What is Enterprise Resource Planning (ERP)? Enterprise resource planning (ERP) software places its focus on integrating an organizations departments (i.e., finance, HR, warehousing, etc.) and functions onto a single integrated computer system that aims to serve all those different departmental needs.
Enterprise Resource Planning
Enterprise transactional backbone to ensure data integrity and best business processes
Using a single database, streamlines the flow of information through a business
Four main (M) functions:
Man (human resources)
Manufacturing (production and logistics)
Marketing (sales and distribution)
Primary business systems installed in tens of thousands of manufacturing companies
The concept of ERP has been around since 1960’s
Introduced in the 1970’s
Computerized approach to planning and obtaining the required materials for manufacturing / production
Uses mainframes as the main source for input and processing.
In the 1980’s MRP expanded to
plant and personnel planning and distribution planning which in turn became MRP-II
MRP & MRP II
Manufacturing Planning and Control (MPC) System
MRP II or MPC system
The MPC system provides information to efficiently manage the flow of materials, effectively utilise resources, coordinate internal activities with those of suppliers and communicate with customers about market requirements
capacity requirements planning
material requirements planning
rough-cut capacity requirements planning
inventory planning and control
production activity control
Used Mainframes, but in conjunction with LAN (Local Area Networks) to input and access information
MRP II evolves
COMMS, or Customer Oriented Manufacturing Management System
COMS, or Customer Oriented Management System
ERP, or Enterprise Resource Planning (Gartner 1990)
Reasons which led to Standard Application Software (SAS) vs in-house developed Information System
Cost of permanent employees, programmers, & technical support to create and maintain the home-grown applications
IT department’s poor responsiveness to changes in business tactics, mergers/acquisitions, and economic cycle.
Idea behind SAS Several organizations can use the same software
With several users the costs of development, support and maintenance are shared
Each client does not have to “reinvent the wheel”
ERP is also a SAS where several systems are integrated.
Standard Application Software
Enterprise System Integration Trend ACC BOM PUR INV SLS SLS FIN SFC CAD/CAM MRP MRPⅡ EIS CIM ERP EDI SCM Time Extranet EC GL System integration Island system Partially integrated system Individual enterprise integration Supply chain integration
Inter-Enterprise Integration vs. Intra-Enterprise Integration Partnership control system Bank Retailers In-house inventory control Plant X Plant A Plant B In-house manufacturing logistics control inter-enterprise interactions MRPII Enterprise 1 Enterprise 2 Inter-enterprise integration level Intra-enterprise integration level Local site control systems
Enterprise Integration: Definition
Enterprise integration is concerned with facilitating information, control, and material flows across organizational boundaries by connecting all the necessary functions and heterogeneous functional entities in order to improve communication, cooperation, and coordination within this enterprise so that the enterprise behaves as an integrated whole, therefore enhancing its overall productivity, flexibility, and capacity for management of change.
Getting to ERP II EAS ERP MRP MRP II Extended ERP ERP Declared “Dead” Industry X Industry Class A Industry Segment Z Industry Sector Q Technology Infrastructure Functionality Widens Functionality Deepens Increasing External Connectivity ERP II
ERP II is an application and deployment strategy that expands out from ERP functions to achieve integration of an:
enterprise’s key domain-specific,
internal and external collaborative,
operational and financial processes.
ERP II Defined ERP II What an application and deployment strategy for collaborative, operational and financial processes Why to provide deep, vertical- specific functionality coupled with external connectivity Where within the enterprise, and between the enterprise and key external partners and markets How migration from existing ERP vendors and integration with other enterprise-centric business applications When in conjunction with collaboration Who traditional ERP vendors with extensions (integrated or BOB)
How ERP II Evolves From ERP ERP ERP II Value chain participation/ c-commerce enablement Enterprise optimization Role All sectors/segments Manufacturing and distribution Domain Cross-industry, industry sector and specific industry processes Manufacturing, sales and distribution, and finance processes Function Externally connected Internal, hidden Process Web-based, open, componentized Web-aware, closed, monolithic Architecture Internally and externally published and subscribed Internally generated and consumed Data
Functionality Evolution — The Cycle of Assimilation CPC IPS Private Marketplace CRM PRM SCP Purchasing HR Sales Distribution SCE E-Procurement MRP II Financials ERP Package Components ERP II Package Components MRP GL Production
Process Integration Blurs the Application Lines CRM ERP SCM Prospect to Cash Process 1. Log Activity 2. Log Opportunity 3. Check for contract 4. Check Inventory 5. Check ATP/CTP 7. Quote Customer 8. Create Quote 9. Generate Order 12. Plan and Produce 13. Send ASN 14. Ship 15. Invoice 16. Apply Payment 6. Determine Price EAI EAI 10. Check Credit 11. Confirm Order
Process Integration Blurs the Application Lines Prospect to Cash Process CRM ERP SCM 1. Log Activity 2. Log Opportunity 3. Check for contract 4. Check Inventory 5. Check ATP/CTP 7. Quote Customer 8. Create Quote 9. Generate Order 12. Plan and Produce 13. Send ASN 14. Ship 15. Invoice 16. Apply Payment 6. Determine Price 10. Check Credit 11. Confirm Order ERP II Package
Internal and External Processes Enablement Raw Materials Supplier Customer Logistics Providers Subcontractor Retailer Component Supplier Collaborative Private or Public E-Market ERP II DC Manufacturing Logistics Sales Marketing Internal 1:1 1:M, M:1 Mfg .
ERP/ERP II Hype Cycle YE2001 1990 Client/Server 1998 Year 2000 Fever 2004 ERP II: A C-Commerce Enabler Trough of Disillusionment Slope of Enlightenment Plateau of Productivity Technology Trigger Peak of Inflated Expectations Visibility Time
The Investment Balancing Act
Consider ERP/ERP II strategies and deployments to be part of the e-business infrastructure
They provide the critical transaction systems that manage and control fulfillment.
Gaining position within a digital market
Integrating seamlessly with key partners and customers
Providing quality data to suppliers
Are critical goals that will be achieved only through sufficient investment in ERP and ERP II.
Without adequate investment in these areas, enterprises will languish as vertically integrated islands rather than thriving within the c-commerce ecosystem.
*Source: Gartner Group
Don’t count on a single vendor to meet all of your domain and collaborative requirements.
Make the ERP II elements of “integration” and “domain specificity” key components of your strategy.
Strive for seamless process enablement rather than general point application solutions.
Although there will be some degree of best-of-breed, evaluate TCO to determine how much.
Evaluate past successes/failures, compare to other user experiences and don’t make the same mistakes twice.
FoxMeyer Drug Large drug distributor, wanted to implement ERP
Holding company in health care services
wholesale distribution of drugs & beauty aids
served drug stores, chains, hospitals, care facilities
US: 23 distribution centers
Sought market niches, such as home health care
Due to aging population & growth in health care, expected high growth
Market had extreme price competition, threatening margins
efficiently manage inventory
lower operating expenses
strengthen sales & marketing
Prior FoxMeyer IS
3 data processing centers, linked
included electronic order entry, invoice preparation, inventory tracking
1992 began migration of core systems
Benefits not realized until system fully integrated
Customer fills out electronic order
Order sent to 1 of the 3 data processing centers
Orders sent to the appropriate distribution center (within 24 hours)
Orders filled manually and packaged
Had just completed national distribution center with multiple carousels & automated picking
Could track inventory to secondary locations
Needed new distribution processes & IS to capitalize on growth
Wanted to be able to undercut competitors
Replacing aging IS key
PROJECT : 1994 - hoped to save $40 million annually (estimated cost $65 million)
complete ERP installation & warehouse automation system (another $18 million)
hundreds of thousands of transactions
meet DEA & FDA regulations
benchmarked & tested for months
picked SAP R/3
hired Andersen Consulting to integrate
hired Pinnacle Automation for warehouse automation system
FoxMeyer expected the new systems to improve operational efficiency
Signed several giant contracts
counted on savings, underbid competitors
Counted on being up and running in 18 months
SAP & warehouse automation system integration
two sources, two installers - coordination problems
New contracts forced change in system requirements after testing & development underway
Late, Over budget
SAP successfully implemented
Lost key customer - 15% of sales
To recoup, signed new customer, expected $40 million benefit from ERP immediately - pushed ERP project deadline ahead 90 days, no time to reengineer
Warehouse system consistently failed
late orders, incorrect shipment, lost shipments
losses of over $15 million
August 1996 filed for Chapter 11
Challenges of ERP: in the beginning
Is ERP even a good fit?
Understanding the business goals is essential
ERP: the marriage of business goals and IT strategy
Managers must ask:
What business are we in? Where do we want to go?
What are the key issues facing us today?
What will be the key issues facing us tomorrow?
Challenges of ERP: FoxMeyer
A bad case of ERP implementation
$5 billion pharmaceutical wholesaler filed for bankruptcy in 1996
SAP and Andersen Consulting sued in 1998
Failure to find the right fit between ERP apps and the needs of the business
The FoxMeyer Drug’s Bankruptcy : Was it a Failure of ERP?
What were the risks associated with ERP implementation project at FoxMeyer ?
In case of FoxMeyer What factors contributed to the escalation of the project despite negative information ?
Based on FoxMeyer’s experience what steps any organization should take to avoid ERP implementation failure ?