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Enterprise Resource Enterprise Resource Planning (ERP)Planning (ERP)
What is ERP?
“An initiative launched by organizations to better manage all enterprise-wide business processes
using a common integrated database and shared data
management applications and reporting tools.”
Basis For the Development of ERP• An organization’s critical business processes often cut
across many of the organization’s functional business boundaries (e.g., Order Processing)• In most organizations, each business process has it’s own separate set of data needs and applications that operate as distinct “systems” within the organization.• The results of this approach:
- Function-Centric View in Business Units: The functional units (e.g., sales, accounting, production, etc.) are only concerned with the applications and data needs of their portion of the business process.- Operational Inefficiencies: By viewing the complete process as a series of distinct pieces – the organization is introducing operational inefficiencies and information sharing challenges into the process. These information sharing challenges include: 1) data redundancy (same data elements in numerous locations) 2) program redundancy (many programs doing the same thing) 3) lack of systems integration (flow of information between systems)
Basis For the Development of ERP(An Example)
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Customer Order
Evolution of ERP• The vision of an integrated information system to fully support operations began on the factory floor in the 1960s through the 1970s• The development of Materials Planning Software (MRP) allowed plants managers to plan the production and raw materials requirements by working backwards from the sales forecast:
1 – Identify Demand: The production manager looked at marketing and sales forecast of demand (What is the production needed?).2 – Review Current Production Schedule: The production manager would then look at the current production schedule in relation to the planned demand (Who is needed for production?). 3 - Raw Materials for Production: The production manager would identify what raw materials will be needed based on the production schedule and the sales forecast (How much do we need?).4 – Plan Raw Materials Orders: The production manager would then project when purchase orders would need to be sent to the key suppliers in the value chain (When will the supplies arrive?).
Evolution of ERP• The growing acceptance of EDI and EFT technologies by firms allowed trading partners in the value chain to both send and receive time-critical business transactions, avoiding the cost and delays resulting from using paper purchase order and invoice systems.
• In the 1980s, MRP II was developed to integrate the financial function into the planning process: “Instead of having one set of numbers for the operating system in manufacturing and one set kept by the financial people – once the manufacturing people have numbers that are valid, the financial people can use these to get their numbers. Of course, whenever there are two systems – the numbers are bound to be different. With MRP II, everybody can be working to the same set of numbers But that’s only the technical difference. The big difference comes in the way management uses these tools…MRP II becomes a company game plan for manufacturing, marketing, engineering, and finance.”
Oliver Wright, The Executives Guide to Successful MRP II, 1982
Evolution of ERP• By the late 1980s and early 1990s, company downsizing and corporate reorganizations pushed companies to fully explore how IT could be used to reduce process costs and improve operational efficiency.• By the early 1990s, organizations began to explore how they could reengineer their existing business processes to “squeeze out” costly process inefficiencies & improve relationships with value chain trading partners.• It was this climate that led five former IBM systems analysts to develop the system Systemanalyse und Programmentwicklung in Manheim, Germany – SAP. - In 1988 the SAP AG firm released SAP R/3 a fully integrated software system that has distinct modules for each key business process (12 modules linked to a single open architecture client/server system) - By 2000, SAP AG had 22,000 employees in 50 countries – and 10 million users at 30,000 installations around the world. - Main Competitors: PeopleSoft, J.D. Edwards, Oracle, and Baan.
Evolution of ERP
SAP R/3 Approach
WF (Work Flow)
IS (Industry Solutions)
PS (Project System)
CO (Controlling)
AM ( Fixed Assets Mgt)
FI (Financial Accounting)
R/3Client / Server
MM (Materials Management)
PP (Production Planning)
SD (Sales & Distribution)
PM (Plan Maintenance)
HR (Human Resources)
QM (Quality Mgt)
NOTE: The approach allows for the “linking” of applications from SAP business partners – 3,000 business partners world-wide
Why Undertake ERP?1) Integrate Financial Information: ERP ensures that there is a
consist and credible set of financial information since all of thefunctional areas use the same integrated system.
2) Integrate Customer Order Information: ERP provides a singleenvironment from the time the customer places an order untilthe customer receives the order – instead of having orderinformation spread across a number of distinct systems.
3) Standardize and Speed Up Manufacturing Processes: Manyorganizations have found it difficult to manage productionin the current “merger and acquisition” business environment.ERP ensures that a single standardized process is employedresulting in: increased productivity and reduced head count.
4) Reduce Inventory: ERP – along with new IT technologies – hasmade it possible to better manage both supplier side inventoryand retailer side inventories through real-time informationsharing with the firm’s value chain trading partners.
5) Standardize HR Information: ERP allows the firm to betterestimate and track what resources are required to support theirbusiness processes – thus optimizes the firm’s needed workforce.
The General ERP Process1) Product Analysis: The firm will hear the sales and marketing
“pitches” from ERP firms that they believe meet their generalbusiness needs and objectives.
2) Module Selection: The firm determines which of the ERP modulesto implement to meet their current business needs.
3) Process Analysis: The ERP firm will provide consultants to helptheir client identify the processes impacted by the selectedERP modules. The consultants will then do a complete analysisof those processes to establish data and processing needs.
4) Data Analysis: In order for ERP systems to function properly,all ERP systems must have a single integrated data repositoryfor ALL data items used by the firm. Therefore, consultants arerequired to establish the standardized database.
5) Applications Integration: In order for ERP to run properly, theexisting legacy systems applications have to be modified to usethe new ERP environment. New hardware and software mayhave to be purchased to run the ERP system.
6) Testing and Installation: The new system must be tested toensure it meets the desired firm specifications.
7) Employee Training: The employees must learn the new system.
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
HelpDesk
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample PeopleSoft SystemSample PeopleSoft System
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
CRM ModulesCRM Modules
Sample CRM System
-----------------------Marketing,
Sales, Customer Support, and
Telemarketing
BillingOrder
Management
Inventory
Purchasing
Supply-Chain ModulesSupply-Chain Modules
Sample SCM System
----------------------Takes Orders, Fulfills Orders,
Manages Inventory
DemandPlanning
InventoryPlanning
EnterprisePlanning
BillingOrder
Management
Inventory
Purchasing
Supply-Chain ModulesSupply-Chain Modules
SCM often includes Planning Modules
to forecastSales Demand,
Inventory Demand,
Global LogisticsDemandPlanning
InventoryPlanning
EnterprisePlanning
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
Financial ModulesFinancial Modules
Sample Financials------------------------Receives feedsinto AR, AP, GL
to provide reports,Also manages
Assets
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Enterprise Data WarehouseEnterprise Data Warehouse Global Data
Repository-----------------------Holds data from
all corporate systems,
provides several ways to deliver
corporate reports, often
provides detailed
analytics, and detailed KPIs.
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 1Sample Flow of Data – Step 1
Initiate aMarketing Campaign
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 2Sample Flow of Data – Step 2
Campaign generates Sales
Volumehandled by the Sales Channels
directly, or through
Telemarketing
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 3Sample Flow of Data – Step 3
Sales Orderis captured
and processedby the
Order Capturemodule
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 4Sample Flow of Data – Step 4
CRM, through an interface, sends the Sales Orderto the Supply-
ChainOrder
Managementmodule
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 5Sample Flow of Data – Step 5
Through integration, Inventory is
askedto pick/pack/ship
the Orderto the Customer
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 6Sample Flow of Data – Step 6
Inventory will automatically
generate a sourcing request for more Product
as needed
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 7Sample Flow of Data – Step 7
Additional Product processing (PO,
receipt, adjustments) will be controlled by
Purchasing,Paying for Product is handled by AP
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 8Sample Flow of Data – Step 8
Shipped Orderswill be invoiced
through theBilling module
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 9Sample Flow of Data – Step 9
Collecting payments on
invoices, past due balances, and feeswill be controlledby Receivables
(AR)
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 10Sample Flow of Data – Step 10
Many modules send financial transactions
through to the General Ledger
for reporting
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 11Sample Flow of Data – Step 11
After shipping,Order
Managementwill keep CRM
updated to reflectCustomer activity
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
Sample Flow of Data – Step 12Sample Flow of Data – Step 12
Periodically(perhaps Monthly)
data from all systems
is transferred to theData Warehouse
GeneralLedger
Payables
Receivables BillingOrder
Management
Inventory
Purchasing
OrderCapture
Support
Marketing
Sales
Back Office isFinancials andSupply-Chain
combined
Basic CTIFrameworkconnects toPBX (phone)
Basic ERP & CRM System
CTIInterface
Tele-Marketing
Support module
handles allCustomer Service
GeneralLedger
Payables
Receivables BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
Web & On-Line
Take existingPeopleSoft
functionalityto the web without
re-inventing the wheel
GeneralLedger
Payables
Receivables
AssetManagement
Expenses
BillingOrder
Management
Inventory
Purchasing
OrderCapture
SupportSelf-Service
CTIInterface
Support
On-LineMarketing
Marketing
Tele-marketing
Sales
OrderCapture
Self-Service
HelpDesk
EnterpriseWarehouse
EnterpriseScorecard
CustomerScorecard
CustomerBehaviorModeling
PeopleSoft Modules: Financials, Supply Chain, CRM & EPM
How Much Does an ERP Package Cost?• The total cost of an ERP Implementation can vary
significantly depending upon: 1) The Size and Geographical Distribution of the Company 2) The Size of the ERP Package (How Many Modules?) 3) The Addition of New Hardware to Support ERP 4) The Addition of New Systems Software to Support ERP 5) Consultants’ and Analysts’ Fees (Can be VERY Expensive) 6) Time Required for Implementation (Disruption of Business) 7) Training Costs (Both Time and Money)
• A large company may spend from $50 million to $500 million for an integrated ERP system.
• Meta group did a survey of the Total Cost of Ownership (TCO) of ERP (including hardware, software, consulting) at 63 companies (small through large) in a range of industries and found that the average cost was $15 million. The high was $300 million and the low was $400,000.
How Much Does an ERP Package Cost?
• $14.5 Billion Systems Manufacturer• World-Wide Operations• Install ERP in their Turbocharging Systems Division which encompasses 11 countries, 18 sites and 9 languages.• ERP implementation will be complex and have a huge database
• Estimated Costs: 1) $30 million in software license fees 2) $200 million in consulting fees 3) Millions in hardware integration costs 4) Millions in software integration costs 5) Millions in training costs
• Time to Implement System: Four to Six Years
Business Example: Allied Signal, Inc.
How Long Until the Firm Sees a Return on their Investment in ERP?
• A Meta Group Study of 63 companies that took 8 months after an average implementation time of 24 months (31 months total) to see any benefits from their ERP initiative.• BUT, the medium annual cost savings from the new ERP system was $1.6 million
Examples:
1) Pitney Bowes: ERP cut overall operations costs by 28%. Sales Reps can now give price quotes in 15 minutes rather than hours resulting in a 4% increase in sales - $160 million.2) Toro: Spent $25 million and four years on their ERP project with no initial quantifiable return. Sales to large national retailers like Sears and Home Depot resulted in $10 million due to inventory reduction benefits.3) FoxMeyer: Is suing SAP AG claiming the ERP implementation caused their bankruptcy.
Why Do Some Companies Have More Success With ERP Than Other
Companies?• Loss of Top Management Support: Commitment by the firm’s top management to the successful completion of the ERP project decreases over time.• Improper Cost Estimation: Ability of the firm to properly identify the TRUE cost and time commitments that will be required by the firm. MOST ERP projects experience cost overruns!• Realistic Expectations: The assumption that an ERP system will cure fundamental business problems that are not curable by any software application• Select Proper ERP Implementation: Executives do not take enough time for proper analysis of the ERP impact during the project planning phase. (Requirements?)• Cultural Impacts: People throughout the organization resist the changes made to business processes to support new ERP system.• Training Costs: Some firms under budget or skimp on employee ERP system training (People Costs)• IT Customization and Integration: The IT shop is bogged down in ERP integration
QUESTIONS??QUESTIONS??