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08. Enterprise Resource Planning (ERP)Rev: Feb, 2013
Euiho (David) Suh, Ph.D.
POSTECH Strategic Management of Information and Technology Laboratory(POSMIT: http://posmit.postech.ac.kr)
Dept. of Industrial & Management EngineeringPOSTECH
Contents1 Introductions of ERP
1) Fundamental Introductions of ERP
2) Development of ERP
3) Functions of ERP
4) Structure of ERP System
5) Characteristics of ERP
2 ERP Selection Criteria
1) Phases of ERP Selection
2) ERP Selection Criteria
3) Market Share
4) ERP Vendors with Their Characteristics
3 Case Study
3
What is ERP?
■ Definition of ERP (Enterprise Resource Planning)– A set of applications designed to bring business functions into balance and repre-
sents the next generation of business systems – by Gartner Group– An accounting oriented information system for identifying and planning the en-
terprise wide resource – by APICS
1. Introductions of ERP1) Fundamental Introductions of ERP
Advanced Process
Information Technology
Process Innovation
BPR
ERP
4
Why ERP ?
■ Roles of ERP (Enterprise Resource Planning)– The backbone of business processes– A cross-functional enterprise system– An integrated suite of software modules– A system supports basic internal business processes– A system facilitates business, supplier, and customer information flows
1. Introductions of ERP1) Fundamental Introductions of ERP
5
ERP Application Components 1. Introductions of ERP1) Fundamental Introductions of ERP
6
Benefits and Challenges of ERP
ERP Business Benefits
1. Quality & efficiency
2. Decreased costs
3. Decision support
4. Enterprise agility
ERP Costs
1. High risk & cost
2. Hardware and software are a small part of overall project
3. Failure can cripple or kill a business
1. Introductions of ERP1) Fundamental Introductions of ERP
7
Costs of Implementing a New ERP 1. Introductions of ERP1) Fundamental Introductions of ERP
8
Causes of ERP Failures
Insufficienttraining
Insufficient data conversion and
testing
Trying to do too much, too fast
Failure to involve affected
employees in planning and development
Under-estimating the complexity of
planning, development,
training
Over-reliance on ERP vendor or
consultants
Common Causes of ERP Failure
ERP Selection Criteria
1. Introductions of ERP1) Fundamental Introductions of ERP
9
Development of ERP
1970’s 1980’s 1990’s 2000’s
Material Plan-ning
Minimum Inven-tory
Closed Loop MRP
Capacity Plan-ning
Cost Reduction
Enterprise-wide Planning
Management Inno-vation
Inter-company Opti-mization
Win-Win-Win
MRP (Material
Requirement Planning)
MRPII (Manufacturing
Resource Planning)
ERP (Enterprise Resource Planning)
SCM (Supply Chain Management)
1. Introductions of ERP2) Development of ERP
10
Functions of ERP
ERP
Finance/Accounting
Engineer-ing
Sales/Mktg
Supplier
Production
Logistics
Customer
Product Development Process
CAD/CAMPDM
Drawing/Docu Mgmt EC Mgmt
Configuration ControlRelease Control
Order Fulfilment Process
Manufacturing Process
Management ProcessEmployee
MES
Finite Scheduling
Data Collection/POP
Facility Management
Quality Management
FA
1. Introductions of ERP3) Functions of ERP
11
Structure of ERP System
Supplier
AR
Planning
AP GL
Receiving ShippingInventory
AR
Planning
AP GL
Receiving ShippingInventory
Manufacturing PlantsDistribution Centers
Product Life cycleEngineering Purchasing Planning Order Admin Finance
OrderEntryOrder
Shop Floor Control
OrderEntryOrder
PDM
EDI.
Web
EDI.
Web
FA
Customer
1. Introductions of ERP4) Structures of ERP System
12
Characteristics of ERP
EnterpriseReal-time
Integration
• BPR Tool
• BPR InfrastructureBPR Enabler
• Data Integration• Single View of Distributed Systems• Communication Tool
Integration
• Configuration Function• No Programming• Supporting Multi-language
Globalization
1. Introductions of ERP5) Characteristics of ERP
13
Phases of ERP Selection
Acquirement Phase 0
• Studies the business(mission, strategy, etc.), business processes
• Decide if the company has to acquire an ERP
Phase 1
• Conduct a market research initiative looking for ERPs• Reduce the number of candidates
Phase 2
• Obtain one or more interviews with the providers• Get as many fact sheets, catalogs, articles, ect., as pos-sible
• Select 2 or 3 ERP candidate solutions
Phase 3
• Analyze the demonstration of candidates • Visit the providers
Phase 4
• Make final decisions• Negotiate and plan
First filter
Second filter
Analysis
Final decision
2. ERP Selection Criteria1) Phases of ERP Selection
14
ERP Selection Criteria (1/3)
■ Functionality criteria
Criteria Definition
Included functionality• Areas or functions of the company that the ERP has to
serve• It is described how the ERP covers each function
Main target • Functional area or areas for which the ERP is specially oriented or strong
Adaptability • Possible level of customization in general and for the specific company
Openness for1) custom development2) working with other sys-
tems
• Level of openness to additional bespoke development (internal or external) and to other existing applications
• E.g. API, CRM, SCM, etc.
Specifics supports • E.g. Y2K, euro, ISO-9000, etc.
2. ERP Selection Criteria2) ERP Selection Criteria
15
ERP Selection Criteria (2/3)
■ Technical criteria
Criteria Definition
Platforms • Information technology platforms supported
Database management systems • DBMS or DBMSs used as base for the ERP
Languages and development tools • Languages and development tools used to customize the ERP
User management tools • Management capabilities: users, user groups, access levels, roles, authorizations, etc.
User documentation1) Printed manual2) Online help3) Tutorials
• Type of user documentation for training and helping to use the ERP
Technical documentation1) Database schema2) Source code3) Design
• Technical documentation provided about internal structure of ERP master programs and databases
User documentation1) Internet/Web2) Remote3) EDI
• Types of external connectivity supported
2. ERP Selection Criteria2) ERP Selection Criteria
16
ERP Selection Criteria (3/3)
■ Others
– Cost• Are the license costs justified given the functionality offering?• Are annual maintenance charges reasonable?• How quickly can payback be received?
– Service & Support• Can the supplier provide a complete turn-key solution?• How quick are non-critical software bugs fixed?• Does the vendor offer business process reengineering as part of the implementation process?• Does the supplier have industry experience?
– Vendor longevity• How many years has the company been actively engaged?• When was the product’s first release? What is the current release version being quoted?
2. ERP Selection Criteria2) ERP Selection Criteria
17
Market Share
39%
25%
36% SAP
Oracle
Others
200531%
25%
30%
15% SAP
Oracle
Others
MS Dynamic
2010
2. ERP Selection Criteria3) Market Share
■ Market share of ERP vendors in 2005 and 2010
18
■ Logistics & Workflow
■ System Administration
■ Integration of Modules
SAP • Workflow-oriented• Excellence in outbound logistics
Oracle • Effective in e-commerce
SAP • Offering tools to simplify system administration• users cannot utilize sufficiently
Oracle • Ease of system administration (basis of Oracle Database)
SAP • Excellence in interface bet. Modules• Lack of 3rd party vendors
Oracle • Following OLE, ODBC, DDE standard
ERP Vendors with Their Characteristics (1/2) 2. ERP Selection Criteria4) ERP Vendors with Their Characteristics
19
■ Usability
■ Ease of implementation
SAP • Complex to use
Oracle • Good in usability
2. ERP Selection Criteria4) ERP Vendors with Their Characteristics
ERP Vendors with Their Characteristics (2/2)
SAP • Very complex to implement
Oracle • AIM (Application Implementation Methodology)• Ease of configuration
20
■ MIT PPT materials (MRP/ERP) – http://ocw.mit.edu/courses/sloan-school-of-management/15-761-operations-manage
ment-summer-2002/lecture-notes/lec13xrp.pdf
Note
21
Reference
■ Euiho Suh, “BPR/ERP(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)
■ Euiho Suh, “ERP Selection Criteria (PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)
■ O’Brien & Marakas, “Introduction to Information Systems – Sixteenth Edition”, McGraw – Hill, Chapter 8