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  1. 1. Hour 2: ERP Modules Historical development
  2. 2. Historical <ul><li>Initial Computer support to business </li></ul><ul><ul><li>Easiest to automate – payroll & accounting </li></ul></ul><ul><ul><li>Precise rules for every case </li></ul></ul><ul><li>Early 1970s </li></ul><ul><ul><li>centralized mainframe computer systems </li></ul></ul><ul><ul><li>MIS systematic reports of financial performance </li></ul></ul><ul><ul><li>Variance analysis between budget and actual </li></ul></ul>
  3. 3. MRP <ul><li>Material requirements planning </li></ul><ul><li>Inventory reordering tool </li></ul><ul><li>Evolved to support planning </li></ul><ul><li>MRPII extended to shop floor control </li></ul>
  4. 4. SAP Modules Industry solutions: best practices IS Workflow: prompt actions WF R/3 INTERNAL Project System PS Asset Management AM Controlling CO Financial Accounting FI FINANCIAL Human Resources HR Plant Maintenance PM Quality Management QM Production Planning MRPII (with others) PP Materials Management MRP MM Sales & Distribution SD
  5. 5. 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
  6. 6. Industry-Specific Focus <ul><li>Each vendor has turned to customized ERP products to serve industry-specific needs </li></ul><ul><ul><li>Examples given from BAAN, PeopleSoft </li></ul></ul><ul><ul><li>Microsoft also has entered the fray </li></ul></ul>
  7. 7. 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
  8. 8. PeopleSoft Industry Solutions Wholesale Distribution Utilities Staffing Professional Services Public Sector Industrial Products High Technology Higher Education Healthcare Financial Services Federal Government Consumer Products Communications
  9. 9. Microsoft Great Plains Business Solutions Supply Chain Management Project Accounting Manufacturing Human Resources & Payroll E-Business Customer Relationship Management Accounting & Finance
  10. 10. 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
  11. 11. Relative Module Use <ul><li>Mabert et al. (2000) surveyed Midwestern US manufacturers </li></ul><ul><ul><li>Some modules had low reported use (below 50% in red) </li></ul></ul><ul><ul><li>Financial & Accounting most popular </li></ul></ul><ul><ul><ul><li>Universal need </li></ul></ul></ul><ul><ul><ul><li>Most structured, thus easiest to implement </li></ul></ul></ul><ul><ul><li>Sales & Marketing more problematic </li></ul></ul>
  12. 12. Why Module Use? <ul><li>Cost: </li></ul><ul><ul><li>Cheaper to implement part of system </li></ul></ul><ul><ul><li>Conflicts with concept of integration </li></ul></ul><ul><li>Best-of-Breed concept: </li></ul><ul><ul><li>Mabert et al. found only 40% installed system as vendor designed </li></ul></ul><ul><ul><ul><li>50% used single ERP package; 4% used best-of-breed </li></ul></ul></ul><ul><ul><li>Different vendors do some things better </li></ul></ul><ul><ul><li>Conflicts with concept of integration </li></ul></ul>
  13. 13. Middleware <ul><li>Third-party software </li></ul><ul><ul><li>Integrate software applications from several vendors </li></ul></ul><ul><ul><li>Could be used for best-of-breed </li></ul></ul><ul><ul><li>Usually used to implement “add-ons” (specialty software such as customer relationship management, supply chain integration, etc.) </li></ul></ul>
  14. 14. Customization <ul><li>Davenport (2000) choices: </li></ul><ul><ul><li>Rewrite code internally </li></ul></ul><ul><ul><li>Use existing system with interfaces </li></ul></ul><ul><li>Both add time & cost to implementation </li></ul><ul><li>The more customization, the less ability to seamlessly communication across systems </li></ul>
  15. 15. Federalization <ul><li>Davenport (2000) </li></ul><ul><ul><li>Roll out different ERP versions by region </li></ul></ul><ul><ul><li>Each tailored to local needs </li></ul></ul><ul><ul><ul><li>Core modules shared </li></ul></ul></ul><ul><ul><ul><li>some specialty modules unique </li></ul></ul></ul><ul><ul><li>Used by: </li></ul></ul><ul><ul><ul><li>Hewlett-Packard </li></ul></ul></ul><ul><ul><ul><li>Monsanto </li></ul></ul></ul><ul><ul><ul><li>Nestle </li></ul></ul></ul>
  16. 16. EXAMPLES <ul><li>Dell Computers </li></ul><ul><ul><li>Chose to not adopt </li></ul></ul><ul><li>Siemens Power Corporation </li></ul><ul><ul><li>Implementation of selected modules </li></ul></ul>
  17. 17. Dell Computers Evaluation of SAP R/3
  18. 18. Need to continue project evaluation <ul><li>Initial project adoption </li></ul><ul><ul><li>1994 Dell began implementation of SAP R/3 enterprise software suite </li></ul></ul><ul><ul><li>Spent over 1 year selecting from 3,000 configuration tables </li></ul></ul><ul><li>After 2 year effort ($200 million), revised plan </li></ul><ul><ul><li>Dell business model shifted from global focus to segmented, regional focus </li></ul></ul>
  19. 19. Rethinking <ul><li>In 1996 revised plan </li></ul><ul><li>Found SAP R/3 too inflexible for Dell’s new make-to-order operation </li></ul><ul><li>Dell chose to develop a more flexible system rather than rely on one integrated, centralized system </li></ul>
  20. 20. Best-of-Breed <ul><li>I2 Technologies software </li></ul><ul><ul><li>Manage raw materials flow </li></ul></ul><ul><li>Oracle software </li></ul><ul><ul><li>Order management </li></ul></ul><ul><li>Glovia software </li></ul><ul><ul><li>Manufacturing control </li></ul></ul><ul><ul><ul><li>Inventory control </li></ul></ul></ul><ul><ul><ul><li>Warehouse management </li></ul></ul></ul><ul><ul><ul><li>Materials management </li></ul></ul></ul><ul><li>SAP module </li></ul><ul><ul><li>Human resources </li></ul></ul>
  21. 21. Core Competencies <ul><li>Glovia system interfaced with </li></ul><ul><ul><li>Dell’s own shop floor system </li></ul></ul><ul><ul><li>I2 supply chain planning software </li></ul></ul><ul><li>This retained a Dell core competency </li></ul><ul><ul><li>Would have lost if adopted publicly available system </li></ul></ul>
  22. 22. Points <ul><li>Demonstrates the need for speed </li></ul><ul><ul><li>Prolonged installation projects become outdated </li></ul></ul><ul><ul><li>Need to continue to evaluate project need after adoption </li></ul></ul><ul><ul><ul><li>Tendency to stick with old decision </li></ul></ul></ul><ul><ul><ul><li>But sunk cost view needed </li></ul></ul></ul><ul><li>Demonstrates need to maintain core competitive advantage </li></ul><ul><ul><li>Adopting vendor ERP doesn’t </li></ul></ul>
  23. 23. Siemens ERP Implementation Hirt & Swanson (2001) Nuclear fuel assembly manufacturer Engineering-oriented
  24. 24. Siemens Power Corporation <ul><li>1994 Began major reengineering effort </li></ul><ul><ul><li>Reduced employees by 30% </li></ul></ul><ul><li>1996 Adopted SAP R/3 system </li></ul><ul><ul><li>Replacement of IS budgeted at $4 million </li></ul></ul><ul><li>Some legacy systems retained </li></ul>
  25. 25. Siemens Modules <ul><li>FI Finance </li></ul><ul><li>CO Controlling </li></ul><ul><li>AR Accounts receivable </li></ul><ul><li>AP Accounts payable </li></ul><ul><li>MM Materials management </li></ul><ul><li>PP Production planning </li></ul><ul><li>QC Quality control </li></ul>
  26. 26. Implementation <ul><li>To be led by users </li></ul><ul><li>Project manager from User community </li></ul><ul><li>Consultant hired for IT support </li></ul><ul><ul><li>IS group only marginally involved </li></ul></ul>
  27. 27. Project Progress <ul><li>Oct 1996 Installed FI module </li></ul><ul><li>Sep 1997 Installed other modules </li></ul><ul><li>On time, within budget </li></ul>
  28. 28. Permanent Team <ul><li>Made project team a permanent group </li></ul><ul><li>Project manager had been replaced </li></ul><ul><ul><li>2 nd PM retained </li></ul></ul><ul><li>SAP steering committee </li></ul><ul><li>SAP project team formed </li></ul>
  29. 29. SAP steering committee <ul><li>7 major user stakeholders </li></ul><ul><ul><li>Guided operating policy </li></ul></ul><ul><ul><li>major expenditures </li></ul></ul><ul><ul><li>major design changes </li></ul></ul>
  30. 30. SAP project team formed <ul><li>15 members from key user groups </li></ul><ul><ul><ul><li>part-time </li></ul></ul></ul><ul><ul><li>Trainer </li></ul></ul><ul><ul><li>User help </li></ul></ul><ul><ul><li>Advisors to middle management </li></ul></ul>
  31. 31. Training <ul><li>End users became more proficient with time </li></ul><ul><ul><li>Average of 3 months to learn what needed </li></ul></ul><ul><li>Management training took longer </li></ul><ul><ul><li>Management didn’t understand system well </li></ul></ul><ul><ul><li>Often made unrealistic requests </li></ul></ul>
  32. 32. Operations <ul><li>During first year </li></ul><ul><ul><li>Major errors in ERP configuration </li></ul></ul><ul><ul><li>Evident that users needed additional training </li></ul></ul><ul><ul><li>New opportunities to change system scope suggested </li></ul></ul><ul><li>Two years after installation </li></ul><ul><ul><li>R/3 system upgrade </li></ul></ul>
  33. 33. Summary <ul><li>Core idea of ERP complete integration </li></ul><ul><li>In practice, modules used </li></ul><ul><ul><li>More flexible, less risk </li></ul></ul><ul><ul><li>Can apply best-of-breed concept </li></ul></ul><ul><ul><ul><li>Ideal, but costly </li></ul></ul></ul><ul><ul><li>Related concepts </li></ul></ul><ul><ul><ul><li>Middleware – integrate external software </li></ul></ul></ul><ul><ul><ul><li>Customization – tailor ERP to organization </li></ul></ul></ul><ul><ul><ul><li>Federalization – different versions of ERP in different organizational subelements </li></ul></ul></ul>