Introduction to ERP Systems

INTRODUCTION TO ERP SYSTEMSPROF (Dr) SPS SAINICONTENTSHistorical Context of ERPWhat is ERP?Why all the fuss about ERP?What is ERP offering?What is driving the ERP Movement? Phases of ERP ImplementationERP Failure and SuccessHistorical Context of ERP Historically, companies created islands of automation. A hodge-podge of various systems that operated or managed various divergent business processes. Sometimes these systems were integrated with each other and sometimes they werent. Sometimes they were loosely interfaced and sometimes they were more tightly interfaced. Historical Context of ERPThe total organizational costs of maintaining a patchwork of redundant and overlapping systems has grown over the years to the point where the cost of maintaining these systems is greater than installing a new system.Historical Context of ERPAnalysts have speculated that widespread adoption of the same ERP package by the firms in a single industry (an observed phenomenon for semi-conductor manufacturers) might lead to the elimination of process innovation-based competitive advantage (Davenport, 1998).Historical Context of ERPMost companies have failed to implement ERP packages successfully or to realize the hoped-for financial returns on their ERP investment.Companies have had similar difficulties with each new wave of information technology since the first mainframe systems. It takes years to realize some envisioned IT-enabled changes in organizational processes and performance, and there are many ways to fail along the way.ERP DEFINITIONEnterprise systems are commercial software packages that enable the integration of transactions-oriented data and business processes throughout an organization (and perhaps eventually throughout the entire inter-organizational supply chain).Enterprise systems include ERP software and related packages as advanced planning and scheduling, sales force automation, customer relationship management, product configuration.Characteristics of Enterprise SystemsIntegration: seamless integration of all the information flowing through a company financial and accounting, human resource information, supply chain information, and customer information.Characteristics of Enterprise SystemsPackages: Enterprise systems are not developed in house.IS life cycle is different: 1)mapping organizational requirements to the processes and terminology employed by the vendor and 2) making informed choices about the parameter setting.Organizations that purchase enterprise systems enter into long-term relationships with vendors. Organizations no longer control their own destiny. Characteristics of Enterprise SystemsBest Practices: ERP vendors talk to many different businesses within a given industry as well as academics to determine the best and most efficient way of accounting for various transactions and managing different processes. The result is claimed to be industry best practices. The general consensus is that business process change adds considerably to the expense and risk of an enterprise systems implementation. Some organizations rebel against the inflexibility of these imposed business practices. Characteristics of Enterprise SystemsSome Assembly Required: Only the software is integrated, not the computing platform on which it runs. Most companies have great difficulty integrating their enterprise software with a package of hardware, operating systems, database management systems software, and telecommunications suited to their specific needs.Interfaces to legacy systemsThird-party bolt-on applicationsBest of Breed Strategy (American Standard, Starbucks) Characteristics of Enterprise SystemsEvolving: Enterprise Systems are changing rapidly. Architecturally: Mainframe, Client/Server, Web-enabled, Object-oriented, Componentization (Baan).Functionally: front-office (ie. sales management), supply chain (advanced planning and scheduling), data warehousing, specialized vertical industry solutions, etc. Why all the fuss about ERP?Market statisticsUS ERP sales grew from under $1 billion in 1993 to $8 billion in 1998 (Dataquest, $14.5 billion worldwide).In 1998 US companies spent $80 billion on ERP systems integration.Industry analysts expect an average rate growth of 37% per year for the next 5 years.Why all the fuss about ERP?Market statisticsAMR estimates worldwide ERP software sales to grow to $52 billion by 2002.If systems integration costs stay constant firms will be spending $552 billion by 2002.Firms also spend about 15-20% annually to keep ERP systems up to date.

What is ERP offering?ERP is business process infrastructureERP is a software mirror image of the major business processes of a firm, such as customer order fulfillment and manufacturing.ERP software automates and integrates the basic processes of a firm, from finance to the shop floor, and eliminate complex, expensive links between computer systems that were never meant to talk to each other. What is ERP offering?ERP is business process infrastructureERP provides enterprise wide business process, information and data managementstream-line and standard business processes and operating proceduresprovide interorganizational collaborationintraorganizational information sharing

What is ERP offering?ERP Business Technology architectureBusiness Process Workflow ManagementFunctional Information ManagementMarketing, Operations, HRM, etc.Decision Support Models and ToolsData ManagementWhat is ERP Offering?ERP Functional ArchitectureInformation Systems ModulesHuman Resources ManagementManufacturing ManagementFinancial ManagementAccounting Marketing ManagementWorkflow ManagementExamples of ERP PackagesERP Packages

BAAN www.baan.comJD Edwards www.jdedwards.comOracle www.oracle.comPeopleSoftwww.peoplesoft.comSAPwww.sap.comMotivation for Implementing ERPAchieving and maintaining competitive advantage requires better information managementInformation QualityInformation ReliabilityInformation AccessInformation SharingMotivation for Implementing ERPFirms View ERP As A System:to provide better information managementto transform the competitive spaceto transform relationships betweentheir customerstheir supplierstheir competitorsMotivation for Implementing ERP - Competitive Space

Motivation for Implementing ERPFIRMS ACHIEVE COMPETITIVE ADVANTAGE BYLocking in customer and suppliersLocking out the competitionAttracting away competitors customers byproduct functionalitycost performanceservice, reliability and flexibilityquality and innovationresponse time/ time-to-marketMotivation for Implementing ERP

Motivation for Implementing ERP- (inter-organizational efficiency)Better Supply Chain ManagementInbound LogisticsOperationsOutbound LogisticsMarketing And SalesServiceDisintermediation and Market ReachOnline Store Front Internet BankingAllows an organization to Reengineer all their processes.Reasons for Not Adopting Enterprise SystemsLack of Feature-Function Fit: between a companys needs and the packages available in the marketplace. Company growth, strategic flexibility or decentralized decision-making style. Many ERP systems are not easy to change once they are configured and installed. Availability of alternatives for increasing the level of systems integration: Data Warehousing (Kraft, CapitalOne?), Middleware (Dell)Phases of ERP ImplementationThe Chartering PhaseComprises the decisions leading up to the funding of an enterprise system.Key Players: Vendors, Consultants, Company Executives, IT specialists.Key Activities: Build a business case for ERP, Select a software package, Identify a project manager, Approve a budget and schedule.Phases of ERP ImplementationThe Project PhaseComprises the activities performed to get the system up and running in one or more organizational units.Key Players: Project Manager, Project team members, Internal IT specialists, Vendors, and Consultants.Key Activities: Software configuration, system integration, testing, data conversion, training, and rollout.Phases of ERP ImplementationThe Shakedown PhaseThe organizations coming to grips with the ERP System. Ends when normal operations have been achieved. (Or they give up and pull the plug on the system)Key Players: Project Manager, Project team members, Operational Managers, and End users.Key Activities: Bug fixing and rework, system performance tuning, retraining, staffing up to handle temporary inefficiencies. This is the phase in which the errors of prior phases are felt. New errors can arise in this phase also.Phases of ERP ImplementationThe Onward and Upward PhaseContinues from normal operation until the system is replaced with an upgrade or a different system. This is where the organization is able to ascertain the benefits (if any) of its investment.Key Players: Operational Managers, End-users, IT support personnel (Vendors and consultants may be involved upgrades)Key Activities: Continuous business improvement, additional user skill building, post implementation benefit assessment. Most of these activities are not performed.Phases of ERP ImplementationThere are several possible outcomes for each phase of the implementation. Unresolved problems from one phase are inherited by the next phase.Just like the SDLC, the longer problems go undetected and unresolved, the more expensive it is to fix them.ERP Scope and ImpactsThe ERP phenomenon is all encompassing for companies and their key business partners:Financial Costs and RisksTechnical IssuesManagerial IssuesIT Adoption, use and ImpactsIntegrationERP systems have strong conceptual links with every major information systems area.ERP FailureStandish Group Study of ERP Implementations:35% are Cancelled55% overrun their budgetsLess than 10% are on time and under budget.ERP FailureStandish Group Study of ERP Implementations:Implementation AveragesCost: 178% over budgetSchedule: 230% longerFunctionality: 59% or: the system will only perform 41% of the functions it was intended to perform.Why Implementations FailPeople Dont want the systems to succeedPeople are comfortable and dont see the need for the new system.People have unrealistic expectations of the new system.People dont understand the basic concepts of the system.The basic data is inaccurate.The system has technical difficulties.What is ERP Success?KPMG Management Consultings recent report Profit-Focused Software Package Implementation showed some worrying results. Eighty-nine percent of respondent companies claimed that their projects were successful, but only a quarter had actually obtained and quantified all the planned benefits. (KPMG, 1998)What is ERP Success?How do you measure success?What are we trying to achieve? Scope, Vision.Project Metrics.Early Operational Metrics.Longer Term Business Results.What is ERP Success?Success is multidimensional and relative to both time and objectives.What is success today may not be success in two years. (Or 6 months)An ERP system that gives competitive advantage today may not do so when competitors catch up and this large ERP system simply becomes a cost of doing business.Success is often judged relative to the organizations unique goals for the system.Factors in ERP SuccessFactors External to an Organizations ControlStarting conditions: Competitive position, industry, financial position, prior relevant experience, size, structure, management systems.These conditions may change over the course of the implementation.ERP Implementations are highly fluid and subject to radical and unforeseen changes.An organizations goals and plans for the ERP system may not be realistic when viewed objectively in light of their starting conditions. Organizations Motivated BehaviorAn organizations goal-directed enterprise systems behavior can be defined in four categories: Goals: Some goals are more conducive to success than others. Some are too limited, some are too unrealistic.Plans: The methodology is critical for success.Execution: A good methodology does not guarantee quality in execution of the plan.Response to Unforeseen Problems: Successfully resolve problems changing goals, plans and actions to ensure a favorable outcome.