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Chapter Eight

Chapter Eight

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Chapter Eight

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  1. Chapter Eight Building The E-Business Backbone: Enterprise Resource Planning

  2. ERP: The Technological Backbone of E-Business • Typical corporate computing environment today of mainframe-based apps is antiquated • Cannot meet demands of new economy and must be replaced • ERP integrated app suite • Framework to automate back-office functions: Financial, Manufacturing and Distribution, HR, Administrative • Unites major business processes within single family of modules: production, order processing, inventory mgmt and warehousing, A/P and A/R, general ledger, and payroll • ERP phenomenon also catching fire among dot-coms • Managing customer relationships key for the newer online firms • ERP offers customers efficient, high-quality service • Ability to order online; inquire about product pricing and order status • ERP prices dropping and rental ASP model becoming prevalent

  3. ERP: The Technological Backbone of E-Business • ERP is the technological backbone of e-business • Enterprise-wide transaction framework with links into • sales order processing; inventory mgmt and control; production and distribution planning; finance • In early 1990s, only large manufacturers saw benefits of ERP • Today, medium-size and dot-com firms also recognize necessity of integrating back-office processes for front-office success in e-commerce world

  4. Who Really Uses ERP Suites? • Large corporations that want to gain control over disparate groups of core business apps • 3Com, Chevron Products Company, GM • 3 primary categories of ERP implementations • Single to few products in single industry: eToys • Single SBU firms, selling only few products in a single industry: Delta Airlines, Dell, Microsoft, Nike • Large corporate conglomerates or multiple-SBU firms, selling many products in multiple industries: GE, IBM, Colgate-Palmolive, and Nabisco

  5. The Basics of ERP • These apps are themselves built from smaller s/w modules that perform specific business processes within a given functional area Integrated Logistics Production Planning Customer/Employee Accounting & Financials Sales Distributions (Order only) Human Resources Enterprise Architecture

  6. Evolution of ERP Wave 4 Interenterprise Integration (XRP) Wave 3 Customer-Centric Integration (CRP) Wave 2 Enterprise Integration (ERP) Wave 1 Manufacturing Integration (MRP)

  7. Evolution of ERP • 1960s • Automation of all aspects of production master scheduling • Showed technology could link disconnected business functions Wave 4 Interenterprise Integration (XRP) Wave 3 Customer-Centric Integration (CRP) Wave 2 Enterprise Integration (ERP) Wave 1 Manufacturing Integration (MRP)

  8. Evolution of ERP • Began in 1980s as MRP II as execs sought for similar benefits as MRP by integrating other functions • Business drivers of ERP: replacing legacy systems, greater control, globalization, regulatory change, integration of decisions across enterprise • Y2K preparation in 1999 a significant factor Wave 4 Interenterprise Integration (XRP) Wave 3 Customer-Centric Integration (CRP) Wave 2 Enterprise Integration (ERP) Wave 1 Manufacturing Integration (MRP)

  9. Evolution of ERP • ERP evolving into CRP to integrate “brick” with “click” • Using middleware has drawbacks • Traditional ERP build for make-to-stock business models; but this is no longer the case; customer value, effectiveness, enhanced service delivery key today • Continuous planning vs. long planning cycle of ERP • Ericsson Wave 4 Interenterprise Integration (XRP) Wave 3 Customer-Centric Integration (CRP) Wave 2 Enterprise Integration (ERP) Wave 1 Manufacturing Integration (MRP)

  10. Evolution of ERP • A company’s partners benefit from the same seamless integration as the company itself • Extends beyond four walls of the enterprise to customer, suppliers and trading partners • B2B marketplaces • ERP does not support continuous-planning requirements of SCP • Collaborate or perish Wave 4 Interenterprise Integration (XRP) Wave 3 Customer-Centric Integration (CRP) Wave 2 Enterprise Integration (ERP) Wave 1 Manufacturing Integration (MRP)

  11. Benefits of ERP • Critical business need: Enterprise-wide shared services • Replace old, autonomous departmental, or divisional services with single, streamlined, corporate-level process • Shared-services standardize the processes for routine, non-core functions for all business units to use • Accounting • With processes defined, an ERP-based IT infrastructure can be established to manage them efficiently

  12. ERP Decision = Enterprise Architecture Planning • Management must resolve enterprise architecture issues before selecting an ERP suite of products • “What kind of company do we want to be?” • Not, “What are each application’s features?” • Inability to find the right fit between ERP apps and their business causing corporate frustration • FoxMeyer • Problem not with ERP concept but in management’s demands for quick fixes and rapid cures to underlying structural problems

  13. ERP Decision = Enterprise Architecture Planning • Selecting and installing a new ERP solution one of the most important and most expensive endeavors • Also most likely to go wrong • Lack of alignment between ERP, business processes and e-commerce objectives can derail best of firms • Managers must understand core functionality, not abdicate responsibility to IT dept • Successful organizational change is gradual • Enterprise apps require moving decades of corporate knowledge and information to a new technology platform • Technology is not the only challenge in managing transformation

  14. ERP Decision = Enterprise Architecture Planning • Cannot lose sight of customers • “Is this something our customers will recognize as valuable?” • “Will it shorten order-to-delivery cycle?” • “Will this improve our product and performance?” • ERP impacts not just s/w • Corporate culture, business processes, staff, and day-to-day procedures are all affected • Executive mgmt must understand technical basis for business change and e-commerce functionality, besides ROI of new technology • “What business are we in?” • “What are the key issues facing us today?” • “What issues will be important tomorrow?”

  15. ERP Decision: Build Vs Buy Vs Rent • Important decision: whether to build or buy or rent • ERP apps define overall corporate architecture • Enterprise-wide implementations • Custom design app that meets specific requirements of an organization has several drawbacks • Highly complex • Lengthy design, development and implementation efforts • Limited flexibility to support diverse and changing operations or to respond effectively to evolving business demands and technologies

  16. ERP Decision: Build Vs Buy Vs Rent • COTS apps address limitations of custom built apps • Provide broad functionality, better integration with existing legacy systems, greater flexibility to change and upgrade, and a lower TCO • Downside of COTS apps • Reengineer estbd. business practices • Customize apps • Hire consultants to make s/w work • No competitive edge • Mgmt must view COTS apps within the context of overall business strategy • “What business processes bring us our identity and our competitive advantage?” • “How can we ensure that we enhance these with COTS solution?” • “How can we support our ecommerce initiatives with COTS?”

  17. Capabilities of COTS ERP Solutions • Consolidation of back office • Creation of single back office that supports multiple distribution channels • Facilitation of changes in business practices • Facilitation of changes in technology

  18. Microsoft • Spent 10 months and $25 million installing SAP R/3 to replace a tangle of 33 financial-tracking systems in 26 subsidiaries • $18 million annual savings • Growth rate was straining company’s systems • 50 subsidiaries worldwide; continues to grow every day • More than 30 systems implemented in a piecemeal fashion over time supported financial, operations and HR groups alone • Batch processes to move information between systems • Run time grew to more than 12 hours • 90% of the more than 20,000 batch robs that ran each month retrieved and processes same information • Mgmt realized it needed a global and integrated solution to support its core business

  19. ERP Implementation: Catching the Bull by the Horns • Installation of ERP packages unique • Each ERP app suite has own architecture, customization features, installation procedures, and level of complexity • Implementation strategies for SAP • Step-by-step • One module at a time • Big bang • Replacing all old systems at once • Modified big bang • Various modules at once, but pilot first • Very common • Even if implementation strategy is right, setting up the solution not easy • Brother Industries

  20. Roadmap to Rapid Implementation: Accelerated ERP Approach • Today’s intense competitive pressures require fast response • ERP app suites can’t keep up • But successful companies understand business processes, simplify them, and then introduce automation • Automating complex or non-value-adding processes will not increase productivity or provide measurable improvements in performance • Automation without simplification immortalizes ineffective processes

  21. Roadmap to New Leadership Skills • Effective coordination mgmt encompasses a combination of four capabilities • Strategic thinking • How well does your ERP selection, implementation, and evolution strategy align with your business strategy? • Process reengineering • Managing implementation complexity • Transition management

  22. E-Business Strategies, Inc. 678-339-1236 x201 Fax - 678-339-9793