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  • 1. Enterprise Resource Planning Dr. David L. Olson James & H.K. Stuart Professor of MIS Dept. of Management, UNL
  • 2. History of ERP
    • Extension of materials resource planning
    • Integrate a firm’s computing for reporting, planning, & control – common architecture
      • Multifunctional, Integrated, Modular
    • In 1990 industry about $1 billion
      • SAP, Baan, PeopleSoft, JDEdwards, Oracle, others
    • Rapid growth in late 1990s
      • Some relation to Y2K fears, but not the main reason
    • Mergers in early 2000s
      • Peoplesoft bought JDEdwards;
      • Oracle bought Peoplesoft
  • 3. History of ERP
    • SAP : All-comprehensive in theory, apply best-practices
      • Very intrusive , very expensive , require massive changes in operations
      • If changes a core business competency, don’t ;
    • While theory centralized, many implementations modular
      • PeopleSoft – human resources
      • Finance & Accounting a common first module
  • 4. New Market Shares 2004 Van Arnum, www.chemicalmarketreporter.com 24 Jan 2005 22-23 2% 0 2% 2% 1% 3% Microsoft BS 2% 0 2% 1% 0 5% Sage-Best 12% 16% 26% 8% 11% 20% Combined 6% 8% 7% 3% 6% 12% Oracle 6% 8% 19% 5% 5% 8% PeopleSoft 18% 15% 21% 14% 11% 36% SAP Total P&S HCM CRM SCM ERP
  • 5. Geographic Sales 2004 Van Arnum, www.chemicalmarketreporter.com 24 Jan 2005 22-23 $0.804b $0.024b $0.076b $0.688b Microsoft $0.963b - $0.491b $0.472b Sage $2.663b $0.346b $0.612b $1.544b Oracle $2.880b $0.115b $0.518b $2.160b PeopleS $8.594b $0.945b $4.211b $3.008b SAP Total Asia/P Europe NAmer
  • 6. ERP Project Failure Earnings dropped $11 million WW Grainger Inc Inefficient ERP – operating loss Miller Industries Erroneous paychecks City of Oakland 19% drop in profit 29% increase in inventory Hershey’s Bankrupt FoxMeyer Drug
  • 7. Comparative Modules Subcontract, real estate Contracts Order Management WF Project management Projects PS Enterprise asset mgmt Asset Management AM Time & Expense mgmt CO Financial management Financial mgmt sol. Financials FI Workforce management Human capital mgmt Human Resources HR Enterprise service Service PM Technical foundation Enterprise perform QM Manufacturing mgmt Manufacturing PP Inventory, procurement Supplier relationship Procurement MM Order management Supply chain Marketing, Sales SD JDEdwards PeopleSoft Oracle SAP
  • 8. Relative ERP Module Use (Mabert et al. 2000; Olhager & Selldin, 2003) 34.2% 30.8% R&D Management 44.3% 40.8% Maintenance 57.6% 44.6% Personnel/HR 47.5% 44.6% Quality Management 63.3% 57.7% Asset Management 84.8% 75.4% Distribution/Logistics 82.3% 81.5% Financial Control 93.0% 86.9% Purchasing 92.4% 87.7% Order Entry 90.5% 88.5% Production Planning 91.8% 89.2% Materials Management 87.3% 91.5% Financial & Accounting Use reported – Sweden Use reported - US Module
  • 9. BAAN Industry-Specific Variants Logistics Metals Construction Pulp & Paper Telecommunications Cable & Wire Electronics Pharmaceuticals Industrial Machinery Food & Beverage Automobile Chemicals Aerospace & Defense Process Manufacturing Discrete Manufacturing
  • 10. Microsoft Great Plains Business Solutions Supply Chain Management Project Accounting Manufacturing Human Resources & Payroll E-Business Customer Relationship Management Accounting & Finance
  • 11. Reasons for Implementing ERP measured on 1-5 scale (5 best) ** 92% 70% 3.46 Gain strategic advantage 76% 71% 3.55 Improve interactions-suppliers & customers *** 95% 72% 3.85 Simplify & standardize 90% 87% 4.06 Replace legacy systems Sig. Large Small Avg Most important
  • 12. Reasons for Implementing ERP measured on 1-5 scale (5 best) 35% 33% 2.58 Restructure company organization *** 54% 35% 2.91 Ease of upgrading systems 60% 42% 2.99 Keep up with competitors ** 42% 62% 3.08 Solve Y2K problems *** 74% 36% 3.17 Link to global activities Sig. Large Small Avg Less important
  • 13. Implementation Time Required
    • 6 months or less 9%
    • 7 to 12 months 25%
    • 13 to 18 months 24%
    • 19 to 24 months 21%
    • 25 to 36 months 11%
    • 37 to 48 months 6%
    • Over 48 months 2%
    • Rate of technology change makes 18 month IT projects dubious
    • although ERP a major system, longer times appropriate
  • 14. Estimated System Life – 20 th Century
    • Less than 3 years 3.1%
    • 3-5 years 12.2%
    • 5-7 years 30.6%
    • 7-10 years 26.5%
    • over 10 years 27.6%
    • Now less:
      • Due to technology change
      • Designed obsolescence
  • 15. Expected ROI Mabert et al. (2000); Olhager & Selldin (2003) 4% 13% > 50% 11% 18% 26% to 50% 30% 36% 16% to 25% 38% 18% 5% to 15% 17% 14% < 5% Sweden US Expected ROI
  • 16. SAP: Best Practices
    • A key to original product
      • The most efficient way to perform a task
    • SAP devotes considerable research to best practices
      • 800 to 1000 best practices reported in their R/3 system
    • Davenport [1998]:
      • Firm’s vary in what is best for them
      • Business world dynamic
      • Rigid approach has dangers
      • If a firm develops a competitive advantage, they give it up by adopting “best practices”
  • 17. Non-ERP Process
    • Salesperson enters customer order
    • Salesperson notifies CRM of order
    • CRM employee records order
    • Salesperson notifies accounting
    • Accounting employee records sale
    • Salesperson notifies warehouse
    • Warehouse employee records order
    • Warehouse employee notifies packing & shipping
    • Shipping employee records order
    • Shipping employee notifies procurement
    • Procurement employee records order for raw materials replacement
    • Procurement employee notifies production to make more
    • Production employee records order
  • 18. ERP System Process
    • Sales person enters customer order on sales order system (SOS)
    • SOS:
      • Notifies CRM
      • Notifies Accounting
      • Records sale in Accounting System
      • Notifies Warehouse
      • Records order on Warehouse Management System (WMS)
    • WMS
      • Notifies packing & shipping
      • Records order on Packing and Shipping System (PSS)
    • PSS
      • Notifies procurement
      • Records order for raw materials with Procurement Management System (PMS)
    • PMS
      • Notifies production to do work
      • Enters manufacturing order on Production Planning System (PSS)
  • 19. Strategic Approach Mabert et al. [2000]
    • Single ERP package 40%
    • Several ERP packages best-of-breed 4%
    • Single ERP package supplemented 50%
    • Multiple ERP packages supplemented 5%
    • Totally in-house 0.5%
    • In-house supplemented 1%
    • Over 50 vendors (130 providers on market at that time)
    • SAP & PeopleSoft 25%
  • 20. Implementation Strategies Used 24.8 2.3% Phased by module & site 48% 8% 30.0 22.7% Phased by site 20% 20% 22.1 17.3% Phased by module 9% 24% 16.8 16.6% Mini big bang 14% 47% 14.9 41.4% Big bang large small months
  • 21. System Cost Over $5 billion revenue 7.1% >$100 million $1.5 bill to $5 bill revenue 7.2% $51 to $100 mill Widespread 10.4% $26 to $50 mill $251 to $750 mill revenue 33.0% $5 to $25 mill <$50 mill revenue 42.3% <$5 million  6% annual revenue (less for larger; up to 50% for smaller)
  • 22. Cost Component % of total implementation 12% 10% 10% to 20% 15% 10.9% Training 23% 11% 5% to 20% 15% 13.6% Impl. Team 14% 21% 0% to 50% 25% 17.8% Hardware 25% 24% 20% to 60% 30% 24.1% Consulting 23% 35% 10% to 20% 15% 30.2% Software Large Small Range Interviews Survey
  • 23. Cost Impact
    • Also affects operations
      • Intent was to lower operations cost
      • Initially, often the reverse
    • Often use data warehouse system
      • Very efficient data storage
      • Very expensive
  • 24. ERP Maintenance Nah et al. (2001)
    • Corrective
      • Incorporate vendor patches, fix problems
    • Adaptive
      • Implement new features, internal customization, implement interfaces
    • Perfective
      • New versions
    • Preventive
      • Monitor response time, errors, track maintenance activities
  • 25. ERP System Migration
    • Over time, need to adopt changes
      • Minor modifications
      • Maybe system replacement
      • Vendors change products
    • WHY
      • The longer the time between upgrades, the harder
      • Easier to support a smaller number of software versions
      • Migrations can increase sales of seats, add-ons
  • 26. BOLT-ON Software
    • Demand planning
    • Inventory management
    • E-Procurement
    • BtoB
    • Integrated suite systems (I2)
    • Order tracking
    • Factory planning & scheduling
    • On-line collaboration
    • Warehouse management
    • Data mining
  • 27. Example Bolt-Ons Mabert et al. [2000] SAS Institute Enterprise Miner Data mining Cambar CSW Warehouse Management System Warehouse mgmt Aspen Technology Aspen OnLine On-line collaboration JDEdwards Capacity Planning Factory plan/schedule American Software Intelliprise Order tracking Manugistics Manugistics 6 Integrated suites Cincom MANAGE:Mfg Business to business Ariba, Inc. Ariba Network E-procurement BAAN Demand Planner Demand planning Vendor Example Bolt-On
  • 28. Middleware
    • ERP interfaces to external applications difficult to program
    • Middleware is an enabling engine to allow such external applications eto ERP
      • Data oriented products - shared data sources
      • Messaging-oriented - direct data sharing
  • 29. Example of Middleware D. Thomas, Computer Weekly 5/18/2004 p. 1
    • British American Tobacco PLC
      • Wanted to reduce the cost of moving data around Enterprise Application Integration software
      • Hoped to save 75% of integration projects through MIDDLEWARE Cast Iron Systems Inc.’s Application Router
      • Transfer data between
        • point-of-sale,
        • Oracle databases,
        • Siebel CRM,
        • SAP ERP
  • 30. Data Storage Systems
    • Data Warehousing
      • Orderly & accessible repository of known facts & related data
      • Subject-oriented, integrated, time-variant, non-volatile
      • Massive data storage
      • Efficient data retrieval
    • CRM one data mining application
      • Can use all of this data
      • Common ERP add-on
  • 31. Database Product Comparison Summary Repetitive Report & Analysis OLAP Aggregate Temporary Specific study Data mart Finest Permanent Repository Data warehouse Granularity Duration Use Product
  • 32. Supply Chains
    • Collections of organizations working together
      • Raw materials – products – retail
      • Old manufacturing: vertical integration
      • Military logistics
      • Now appropriate for e-business
  • 33. Supply Chain
    • Raw Materials Suppliers
    • Processing Plants
    • Assembly Plants
    • Service Centers (warehouses)
    • Retail outlets
  • 34. ERP Tools in Supply Chains Kelle & Akbulut, Int. J. Prod. Econ. 93-94 (2005) 41-52
    • Supply chain integration valuable
      • Buyers improve production plans & delivery schedules
      • Suppliers use buyer inventory info to plan their production & inventory control
        • Improve customer service quality
        • Speed payment cycle
        • Cost savings
        • Identify & overcome bottlenecks
  • 35. ERP Tools Kelle & Akbulut, Int. J. Prod. Econ. 93-94 (2005) 41-52
    • Real-time transaction tracking
    • Internal process integration
    • Decision Support Tools (through Add-ons)
      • Advanced Planning & Scheduling ( APS )
      • Demand Planning & Revenue Management ( DPRM )
      • Customer Relationship Management ( CRM )
      • Sales Force Automation ( SFA )
      • Supply Chain Management ( SCM )
  • 36. Supply Chain Coordination Effects
    • Value
      • Logistic efficiencies
      • Coordinated advertising
      • Large scale service
    • Joint optimal policy will always save total system cost
      • 1-30% for supplier
      • 25-60% for buyer
      • NEED TO NEGOTIATE
  • 37. Obstacles to Supply Chain Tool Use
    • Real-time transaction tracking
      • Unwillingness to share information
        • Need to show monetary benefits & savings
      • Too much data, too many details
        • Data analysis (data mining)
        • Activity based costing to focus on value-added
    • Internal process integration
      • Doesn’t support operational decisions
        • Cooperative models, share benefits
  • 38. Advanced Planning Systems
    • Computer technology makes supply chain capable of dealing with demand uncertainty
      • Forecasting
      • Inventory reduction
      • Optimized transportation costs
    • Advanced planning systems use operational data to analyze material flows in supply chain
      • Use historical demand for forecasts
      • Easy to collect data
      • Dynamic nature makes long-range forecasting difficult
  • 39. Advanced Planning System Providers SAP APO SAP Enterprise Performance Management PeopleSoft 11i Oracle SCM components J.D. Edwards SCM components BAAN CAPS logistics Numetrix Manugistics i2
  • 40. Open System Linkage B. Bacheldor, Informationweek.com, 19 Jan 2004, p. 30
    • Radio-frequency identification (RFID) technology
      • Allows remote data input
      • Requires middleware to translate RFID data into formats usable by applications
        • Oracle: RFID-ready version for supply-chain applications soon
        • SAP: Auto-ID Infrastructure links RFID data to other systems
  • 41. RFID R. Boucher Ferguson, eweek, 17 Jan 2005, p. 32
    • Wal-Mart
      • Top 100 suppliers expected to be RFID-enabled by mid-January 2005
      • Electronic bar codes
      • Allows collaborators to access data quicker
        • Bayer Corp.
          • Acsis software integrates RFID into their SAP
          • Compare Wal-Mart data with their own
        • The Gillette Co.
          • OATSystems Inc. software links real warehouses to data warehouses
  • 42. Portals of Major ERP Vendors Stein & Davis [1999]; Stein [1999] Files, data warehouse, e-mail, Internet Insight II Seaport Lawson Center for SAP users mySAP.com SAP Travel reservation, online procurement mySAP-Employee workplace SAP Tie applications to online communities PeopleSoft Business Network PeopleSoft Connect to business intelligence 11i Oracle Interface to ERP, e-mail, spreadsheets, Internet ActivEra Portal J.D. Edwards Application integration iBAAN BAAN Function Portal Vendor
  • 43. ERP Security Threats Viruses Internet hacking Dial-up entry Telephone taps Network Tricks to gain information Social Natural disasters or accident Unauthorized access Theft, damage, copying Physical Threat Type of Security
  • 44. CPU Support
    • Originally mainframe
      • SAP R/2 – 1974
    • Client/Server architecture early 1990s
      • More flexible
      • SAP R/3
    • SAP announced discontinuing R/3
      • Outcry by customers – delayed to 2011
  • 45. Expected Benefits from ERP Mabert et al. (2000); Olhager & Selldin (2003) 1-not at all; 5-to a great extent 2.74 2.32 Reduced operating costs 2.57 2.64 Improved cash management 2.60 2.70 Lowered inventories 2.78 2.81 Improved supplier interaction 2.82 2.83 Improved on-time delivery 2.87 2.92 Improved customer interaction 3.36 3.17 Decreased financial close cycle 3.37 3.25 Improved order management 3.55 3.49 Increased interaction across enterprise 3.81 3.51 Quicker information response time Sweden US ERP Performance
  • 46. Benefits from ERP Mabert et al. (2000); Olhager & Selldin (2003) 1-not at all; 5-to a great extent 2.06 1.94 Personnel management 2.05 2.06 Decreased IT cost 2.95 2.67 Customer responsiveness/flexibility 2.94 2.99 Supplier management/procurement 2.98 3.11 Financial management 2.99 3.18 Inventory management 3.31 3.37 Information quality 3.42 3.61 Integration of operations/processes 3.74 3.77 Information availability Sweden US Area Benefitting
  • 47. Lessons Learned
    • ERP implementation projects problematic
    • Variety of ways to implement
    • Benefit assessment problematic
    • Different ways to design ERP
      • Customization of vendors popular
    • Many enhancements available
    • Supply chain opportunities
      • Requires open systems
  • 48. ERP Success Factors Business Horizons 2000
    • Senior management involvement
    • Cross-functional implementation team
    • Extra effort up-front defining detailed plan
    • Clear guidelines on performance measures
    • Clear guidelines on using outside consultants
    • Detailed plans to train users
  • 49. Apparent Future 55.1% 23.4% 15.4% 6.1% Business intelligence 61.8% 17.2% 12.3% 8.8% CRM 19.1% 30.9% 19.1% 19.1% Adv plan & schedule 32.2% 22.7% 24.5% 19.7% Supply chain system 19.9% 30.2% 31.7% 19.9% E-Business 30.6% 20.1% 16.6% 32.8% Data Warehouse No plans Considering Planned Implementing Extensions to ERP
  • 50. Advantages & Disadvantages
    • System Integration
      • Improved understanding across users
      • Less flexibility
    • Data Integration
      • Greater accuracy
      • Harder to correct
    • Better methods
      • More efficiency
      • Less freedom & creativity
    • Expected lower costs
      • More efficient system planned
      • Dynamic needs, training typically underbudgeted, hidden implementation costs
  • 51. Summary
    • ERP software has had a major impact on organizational computing
    • Technological, financial, organizational benefits
    • Also expensive, massive, inflexible
    • Many hidden costs
    • Complex system meriting study