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ERP – Enterprise Resource Planning

Presented By:

David GilesMatthew Haack

LeRue Holbrooke

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Topics of our presentation

• Overview of ERP

• Best Practices of implementing ERP

• Summary of ERP Vendors

• Case studies of ERP Implementations

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What is ERP?

• Enterprise Resource Planning is the implementation of software that allows companies the ability to integrate their software to work more efficiently and hopefully provide better customer service.

• Integrates several business functions: Finance, Accounting, Logistics, HR, Sales & Marketing, ETC…

Davenport, Thomas. “Putting The Enterprise Into The Enterprise System” Harvard Business Review. July-August 1998. pp. 121-131

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How does ERP work

• The simplest way to describe ERP is to think of it like a building block that you can add to on any side.

• These building blocks are known as modules that work together by sharing information.

• The information that the modules share can vary from finance to manufacturing and all points in between.

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Before ERP

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Enterprise Resource Modules

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ERP Model

Employees

Managers andStakeholders

CentralDatabase

ReportingApplications

HumanResource

ManagementApplications

FinancialApplications

ManufacturingApplications

InventoryAnd SupplyApplications

HumanResource

ManagementApplications

ServiceApplications

Sales andDelivery

Applications

Sales ForceAnd CustomerService Reps

Customers Back-officeAdministratorsAnd Workers

Suppliers

Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 1998.

Employees

Managers and

Stakeholders

CentralDatabas

e

ReportingApplications

HumanResource

ManagementApplications

FinancialApplications

ManufacturingApplications

InventoryAnd SupplyApplications

HumanResource

ManagementApplications

ServiceApplications

Sales andDelivery

Applications

Sales ForceAnd CustomerService Reps

Customers Back-officeAdministratorsAnd Workers

Suppliers

Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 1998.

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History of ERP

Thin Client

Client Server

Mainframe

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Where is ERP headed

• Enterprise Resource Planning will become more and more prevalent in the business world as prices for technology reduce and software vendors try to find new customers.

• ERP will also be moved back onto a central computer such as a host so that more customers can use their ERP software anywhere.

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Project Lifecycle

www.peoplesoft.com

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ERP Implementation Best Practices

1. Business process review / re-engineering

2. Establish knowledgeable project team3. Ensure software compatibility with

industry practices and requirements4. Prepare organization for change 5. Establish sufficient training methods6. Perform gradual implementation7. Keep short project lifecycles

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Promised Benefits of ERP

• Improved Productivity– What was the improved productivity at MEMC?

• Improved Customer Demand Management

• Cost Reductions

• Manufacturing Efficiencies

Seewald, N., “Enterprise Resource Planning Tops Manufacturers’ IT Budgets,” Chemical Week, New York, Sep 11, 2002, Vol. 164, Issue 35, p.34

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Hidden Costs of ERP

• Organizational Culture Change

• Testing

• Data Conversion

• Data Analysis

• Transition From Outside Consultants

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Hidden Cost of Training

• Costs usually underestimated

• Owens-Corning– Original Estimate – 6% of Project Budget– Actual Results – 13% of Project Expense

• Train the Trainers

White, J.B., D. Clark and S. Ascarelli. “The German Software Is Complex, Expensive, and Wildly Popular.” Wall Street Journal, March 14, 1997, A1, A12.

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Hidden Costs of Integration

• Typically 30% of Project Cost

• Unplanned customizations raise cost

• Incremental integrations more successful

Vowler, J. “You Cannot Afford to Ignore Integration.” Computer Weekly, June 3, 1999, 44.

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ERP Overview of Vendors

PeopleSoft / JD Edwards

SAP

Oracle

Baan, IFS, Great Plains, Lawson, et. al.

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ERP Vendor Revenues (2002)

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

Revenue (In Billions US$)

Oracle

SAP

PeopleSoft/ JDEdwards

Per each companies FY 2002 annual report www.sap.com www.oracle.com www.peoplesoft.com

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ERP Vendor Net Incomes (2002)

$0.0

$0.3

$0.6

$0.9

$1.2

$1.5

$1.8

$2.1

$2.4

$2.7

Net Income (In Billions US$)

Oracle

SAP

PeopleSoft/ JDEdwards

Per each companies FY 2002 annual report www.sap.com www.oracle.com www.peoplesoft.com

19Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04

ERP By Customer Size (2003 Data)

20Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04

ERP By Company Type (2003 Data)

21Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04

ERP Functions Utilized (2003 Data)

22Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04

Costs of ERP By Vendor (2003 Data)

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CASE STUDY

FoxMeyer Drug

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Enterprise Resource Modules

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FoxMeyer Drug

•Formerly $5 billion in revenue (1995)

•2400 employees in 21 states

•Pharmaceutical products

•Major customers – hospitals & universities

•4th largest distributor of pharmaceuticals in U.S.Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5 th Americas Conference Milwaukee WI Aug. 1999

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FoxMeyer – Why ERP?

•Align technology with business strategy

•Basic strategy of growing the business

•Unisys mainframe nearing capacity – orders including more than 300,000 items each day

•Decided client/server was best option

•Project “Delta III” initiated in 1993

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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“Delta III” Project Plan

•18 months

•$65 million cost

•Estimated $40 million in annual savings

•Outsourced to Andersen Consulting (now Accenture) and Pinnacle Automation

•CEO & CIO were co-project champions

Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5 th Americas Conference Milwaukee WI Aug. 1999

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FoxMeyer Drug Consultants

•Andersen Consulting (Accenture)–Provided Implementation Support–On-Site staff of 50 people at one point

•Pinnacle Automation–Supplied conveyor equipment–Supplied Warehouse Automation System

•SAP – Provided ERP package

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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Why Pinnacle Warehousing?

•FoxMeyer required software capable of:–High volume of transactions–Complex pricing models

•SAP not a leader in warehouse management at the time.

•SAP could have provided software, but at a high cost.

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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Recipe For Disaster?

•Two software systems (SAP & Pinnacle)

•Two consulting firms (Andersen & Pinnacle)

•Highly complex pricing models

•High frequency of daily transactions

•Short project timeline of 18 months

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Delta III Project Results

•6 months late – finished late 1995

•Project Costs over $100 million ($35 million greater than original plan)

•Bankruptcy in 1996

•$40 million in projected annual savings never realized

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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What Went Wrong?

•Management Failures:

–University Healthcare Consortium

–Treatment of Warehouse Employees

–Lack of internal IT involvement

Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5 th Americas Conference Milwaukee WI Aug. 1999

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University Healthcare Consortium (UHC)

•Nationwide network of teaching hospitals

•July 1994 agreement–FoxMeyer given contract to sell to UHC–Projected annual sales of more than $1 billion

•Agreement never led up to potential

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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UHC Changed Project Focus

•Original goal was to supplement mainframe capacity

•Sheer volume of UHC deal required immediate volume capacity increases

•Delta III project timeline accelerated

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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FoxMeyer’s Distribution Network Prior to ERP

•23 Distribution Centers

•Customer completed electronic order

•Orders filled manually at each site

Olson, David Louis. Introduction to Information Systems Project Management. Publisher: McGraw-Hill/Irwin; Book and CD-ROM edition (August 14, 2000) ISBN: 0072424206

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New Warehouse Plan

•1 national distribution center (Ohio)

•Automated order fulfillment

•Cashflow savings from better inventory management

Olson, David Louis. Introduction to Information Systems Project Management. Publisher: McGraw-Hill/Irwin; Book and CD-ROM edition (August 14, 2000) ISBN: 0072424206

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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Warehousing Transition

•Ohio warehouse opened 3 months late

•Automated system not 100% functional

•Workers not properly trained on new system

•Old mainframe system ran out of capacity before completion

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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Warehouse Workers

•Morale problems with closure of old warehouses

•Orders were half-filled or not filled at all

•Shipments to new warehouse damaged and unfit for sale

•Large inventory shrink - $34 million

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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Andersen’s View

According to Andersen Spokesperson:

“We delivered, the work we performed was successfully completed, and we were paid in full.”

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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Pinnacle’s View

According to Christopher Cole, COO of Pinnacle Automation:

“…the problem wasn’t the [automation equipment]; it was the way that they [FoxMeyer] were running orders through the system.”

“the old mainframe system choked and died.”

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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SAP Perspective

Peter Dunning Executive VP of Global Accounts with SAP:

“It’s one of those stories where the operation was a success, and the patient died.”

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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Outside Perspective

According to Adam Feinstein, research associate at Salomon Brothers:

“They spent a lot of money and tried to put together a progressive management information system, but they overspent and bit off more than they could chew.”

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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Summary of viewpoints

•Andersen was happy to get paid and was not concerned enough about Pinnacle.

•Pinnacle blamed old systems and warehouse workers for their system failures.

•SAP software worked, but not fully integrated as a true ERP solution

•FoxMeyer absent from viewpoints because of a lack of internal involvement

Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

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Lessons Learned

•Perform BPR prior to project•Use realistic objectives•Do not rush projects without testing•Provide adequate training at all levels•Prepare Organization For Change•Gradual Implementation is beneficial•Re-evaluate Sourcing Strategies•De-Escalation cannot be ruled out

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What Happened After Bankruptcy?

•After bankruptcy, a holding company called Avatex bought majority share of remaining value.

•McKesson (former #1 competitor) announced intent to purchase remaining assets in October 1996

•FoxMeyer is no more

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The University of Missouri System

Source: www.system.missouri.edu

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The University of Missouri — Columbia

Predominantly a residential campus.

Fall 2003 enrollment — 26,80520,441 undergraduate 6,354 graduate & professional

5,107 teaching and research staff 6,605 administrative and support staff

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University of Missouri — Kansas City

Mixed residential/commuter campus. 36% of the students attend part-time

•Fall 2003 enrollment 14,244 6,850 undergraduate5,038 graduate & professional

•2,368 teaching and research staff •1,763 administrative and support staff.

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University of Missouri — Rolla

Institution of science and engineering

The enrollment Fall 2002 was 5,240 3,849 undergraduate1,391 graduate

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University of Missouri — St Louis

Large non-traditional student population59% of students enrolled part-time

The enrollment for Fall 2003 was 15,605 (12,630 undergraduate, 2,975 graduate).

1,412 teaching and research staff 1,135 administrative and support staff.

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PeopleSoft and University of Missouri

• How many people here are familiar with the PeopleSoft implementation on campus?

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University of Missouri

• “Identify the Problem”

– Select the problem to be analyzed– Clearly define the problem and establish a precise

problem statement– Set a measurable goal for the problem solving

effort– Establish a process for coordinating with and

gaining approval of leadership

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University of Missouri

December 1996

Administrative Systems Project Committee (ASP) was established

January 1997The Board of Curators approved implementation of the University wide Administrative Systems Project, an effort to improve the University's basic administrative and support services and processes. The goal of the project was to transform significantly the business procedures and administrative systems that support the University's core missions – teaching, research and service -- resulting in cost savings and improved recruitment of students and staff.

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University of Missouri

“They are too paper intensive, require numerous approvals, take an inordinate amount of time to complete and are supported by computer hardware and software that is as much as 20 years old”

James McGill, UM Executive Vice President

“The recommended strategies are to redesign processes to meet customer needs”

James McGill, UM Executive Vice President

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University of Missouri

The Committee developed a vision statement:

“The business processes and administrative systems project must focus first on policy, organization structure and process technology (I.e., new software and hardware) should be viewed as an enabler”

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University of Missouri

December 1997

The Board of Curators authorized implementation of the recommendations of the Administrative Systems Project to improve the core administrative and support processes and replace the related information systems.

The Administrative Systems Project will be phased in over a period of four to five years.

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University of Missouri

The project goals included:

• Reducing paperwork• Eliminating redundant or unnecessary

procedures• Replacing a patchwork of outdated, standalone

data systems with a unified, compatible information network

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University of Missouri

In March 1998, the University purchases the following PeopleSoft modules:

Human Resources

Human Resources

Payroll

Benefits

Student Administration

Admissions

Student Records

Financial Aid

Student FinancialsFinance

General Ledger Budgets

Accounts Payable Grants

Accounts Receivable

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University of Missouri

July 1998 The Board of Curators approved a contract to hire KPMG as the Administrative Systems Project Implementation Partner for the implementation of PeopleSoft software.

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University of Missouri

• “Analyze the Problem”– Identify the processes that impact the problem and

select one– List the steps in the process as it currently exists– Collect and analyze data related to the problem– Identify root causes of the problem

• “Develop A Solution”– Generate potential solutions that will address the

root causes of the problem

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University of Missouri

October 1998

Dozens of representatives from all four campuses, Health Services, Outreach & Extension and Systems Administration examined ways to simplify and standardize processes through “fit/gap” workshops in each of the Human Resources, Financial Services, and Student Services areas

Established Initial Project Plan

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University of Missouri

• “Implement a Solution”

– Implement the chosen solution on a trial or pilot basis

– Identify systemic changes and training needs for full implementation

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University of Missouri

Proposed Date

Module Actual

July 2000 General Ledger July 2001

November 2000 Budgets February 2001

April 2001 Purchasing July 2002

July 2001 Payables, Asset Management

July 2002

July 2002 Receivables, Billing, Inventory,

Finance Modules

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University of Missouri

Proposed Date

Module Actual Date

January 2001

Base HR, Base Benefits, Payroll, Pension

January 2002

February 2001

Recruit Workforce – Rolla

March 2001 Recruit Workforce - UMSL, UMKC, O&E

April 2002

April 2001 Recruit Workforce - UMC, Hospital

July 2001 Benefits Administration

February 2002

Human Resources Management

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University of Missouri

Proposed Date

Module Actual Date

July Recruiting

September Admissions, student financials (app fees)

September 2002

January/February

Financial aid (except loans)

February Records, student financials (fees, payment)

May Financial aid (loans) February 2003

Student Administration

UMR started July 2001

UMSL, UMKC, UMC started July 2002

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University of Missouri

Best Practices• Create knowledgeable project team• Review business processes in granular detail • Recognize management style of Senior

Management• Compare processes and function of software

to corporate processes and function of corporation

• Interview current users of the software in your industry

• Request on-site demonstration

• Keep implementation lifecycles short. Preferably about 6 months

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Combined Case Study Best Practice List

Best Practices FoxMeyer

UMSL

Business Process Review / Re-engineering

No Yes

Establish Knowledgeable Project Team

Yes Yes

Perform Gradual Implementation No YesPrepare Organization (Change Management)

No ?

Keep project lifecycles short Yes NoEnsure software is compatible with industry

No Yes

Establish training methodologies No Yes

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