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Enterprise Applications and Business Process Integration

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Enterprise Software

Set of integrated software modules for finance and accounting, human resources, manufacturing and production, and sales and marketing

that allows data to be used by multiple functions and business processes

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Enterprise system architecture

Figure 11-1

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Enterprise Resource Planning (ERP) systems

Interdependent software modules with a common central database that support basic internal business processes for finance and accounting, human resources, manufacturing and production, and sales and marketing

Enables data to be used by multiple functions and business processes for precise organizational coordination and control.

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Business Value of Enterprise Systems

A more uniform organization

More efficient operations and customer-driven business processes

Firmwide information for improved decision making

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Selection and Implementation of an ERP System

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Introduction and Selection of an ERP System

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Step 1: Project Organization

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To be successful the effort of selecting and implementing an ERP system must have high priority and visibility within an organization.

It is advisable to give the effort the status of a major project and require regular progress reviews at the appropriate levels of management.

ERP implementation is a truly company-wide effort and is doomed to failure if treated as anything less.

Project Organization

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Selecting a Project Manager

Project Manager

Key user of the new ERP system who has a a good deal of experience and high level of credibility within your company.

– The project should not be managed by the IT department.

Should be trained in the techniques of project management.

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Common Hiring Mistakes

Mistakes made when hiring ERP project managers:

Hiring an ERP "expert" from outside the company – It's easier to teach an internal person about ERP than it is to

teach an ERP expert about your company, products, and culture.

Hiring a new person just out of college (e.g., a person with a computer science degree)

– Although they may have enormous potential, they may not yet have creditability.

– This mistake is usually made when management sees ERP as only another system and not as a company-wide system.

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The Project Team

Project Team

Responsible for the day to day management of the ERP selection and implementation.

Team members represent their different functional areas.

Team members manage selection and implementation tasks and may also do work on these tasks.

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Budget/Funding Budget/Funding

Management should establish budget guidelines for the project prior to beginning the project

Project team needs a budget that they can use for planning and executing the project

Many companies have no idea what to pay for an ERP system

Many decision-makers turn to vendorsA better way is to ask, "Why are we doing this and how will we benefit?" By answering these questions, an organization can begin establishing an ERP budget-a valuable tool for negotiation.

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Budget/Funding, cont. Budget/Funding (cont.)

Management should establish budget guidelines for the project prior to beginning the project

Project team needs a budget that they can use for planning and executing the project

Many companies have no idea what to pay for an ERP system, therefore, many decision-makers turn to vendors

Before issuing a budget ask, "Why are we doing this and how will we benefit?" – By answering these questions, an organization can begin establishing an ERP

budget-a valuable tool for negotiation.

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Budget/Funding, cont.

Budget/Funding (cont.)

Before issuing a Request for Proposal (RFP) to vendors, apply a standard for estimating the ERP implementation budget.

Find a reasonable method for ERP implementation budgeting. – Example: This method uses a calculation based on the company's

annual sales. Experience has shown that companies will spend 1 to 3 percent of annual sales on the total acquisition costs of a new ERP system. This includes the cost of software, hardware, implementation, first year maintenance, licensing fees, tailoring reports, providing interfaces for other software applications, and other miscellaneous costs. In other words, this estimate should cover the "total cost of ownership" for the new system.

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Project Schedule

Must have enough detail so that it can be used as a primary tool for managing the project.

Tasks should include time frames for completion and responsibility assigned by position or name.

Using a project management program like Microsoft Project or equivalent is recommended Further detail on scheduling will be discussed in a later

section of this presentation.

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Step 2: Analyze and Document Functional Requirements

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Functional Requirements

An important prerequisite to selecting an ERP software package is to document the functionality required to support your business.

This effort should also include where possible, functionality to support your business objectives in the future.

These requirements will be used as one of the criteria for evaluating and selecting the most appropriate software package.

For an organization that has never documented requirements this could be a daunting task; however, this section provides some suggestions and guidance to keep the task as simple as possible.

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Gather Requirements

The project team can analyze and document the functional requirements. The project manager can organize and conduct interviews with

people in various departments throughout the company. From these interviews a formal requirements document is produced.

Alternatively, the project manger can request written requirements from each department and then organize the responses into a requirement document.

Often a combination of the two methods works well, but at any rate someone who is knowledgeable of the company and ERP functionality should document requirements.

If no one within the organization is qualified, it is not unusual for companies to enlist outside help.

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Two Types of Requirements

To keep the requirements documentation process as simple as possible we will classify requirements into two types:

General or Standard requirements

Special Interest requirements

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General or Standard Requirements By definition these requirements include functionality that most systems

provide and most companies require.

List the primary functions or departments which you want supported by the new system. These may include, but is certainly not limited to: Receiving Shipping Marketing/Sales Forecasting Human Resources Engineering Bill of Material Accounting Sales order entry Sales order scheduling Material planning and scheduling Production planning and scheduling Capacity planning and control Purchasing Inventory control

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General or Standard Requirements, cont. After determining the major functions , you can

expand to the next level of description. Example 1:

– Accounting is an area or department that is an integral part of the ERP system, however, it is not necessary for you to describe every function that the accounting department requires from the system.

– List the requirements in more general terms such as "must handle accounts payable, accounts receivable, general ledger, etc." Do not attempt to describe exactly how you want these functions handled.

Example 2:– Another example might be purchasing. Requirements could

be listed as: “must support contract purchases and blanket purchases, has Request For Quotation capability, etc.”

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Special Interest Requirements

More detailed requirements that you feel are very important to your company

Requirements the vendor needs to understand in more detail, like how you need the system to support your business. Examples:

– The system must be able to assign and track product serial numbers by sales order.

– The system must be able to track and cross reference engine serial numbers to product serial numbers.

– The system must support accumulation of labor by person to a work order.– The system must support the calculation of labor efficiency by individual or

work center.– The system should provide the ability to accumulate warranty labor and

material cost by serial number.

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Step 3: Conduct Search for Appropriate System

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Conduct System Search

Now that you have an idea of your budget and have developed your functional requirements, you are ready to conduct your system search.

There are many systems on the market today and the task is, through an organized process, to eventually select the system that best suits the combination of your requirements and budget.

The following series of steps are a recommended way of accomplishing this task.

After completing these steps you will then enter the final system selection process.

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1: Develop a Candidate List

Since there are so many systems on the market an initial system candidate list should be developed to give the search some focus.

The number of packages you should have on the candidate list varies, but as a guideline keep it between three and nine to keep the search manageable.

The following items are some recommendations for generating the initial candidate list.

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1: Develop a Candidate List, cont.

A. Similar Businesses A good place to start may be with your competition or at

least with businesses similar to yours. This may include your vendors. The systems they are using may be appropriate for you to

investigate.

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1: Develop a Candidate List, cont.

B. APICS An excellent source of information is the American

Production and Inventory Control Society (APICS). This organization publishes ERP software surveys and

comparisons at least annually through their monthly magazine APICS: The Performance Advantage.

These surveys usually list at least 100 of the most popular systems and break them down by functionality and includes company contact information for each.

It will be worth your while to obtain the latest or possibly the last two surveys as part of your search effort.

www.apics.org.

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1: Develop a Candidate List, cont. C. Web Search

Searching the Web using keywords such as "ERP" and "Manufacturing Systems" is another source of information.

Most software companies have Web pages that provide information about their software and their companies.

D. Other publications Other publications such as Manufacturing Systems are available to

research ERP products. This magazine publishes manufacturing software surveys, which may

be helpful in developing your candidate list. They may be contacted at www.manufacturingsystems.com.

E. Software Search Automated Tools An example is SoftSelect They may be contacted at www.softselect.com.

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2: Request for Information (RFI)

After you have developed a candidate list, the next step is to acquire all the information that is readily available for these packages.

This information will be used to narrow the candidate list to the top two to three candidates.

The following are a few means of requesting the required information.

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2: Request for Information (RFI), cont.

A. Telephone One of the easiest ways to request information is over the telephone. As you develop the candidate list contact information becomes

available. Contact the customer service people and tell them you are interested

in their software and request that they send you literature and pricing information.

Sometimes the information will come in the form of a CD, which may include a limited demonstration of the product.

B. Web Often the Software Company will have a Web site that may provide

sufficient information. These pages will usually provide a contact if you need additional

information.

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2: Request for Information (RFI), cont.

C. Mail The mail is another method of requesting information from the

software vendors. You may write a request for information letter to the vendor

describing your need for information, include a copy of your requirements if appropriate.

D. Sales Calls Some of the software vendors you contact may want to make a

sales call at your company or you can request a sales call. This is an excellent way to gather information and might be

used as a gauge for determining the vendor's interest in your business.

You can limit sales calls during this portion of the search; however, you will definitely want the personal attention during the final system selection process.

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3: Narrow the Candidate List

It is recommended at this stage of the search to narrow the choices to the top two or three candidates.

This is usually the job of the project team and the decision will be based on the information that has been gathered.

It is necessary to limit the search at this point as the final selection process is rather intense and time consuming. It can become counter productive if not kept manageable.

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Step 4: Final System Selection Process

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Reviewing the Finalists

After narrowing the choices a more in depth study of the finalist packages can take place.

There is not an absolute method for accomplishing this task but some proven recommendations are listed on the following slides.

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1: Product Demonstrations The project team should invite the top candidates to participate in

half or full day sessions to demonstrate how the products fit the specific work environment.

The vendor should build and demonstrate business process and transaction scenarios based on your company's needs.

The demonstration sessions should have an agenda and time schedule to show how the product works in different business situations.

Flexibility and ease of use (how the product handles in real life) are key.

To accomplish these demonstrations requires that the vendor is familiar with your requirements and has previously visited your business to understand your environment.

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2: Site Visits

It is highly desirable to have members of the project team visit the sites of other companies that are using the ERP product to see how the software system functions in actual applications.

By asking questions, vendor support can also be evaluated during these visits.

The software vendor should be able to arrange these visits, or you can set up your own if you happen to have contacts in companies that are using the system.

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3: References, and 4: Trial Software

References: Vendors should be able to provide you with names of additional

companies that have installed the software. They should provide you with points of contact so you can

conduct telephone interviews. This can be very informative as to actual satisfaction with the software and the vendor.

Trial Software: Vendors may provide a copy of the actual software that can be

installed for in-house use for a limited period of time (30 to 90 days).

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5: Selection Criteria

Making the final selection can be easy - when there is a clear choice and consensus among all team members.

In most cases, though, there will be trade-offs, with specific vendors excelling in different areas.

One of the main activities for the selection team is to develop the key criteria for the selection decision and to assign weights to these criteria based on the company's specific situation.

Some examples of typical selection criteria follow.

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5: Selection Criteria, cont.

Examples for Sample Requirements Matrix: The system's capability to meet the functional requirements

developed by the project team. – This can be measured by the percentage of requirements met

completely, partially, and not at all.

– The vendor's ability to provide support for implementation and ongoing maintenance.

Training Availability- Many software vendors sub contract their implementation and training support. Where is this support located and does the class schedule and location meet your implementation needs? Cost of this item is important and is covered under the cost comparison criteria.

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5: Selection Criteria, cont. Examples for Sample Requirements Matrix

(cont.): Location of user groups to your facility and their

level of activity Financial stability of the vendor Cost Comparison - This comparison includes all

the costs for the system and implementation, not just the software. This is "total cost of ownership."

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Step 5: Actual Procurement of the System

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Final Negotiations Like any other business deal, the final purchase price for software

and its associated support is open to negotiation. Request prices from all of your finalists, even if one seems to be the

system of choice, as your vendors will want to know who they are competing against.

This creates a healthy negotiating environment. Ten percent discounts from the quoted price are very common and

it is not uncommon during negotiations to have the vendors offer 20-40% discounts with payment terms extending well past the typical 90 days.

Maximizing discounts depends on a number of factors including timing, how eager the vendor is, how a company manages the negotiation process, and how well the vendor's sales force is performing against quota.

You are entering a long-term partnership with a vendor, so both parties must believe they've reached a fair agreement.

This checklist can be used as a baseline to review the proposed contract from the vendor.

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Section 2: Implementation of an ERP System

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Implementation Phase

It is assumed for the implementation phase of this course that the selection and acquisition of the system is complete.

The sections that follow deal primarily with the actual implementation of the system.

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1: Typical Tasks

You should break the high level tasks into detailed steps complete with responsibilities and timeframes that fit your company's specific project.

Microsoft Project, or similar project management software, can be used for this purpose.

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2: Duration

Experience has shown that selection and implementation of these types of systems takes 6 months or less depending on what is being installed and the condition of the company's data.

This depends on the system and the user's motivation. When the focus is lost the chances of a successful

implementation greatly diminish.

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3: Information/Data Preparation

One of the most important tasks in implementing an ERP system is getting the information or data that the system requires in a condition that will allow the system to function properly.

The following discussions cover some of the more important items.

A. Part Numbers– In your new system any item that you want to plan or schedule will

require a unique part number. – This may or may not be a problem in your business but some

companies may currently be ordering and tracking parts or material with only a description, and never assigning a part number (i.e. 2 inch bar stock, sheet steel, lid, etc.).

If this occurs in your business it is important to assign unique part numbers to these items.

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3: Information/Data Preparation, cont.

B. Bills of Material– Accuracy should be at 98% for the Material Requirements

Planning (MRP) function of the new system to perform properly.

– Errors are usually significant in that the erroneous bill either calls out the wrong component or omits a component.

This results in MRP planning the wrong component or insufficient components.

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3: Information/Data Preparation, cont.

3. Inventory Records– The primary records we are concerned with are the on hand

balances of each item in inventory.

– Your new system uses this information in calculating the recommendations for ordering material to meet the production schedule.

– Inventory records must be at least 95% accurate for your system to produce satisfactory results.

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3: Information/Data Preparation, cont. 4. Shop Routings

– Direct material through the shop to various departments to perform specific manufacturing operations.

– At a minimum the routing should include the operations to be performed, their sequence, the various work centers involved, the standards for setup (if applicable), and run time.

– Capacity planning uses this information to calculate the required capacity and resources to meet the production plan.

– If the routings are inaccurate, capacity planning will be against the wrong work centers; and more importantly, the schedule that goes to the shop will have jobs scheduled to incorrect work centers.

– Routing accuracy can be measured by counting the number of routings that are issued to the shop each week and the number of routing errors that are reported back from the shop each week.

Routing accuracy should be at least 95% to enable your system to work properly.

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3: Information/Data Preparation, cont.

5. Lead Times – Must be verified and updated.

The system is dependent on these lead times when it provides order release dates and required dates.

6. Vendor Information– The new system will require that vendor information be correct.

This includes company names, addresses, pricing, and contact information.

The system will be generating purchase orders and invoicing using this information and it will create considerable confusion if the information is incorrect.

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3: Information/Data Preparation, cont.

7. Customer Information – The new system will be generating and printing customer

orders and if the customer information is incorrect it will generate considerable confusion.

8. Labor Standards – If the new system will be used for collecting labor information

from the shop floor and calculating efficiency, it is important that the labor standards be accurate.

– If the standards do not represent reality the information will be useless and will create confusion in the work force.

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Site Preparation

Another important area that needs specific attention is preparation of the physical site for acceptance of the new system. Here again the magnitude of this task is dependent on what is

being installed and the current condition of the facility. However, the following items usually will need attention as a result of the system implementation.

1. Network Since you are implementing a new system it is likely that you

will need to upgrade your network. The software vendor should supply the specifications, but it will

be up to you to purchase and install the proper equipment and operating system.

If you plan to have terminals on the shop floor and in the stockrooms don’t forget that network cabling must be run to these areas.

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Site Preparation, cont.

2. Hardware The vendor may supply you with the minimum specifications

for the workstations and fileserver required to run your system.

This helps them keep the overall cost estimate of their system lower, but it may not be the best option for you to take.

Make sure that the hardware and operating systems you install will provide your people with sufficient performance.

Your company's growth plan should also be considered when purchasing the hardware.

– You do not want to outgrow your system in the short term.

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Education and Training Education and Training are important keys to success with your new

system.

1. Conceptual Training Depending on the users’ experience you may want to offer conceptual

training in conjunction with implementing your new system. This education could include instruction on the principles and logic

behind material requirements planning (MRP), capacity requirements planning (CRP), bills of material structuring (BOM), inventory management and others.

Different systems manipulate these functions in various ways through screen presentations, but the principles and logic upon which they are based is usually very similar.

– It could be very beneficial for the new users to understand the principles and logic prior to actually using the new system.

– APICS is a source for educational material on these topics.

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Education and Training, cont.

2. System Training Users will require training on the new system prior to start

up. Typically this training is provided on a formal basis directly

by the software vendor or through certified subcontractors. It can usually be accomplished by traveling to their training

site or having them come to yours. The method for completing this training should have been

part of your evaluation process in selecting your system.

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Converting and Loading Data Converting and loading all required data into the new system is a formidable

task. Before you begin it is advisable to understand the magnitude of the entire task.

The following list indicates the types of data that must be loaded into the new database. This list will not be totally inclusive for your business, but will give you a baseline for planning the largest portions of data. Inventory Balances Inventory Locations Bills of Material Customer file Vendor file Routings Lead times Purchase orders Customer orders All Accounting Information Part Numbers Part Descriptions

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Converting and Loading Data, cont.

As part of your system search be sure to understand from the vendor what assistance they can offer your particular conversion effort. If you are converting from a computerized system, find out if they have conversion programs that can format and move the data from your old system to the new. If not, ask what other options are available. It is important to understand the total logistics of this task.

If you are converting from a totally manual system the task is greater because every record will require manual intervention. In this case it may be advisable to manually load your data into some intermediate files (i.e., Excel) as time permits prior to receiving your system, and then upload to the new system when it is installed. This will save time when loading the new system, but these details should be worked out closely with the software vendor to come up with the best plan for your situation.

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Operating Procedures

In many companies implementation of the new system is not only a commitment to a formal method of managing the business, but also a means of replacing a structure of informal procedures and methods. Therefore, it is necessary to document how things will be done with the new system. This will be an evolving process, but some areas need to be addressed prior to system start up.

One of these areas is selecting individuals who will be responsible for the accuracy of inventory records, bills of material, and routings. Not only should these individuals be selected, but prior to system start up they should develop the working procedures for how the accuracy will be maintained.

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Section 3: Tips for Success

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Proven Success Through experience it has become evident that there are

certain suggestions that if followed, greatly enhance the chances of your system selection and implementation project being successful. Although some of these have been discussed throughout the presentation, they are important enough to be repeated. Tip #1- Project Manager

– Companies often pick an information system person as the project leader. This ignores the issue of accountability; only a user can really be accountable for making the tools produce results.

– Choose a key user as the project manager. Provide the individual with training in project management fundamentals.

A good resource in project management is the following text: " A Guide to the Project Management Body of Knowledge (PMBOK)", published by the Project Management Institute, ISBN: 1880410222.

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Proven Success, cont.

Tip #2- Data Accuracy– It is important that all the data in the new system be accurate;

however, some data, if inaccurate, is more unforgiving than others. This includes inventory records, bills of material and routings.

– Bringing the system on line before this data meets the required accuracy standards is a serious mistake. The system relies on this data to be accurate immediately.

Tip #3- Top Management Support– Upper management should be part of the decision to implement

the new system as a way of managing the business. Without this level of support the discipline required to make the new system successful will not be possible and the old way of doing business will again prevail.

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Proven Success, cont. Tip #4- Converting and Loading Data

– Make sure that you have adequately planned the conversion and loading of data for the new system. This item can cause unexpected and extended delays at start up if not planned properly.

– Remember to involve your software vendor in this planning. Tip #5- Start-Up Using the Pilot Approach

– This approach allows you to find problems as they appear before it impacts your business. After about a month of pilot, most of the problems will have been identified.

– Once they are fixed, you can discuss additional products if you feel comfortable, or run another pilot if that is appropriate.

– This is the least risky and most orderly approach, and the one most likely to lead to a successful implementation.

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Proven Success, cont.

Tip #6- System Administrator– Be sure you have someone available who is qualified to

function as a system administrator for your new system.

– This person is responsible for keeping your system running and performing upgrades.

– Depending on the size of your company this position could be part-time, full-time, or you might elect to use an outside consultant as needed.