This document discusses Enterprise Resource Planning (ERP) systems. ERP systems combine databases across departments into a single database that can be accessed by all employees to automate business processes. The document outlines the components and implementation of ERP systems, noting that while ERP systems can integrate data and standardize processes to realize benefits, implementation requires significant costs, time, and risks management. Best practices for a successful ERP implementation include aligning the system with business strategy and processes, gaining executive support, training users, and viewing implementation as an ongoing process of learning and adaptation.

1. Enterprise Resource Planning -ERP
1

2. What is ERP?
• The practice of consolidating an enterprise’s planning,
manufacturing, sales and marketing efforts into one
management system.1
• Combines all databases across departments into a
single database that can be accessed by all employees.2
• ERP automates the tasks involved in performing a
business process.1
2

3. Evolution of ERP
3

4. How Do ERP Systems Work?
Customers Back-office
4
Managers and
Stakeholders
Reporting
Applications
Central
Database
Human
Resource
Management
Applications
Employees
Financial
Applications
Manufacturing
Applications
Inventory
And Supply
Applications
Human
Resource
Management
Applications
Sales and
Delivery
Applications
Sales Force
And Customer
Service Reps
Service
Applications
Administrators
And Workers
Suppliers

5. ERP Components
5
• Finance: modules for bookeeping
and making sure the bills are paid
on time. Examples:
– General ledger
– Accounts receivable
– Accounts payable
• HR: software for handling
personnel-related tasks for
corporate managers and individual
employees. Examples:
– HR administration
– Payroll
– Self-service HR
• Manufacturing and Logistics: A
group of applications for planning
production, taking orders and
delivering products to the
customer. Examples:
– Production planning
– Materials management
– Order entry and processing
– Warehouse management

6. An ERP Example: Before ERP
6
Customers
Customer
Demographic
Files Sales Dept.
Vendor
Orders
Parts
Accounting
Accounting
Files
Purchasing
Purchasing
Files
Invoices
accounting
Order is placed
with Vendor
Warehouse
Inventory
Files
Checks for Parts
Calls back “Not in stock”
“We ordered the parts”
“We Need parts #XX”
“We ordered the parts”
Sends report
Sends report
Sends report
Ships parts

7. An ERP Example: After ERP
7
Database
Customers Sales Dept.
Purchasing
Accounting
Warehouse
Vendor
Inventory Data
If no parts,
order is placed
through DB
Orders
Parts
Order is submitted
to Purchasing.
Purchasing record
order in DB
Order is placed
with Vendor
And invoices accounting
Financial Data exchange;
Books invoice against PO
Books inventory
against PO
Ships parts

8. 8
ERP Market
SAP
32%
Oracle
15%
Peoplesoft
9%
Geac Computer
3%
J.D. Edwards
5%
Other
36%
Total Revenues, 2000

9. ERP SCM CRM 33.5%
ERP Investments
Source:
AMR Research Survey of 686 companies with annual revenues ranging from <$50M to >$1B, October 2001.
9
11.0%
14.0%
31.0%
14.0%
20.5%
Roughly 65% of companies surveyed already have ERP in place. Of those, many are still actively
spending to upgrade existing systems and to take advantage of new web-oriented features.

10. ERP Investments
10
No
33%
Have ERP today?
n=666
Don't know
10%
n=232

11. 11
Why ERP?
3 Major Reasons:
• To integrate financial data.
• To standardize manufacturing processes.
• To standardize HR information.

12. ERP Project and Time
• Real transformational ERP efforts will usually run between 1
to 3 years, on average.
• Short implementations (3 to 6 months):
– small companies,
– implementation limited to a small area of the company, or
– the company only used the financial pieces of the ERP system.
• The important thing is not to focus on how long it will take
but to understand why you need ERP and how you will use
it to improve your business.
12

13. Total Cost of Ownership of ERP
Total cost of ownership (TCO) is a model developed by Gartner
Group to analyze the direct and indirect costs of owning and using
hardware and software. TCO essentially helps a company determine
whether it wins or loses from specific technology implementations.
• Metagroup study among 63 companies surveyed showed that:
– the average TCO was $15 million (the highest was $300 million and
lowest was $400k),
– the average TCO per user was $53,320.
13

14. Total Cost of Ownership of ERP
14
• It also found that:
– it took 8 months after the system was in to see any benefits,
– but that the median annual savings from the system was $1.6
million per year.

15. Hidden Costs of ERP
• Training
• Integration and testing
• Data conversion
• Data analysis
• Consultants
• Replacing best and brightest staff after implementation
• Implementation teams can never stop
• Waiting for ROI
• Post-ERP depression
15

16. Benefits of ERP Systems
• Improving integration, flexibility
• Fewer errors
• Improved speed and efficiency
• More complete access to information
• Lower total costs in the complete supply chain
• Shorten throughput times
• Sustained involvement and commitment of the top
management
16

17. Benefits of ERP Systems (cont’d)
• Reduce stock to a minimum
• Enlarge product assortment
• Improve product quality
• Provide more reliable delivery dates and higher
service to the customer
• Efficiently coordinate global demand, supply and
production
17

18. Risks with ERP Implementation
• Expensive (can costs 100 thousands to millions
of dollars)
• Time-consuming (can take months to years)
• Great risk for the organization
• Transfer of Knowledge
• Acceptance with the company
18

19. 19
Best Practices and what ERP
holds for the Future

20. ERP Implementation
• Biggest IT project that most companies ever handle,
• Changes the entire company, and
• Has repercussions in all departments and divisions
of the organization.
• It is essential that all the key players understand the
scope of the project.
• This is an IT-Related Project.
20

21. Best Practices of ERP Implementation
• A Business Strategy aligned with Business Processes
• Top-Down Project Support and commitment
• Change Management
• Extensive Education and Training
• Data Clean up and Data Integrity
• Implementation is viewed as an ongoing process
21

22. Best Practices of ERP Implementation
• A Business Strategy aligned with Business
Processes
– Business strategy that will give you a competitive advantage
– Analyze and map your current business processes
– Develop your objectives
– Evaluate your business strategy and ERP plan before you
commit to software acquisition and installation.
22

23. Best Practices of ERP Implementation
• Top-Down Project Support and commitment
– CEO1
23
• support implementation costs
• champion the project, and
• demand full integration and cooperation.
– Most knowledgeable and valuable staff

24. Best Practices of ERP Implementation
24
• Change Management
– Changes in business procedures, responsibilities,
work load.1
– As a result, ERP implementations are times of high stress,
long hours, and uncertainty.
– Mid-level managers must
• facilitate continual feedback from employees,
• provide honest answers to their questions, and
• help resolve their problems.

25. Best Practices of ERP Implementation
25
• Extensive Education and Training
– General education about the ERP system for everyone.
– Massive amount of end users training before and during
implementation.
– Follow-up training after the implementation.
– 10 to 15% of total ERP implementation budget for training will
give an organization an 80% chance of a successful
implementation.

26. Best Practices of ERP Implementation
• Data Clean up and Data Integrity
– Clean-up data before cut-over.1
– “Near enough is no longer good enough.”2
– To command trust, the data in the system must be
sufficiently available and accurate.3
– Eliminate the old systems, including all informal
systems.3
26

27. Best Practices of ERP Implementation
• Implementation is viewed as an ongoing process
– Ongoing need for training and software support after
implementation.
– Ongoing need to keep in contact with all system
users and monitor the use of the new system.
– Ongoing process of learning and adaptation that
continually evolves over time.
27

28. ERP Implementation Phases
4 Major Phases:
• Concept/initiation
• Development
• Implementation
• Closeout/Operation and maintenance
28

29. 29
Conclusion
• The benefits of a properly selected and implemented
ERP system can be significant.
– An average, 25 to 30% reduction on inventory costs; 25%
reduction on raw material costs.
– Lead-time for customers, production time, and production
costs can be reduced.
• BUT cost of implementing can be quite high and risks
are great.

30. 30
End