business Units IMS (Group Company until 2002) IS Department • Proposals • JD Edwards World selected as the Hardware AS/400 was already available and there was no need to buy a system. The only ERP with all functionalities to run on AS/400 at that time.

  40. Selection • Modules Selected Sales Order Accounts Receivables Accounts Payables Distribution/Logistics (Shipping) Warehouse & Inventory Purchase Order

  41. Implementation • All modules to go live together. • 25 consultants were used. • Software customized to meet all user needs. • Two Project Directors were involved. • Target to go live April 1999 – Went live in October 1999 ! • Took more than a year to iron out issues.

  42. Project Results • Original Budget - $ 8 Million • Final Project Cost - $ 18 Million • Functionality - > 90 % within one year. • Future Projects – Manufacturing and EDI (Electronic Data Interchange) enhancements for Bankers.

  43. Comments • The users in the company realized the benefits after 2 years of implementation. • Orders were repeated for various warehouses with one single mouse click. • The total order processing time from start to finish improved almost 30 %. • Financial Reports were produced by the users without any need of additional Programming.

  44. Lessons Learned • Multi Currency module did not go live as it had several issues. Resulted in using excel spreadsheet for a couple of weeks !! Microsoft Products are useful !! • Let the Team Members decide as they know the actual requirements of the "users" Source: Bob Bradshaw Interview

  45. Case Study

  46. Background • Products • Equipment for public safety vehicles • Light bars, flashers, sirens, speakers, and push bumpers • Small Manufacturing Enterprise • Created 1974 • Revenue: $50 Million • Employees: 270 • 2 manufacturing sites (1 for sub assemblies) • Purchased by Britax Ltd. 1998 • Source: • www.code3pse.com/about.asp viewed 10/15/03 • Ray Scott Interview, 10/15/03

  47. Background • IS Department • Size: 5, including Director • Budget: $0.5 Million • Previous ERP Experience • “Home Grown” system • Not integrated • Not Y2K compatible Source: Ray Scott Interview, 10/15/03

  48. Project • Project Sponsor • Vice President of Operations • Project Manager • CFO • Original Project Schedule • Duration: 10 Months • Original “Go Live” Date: September 30, 1999 • Original Project Budget • $1.5 Million Source: Ray Scott Interview, 10/15/03

  49. Selection • Selection Team • Business units • Code3 • Kustom Signals (sister company) • IS Department • Proposals • J.D. Edwards selected Source: Ray Scott Interview, 10/15/03

  50. Selection • Modules selected: • Financial • Order entry • Product configuration • Product data management • Inventory control • Shop floor control • Shipping • Sales • Sales reporting Source: Ray Scott Interview, 10/15/03

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