Enterprise resource planning Intro - Aalto University

H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S

Enterprise resource planning

Intro

Matti Rossi, Professor

Helsinki School of Economics

Information Systems


Contents

Intro to ERP Systems

Philosophy of ERP

ERP and ecommerce

Key components

Evolution of ecommerce


Why ERP?

SAP alone is used by more than 60% of the major firms.

In 1995 SAP generated 90% of their revenues from global companies

Now there is a trend toward automating SME’s and mid-sized companies


Why you should know about it?

Regardless of the management function you are involved in, you will need to know how to use information from ERP systems

ERP system implementation and application is key to the survival of global organizations

The choices made when implementing these systems could make or break your business. e.g. see Hershey case


Evolution of Enterprise Information Systems


(Hannus, 1993)

Service strategies-separation of service channels and customers’ service needs and their efficient integration

Customer centric-IT in customer relationships -strategic applications

User centric- DSS- office automation and PCs

Information centric-data bases and MIS -integration of subsystems

Routine and task centric- production systems- administrative IS

1960 200019801970 1990

Develo

ping

the

orga

niza

iton

inter

nally

onl

yDev

elopi

ng al

so in

ter-

orga

niza

tiona

l dist

ribut

ion

of w

ork

Phasing of IS Utilization


The Evolution of Integrated Systems


Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP)

ERP is an integrated solution to the problem of how to control all major business processes with a single software architecture in real time. It is a process of planning and managing all resources and their use in the entire organization.

Leading ERP software producers

- SAP, Oracle, J.D. Edwards, Computer Associates, People Soft

Main Objective of ERP

to integrate all departments & functions across a company onto a single computer system.


Strategic Rationale

Choose ERP to implement a specific strategy

As part of an E-business strategy, a firm could implement an ERP system

As part of a strategy to focus on the consumer, a firm could implement “Available to Promise” (ATP)


Competitive Rationale

“A lot of ERP purchases are premised on the need to just stay in business.”

The competition has it can take two approaches

Implement because the competition has it

Focus on why the competition has it and see if it fits your company and what benefits can be gathered


Cost is Serious

After cost of ownership is $15 million, typically at a cost of $53,320 per user, according to a Meta Study.

ERP costs can run 2-3% of revenues

The implementation takes from 6 months to 2 years

Severe changes into operation of the company and employee skill needs

Most projects fail…


Transformation of companies


ERP and Reengineering

ERP implementation usually forces reengineering

ERP is an electronic “harness” for your business processes

The processes need to be tailored and streamlined before the ERP implementation!

The ERP can enable or constraint the implementation


Technology and re-engineering

A particular technology (or portfolio of technologies) is chosenas a tool to facilitate reengineering.

Thus, reengineering choices are a function of the technologies chosen.

The technology drives the reengineering


”Old economy” company

Lähde: McLean, Turban & Wetherve, 1999


certificationauthorities

banksproducers-suppliersmarketplace

producers-designersmarketplace

EDI

Team workDigital design

Lifecycle management

buyers-producersmarketplace

WWW; XML;agents

Trust&

securityRelationshipmanagement

Digital simulation Office Furniture Buyers

Dynamic Value Markets & Networks

Source: eEurope initiative


Networked versus hierarchical organisations


Product or Business Units

Fu

nct

ion

s o

r C

ou

ntr

ies

/ R

egio

ns

80s: Vertical (Functional)

Structures

90s: Globale Matrix

Structures

00s:Global E-BusinessNetwork Structures

Sub-supplier

Sub-supplier

Sub-supplier

Sub-supplier

BrandOwner

BrandOwner

Sub-supplier

Sub-supplier

Distr.Partner

Distr.Partner

Distr.Partner

Distr.Partner

CustomersCustomers

E-M

ark

et /

Pri

vate

Ex

chan

ge

TransactionProcessingEnvironment

ManagementFocus

ManagementSystembased on

Legacy Systems

Margins / CostManagement

Financial Reporting

Integrated ERP Systems

Value Based Management/ Portfolio Management

EIS / Data Warehousing

Hybrid E-Business Systems

VBM II/ Value Network Management

Integrated Analytics

Systemsupplier

Systemsupplier

Systemsupplier

Systemsupplier

Changes in organization structure

Source SAP a/g


ERP Facilitates Organizational Communication and Collaboration

Increasingly firms are opening up their databases to facilitate procurement and other functions, thus ERP facilitates collaboration

Since the ERP has all the transaction processing information in it, communication is facilitated.


ERP functionality and processes


How Does An ERP System Work?

Information is input one time and selected information cascades through the system, rather than requiring re-inputting

e.g., Sales call information, cascades to sales information, which cascades to billing info.

Business events are integrated into processes

Associated with order processing are a number of functions, including Sales and Distribution, Planning and Production, Materials Management, and Financials

Source: O’Leary 2000


Real Time Information

ERP provides a clearing house of real time up-to-date information necessary for e-commerce

Inventory Information (so they know what is available to sell)

Pricing Information

Configuration Information (necessary for requirements planning)


ERP system

Production Distribution Sales

Supplier Customer

Procurement

Employees Resources Equipment

Project management

Financial control and planning

Cust. serviceMaintenance Quality control

Supply chain management & planning

Business warehouse


FinancialFinancial controlcontrolLogisticsLogistics

AccountingBusiness Business processprocess

DokumentsDokuments

ReportsReports

PCPC

FIFI

COCO

SLSL

ExtExt..***

Integration in SAP

Source: SAP Ag


..........................

..........................

..........................

. . . . . . .

. . . . . . .

Warehouse

• Packing

• Shipping papers • Goods issue

Salesorder

• Picking

• Update stock• Post general ledger

Delivery

• Create delivery

..........................

..........................

..........................

. . . . . . .

. . . . . . .

..........................

..........................

..........................

. . . . . . .

. . . . . . .

Example: Delivery


Goods issue

QuotationOrder

Order

Sls.order

A A

A

KMTKMT

TextDelivery

Req.

Billingdue list

Material M1Valuatedstock

C1M1 100 PCSales price 25 DEMCost price 12 DEM

Factory Overhead Stockof Production

X X!

Goods issue:

Decreases stock

Updates stock

Removes sales order

Creates bill

Goods issue handling


Sales event flow

. Order

. . Delivery

. . . Bill

. . Return

. . . Return Delivery

. . . . Reinbursement

Returns

Order Delivery Billing

Return delivery

Hyvityslasku

Offer

Document flow

.

.


Documents and transactions

Tammi 45,000,000Helmi 670,000,000Maalis 45,560,000Huhti 784,000

PostingsITEMSAccountsReports

Tulos

193100 SEBSEB

193100 SEB

13,000,00015,230,000

70,197,0007,000

23,000347,000

Tase

OriginalsOriginals

Arkistoituoptisesti


Example Case


ERP and Customer Ordering

Facilitating commerce is one of the most important tasks in commerce

Unfortunately, it often is filled with errors.

For example, Cisco found that 25% to 33% of the orders made by faxes had errors in them.

How could e-commerce solve the problem?

What was the problem?


What is the Impact of Errors? Errors ultimately can delay the shipment or cause an error in the

pricing.

As customers found out about errors in the orders, they found itnecessary to contact Cisco about their orders to make sure that orders got in the system correctly

These requests required increases in Cisco’s personnel in order to respond to customer inquiries, raising costs and slowing down the process of getting goods to the customer.


En example from Cisco’s Internet Business

Solution Portfolio …

Develop-ment

Mfg. Mktg. Sales Support

Customer Care

InternetCommerceMktg.

Employee Workforce Optimization

Supply Chain Management

Encompass 5 web applications that cross the entire Cisco value system


One of Cisco’s first E-Commerce Applications

Using the web, customers were able to gather information from Cisco’s ERP system that would allow them to track and price their orders to see if they were correct and to see what the status was

Information was available seven days a week and twenty-four hours per day.

This reduced Cisco’s need to have personnel available to help track the orders and answer customer questions. Customer support had been shifted to the customer.


Problem Detection:Problem Detection:CiscoWorksCiscoWorks

Problem Notification: Bug Alerts1 Problem Notification: Bug Alerts1

Problem Identification: Problem Identification: Bug NavigatorBug Navigator

Operation Support Operation Support Software Library Software Library

The Early Cisco Connection Online (CCO)

Problem Resolution: Open Problem Resolution: Open Forum, Troubleshooting EngineForum, Troubleshooting Engine

Installation and Configuration Installation and Configuration DocumentationDocumentation

In 1994, Cisco Began with a Simple Customer Care Application …

Goal: To provide technical assistance, automate customer care, improve customer satisfaction in the midst of a shortage of skilled engineers.


How to proceed

Perhaps a more important question was “How can you eliminate errors to begin with?” In Cisco’s second year, their goal was to eliminate the errors and allow the customer to make anytime anywhere ordering over the Internet

Accessing information from the ERP customers were permitted to originate, configure, price and place the order.


ConfigurationConfiguration11’’

Service OrderService Order

Order StatusOrder Status11

Order PlacementOrder Placement

PricingPricing

InvoiceInvoice

In mid-1996, Cisco Introduced Early iCommerce

Functionality to the CCOAdded Cisco Connection Online (CCO) Functionality


How did they get customers to use it?

Cisco guaranteed that pricing and configuration would be accurate, if the customer used the web application. Within only four months in 1996, 10% of the orders were done over the Internet. By 1999, 85% of the orders came in over the Internet


Community portal for specific users:- New Hires- Sales- Engineering

Cisco LOBs

What’s New Segment

Standard Footer / Page Owner

Corporate NewsCisco My Yahoo!

Employee Workforce Optimization Activities

Directory and organization chart

Travel/expense

Benefits enrollment

Cisco My Yahoo!

Training registration

Stock information

Online Procurement

Online recruiting

In early 1995, Cisco Began to

Web-Enable All Employee Activities

In early 1995, Cisco Began to

Web-Enable All Employee Activities


A Summary of the Financial Impact behind Cisco’s Internet

Business Solutions ...

Financial Contribution

Customer Care Customer Care

•• Headcount AvoidanceHeadcount Avoidance

•• Software DistributionSoftware Distribution

•• Document PublishingDocument Publishing

$75,000,000$75,000,000

$250,000,000$250,000,000

$40,000,000$40,000,000

Employee ServicesEmployee Services

•• Online HiringOnline Hiring

•• Productivity IncreaseProductivity Increase

$8,000,000$8,000,000

$4,000,000$4,000,000

Supply Chain ManagementSupply Chain Management

•• Reduced Operating Cost Reduced Operating Cost

•• Increased ContributionIncreased Contribution75,000,00075,000,000

100,000,000100,000,000

Internet CommerceInternet Commerce

•• Headcount Avoidance Headcount Avoidance $12,000,000$12,000,000

TotalTotal $550,000,000 + $550,000,000 +

“Old World” Processes


Integration & Sharing of Information

Purchasing is done using Cisco’s system and not the customer’s system so the customer needs to put the same information in their own ERP system

How could we facilitate optimal sharing of the information?


Solution: Allow access to Cisco’s systems The information about catalogs, prices & configurations is

shared by Cisco & key customers

Once a day, new configuration, order and pricing information is made available to those special customers

Now customer can use their internal systems for ordering


ERP & Vendor Managed Inventories

Under Cisco’s model, the customer does the ordering

However, in many settings, the order process has been shifted from the customer to the vendor


How is VMI Accomplished?

VMI is accomplished by providing vendors real time access to necessary information.

Access must be electronic and the information must be up-to-date or else the quality of the inventory decisions can be limited, a particularly important limitation when the vendor is managing the inventory.

In an ERP-based world there are two solutions designed to facilitate VMI:

Integrating through access to ordering data

Direct ERP to ERP connection.


Conclusions

ERP must be preceded with a process change

Change takes time and must be planned for

The implementer should be aware of the financial and operational costs

The costs and benefits should be measured

This is not a technology solution!



Matti RossiHelsinki School of Economics P.O. Box 1210FIN-00101 HelsinkiFinlandEmail: [email protected]: +358-9-43138996Fax : +358-9-43138777

http://hkkk.fi/~mrossi

Contact information


Links to exchanges

B-to-b in general

http://www.manufacturing.net/magazine/purchasing/

CommerceNet

http://www.commerce.net/

GE Capital

www.gecapital.com

MRO.com

www.mro.com


Technology providers

SAP: www.mysap.com

Ariba: www.ariba.com

i2: www.i2.com

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