INTRODUCTION TO ERP SYSTEMS

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INTRODUCTION TO ERP SYSTEMS
PROF (Dr) SPS SAINI
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CONTENTS

• Historical Context of ERP
• What is ERP?
• Why all the fuss about ERP?
• What is ERP offering?
• What is driving the ERP Movement?
• Phases of ERP Implementation
• ERP Failure and Success

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Historical 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.

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Historical Context of ERP

• The 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.

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Historical Context of ERP

• Analysts 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).

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Historical Context of ERP

• Most 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.

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ERP DEFINITION

• Enterprise 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.

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Characteristics of Enterprise Systems

• Integration seamless integration of all the
  information flowing through a company financial
  and accounting, human resource information,
  supply chain information, and customer
  information.

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Characteristics of Enterprise Systems

• Packages 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.

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Characteristics of Enterprise Systems

• Best 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.

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Characteristics of Enterprise Systems

• Some 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 systems
• Third-party bolt-on applications
• Best of Breed Strategy (American Standard,
  Starbucks)

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Characteristics of Enterprise Systems

• Evolving 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.

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Why all the fuss about ERP?

• Market statistics
• US 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.

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Why all the fuss about ERP?

• Market statistics
• AMR 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.

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What is ERP offering?

• ERP is business process infrastructure
• ERP 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.

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What is ERP offering?

• ERP is business process infrastructure
• ERP provides enterprise wide business process,
  information and data management
• stream-line and standard business processes and
  operating procedures
• provide interorganizational collaboration
• intraorganizational information sharing

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What is ERP offering?

• ERP Business Technology architecture
• Business Process Workflow Management
• Functional Information Management
• Marketing, Operations, HRM, etc.
• Decision Support Models and Tools
• Data Management

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What is ERP Offering?

• ERP Functional Architecture
• Information Systems Modules
• Human Resources Management
• Manufacturing Management
• Financial Management
• Accounting
• Marketing Management
• Workflow Management

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Examples of ERP Packages

• ERP Packages
• BAAN www.baan.com
• JD Edwards www.jdedwards.com
• Oracle www.oracle.com
• PeopleSoft www.peoplesoft.com
• SAP www.sap.com

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Motivation for Implementing ERP

• Achieving and maintaining competitive advantage
  requires better information management
• Information Quality
• Information Reliability
• Information Access
• Information Sharing

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Motivation for Implementing ERP

• Firms View ERP As A System
• to provide better information management
• to transform the competitive space
• to transform relationships between
• their customers
• their suppliers
• their competitors

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Motivation for Implementing ERP - Competitive
Space
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Motivation for Implementing ERP

• FIRMS ACHIEVE COMPETITIVE ADVANTAGE BY
• Locking in customer and suppliers
• Locking out the competition
• Attracting away competitors customers by
• product functionality
• cost performance
• service, reliability and flexibility
• quality and innovation
• response time/ time-to-market

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Motivation for Implementing ERP
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Motivation for Implementing ERP-
(inter-organizational efficiency)

• Better Supply Chain Management
• Inbound Logistics
• Operations
• Outbound Logistics
• Marketing And Sales
• Service
• Disintermediation and Market Reach
• Online Store Front
• Internet Banking
• Allows an organization to Reengineer all their
  processes.

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Reasons for Not Adopting Enterprise Systems

• Lack 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)

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Phases of ERP Implementation

• The Chartering Phase
• Comprises 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.

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Phases of ERP Implementation

• The Project Phase
• Comprises 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.

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Phases of ERP Implementation

• The Shakedown Phase
• The 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.

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Phases of ERP Implementation

• The Onward and Upward Phase
• Continues 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.

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Phases of ERP Implementation

• There 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.

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ERP Scope and Impacts

• The ERP phenomenon is all encompassing for
  companies and their key business partners
• Financial Costs and Risks
• Technical Issues
• Managerial Issues
• IT Adoption, use and Impacts
• Integration
• ERP systems have strong conceptual links with
  every major information systems area.

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ERP Failure

• Standish Group Study of ERP Implementations
• 35 are Cancelled
• 55 overrun their budgets
• Less than 10 are on time and under budget.

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ERP Failure

• Standish Group Study of ERP Implementations
• Implementation Averages
• Cost 178 over budget
• Schedule 230 longer
• Functionality 59
• or the system will only perform 41 of the
  functions it was intended to perform.

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Why Implementations Fail

1. People Dont want the systems to succeed
2. People are comfortable and dont see the need for
   the new system.
3. People have unrealistic expectations of the new
   system.
4. People dont understand the basic concepts of the
   system.
5. The basic data is inaccurate.
6. The system has technical difficulties.

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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)

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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.

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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.

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Factors in ERP Success

• Factors External to an Organizations Control
• Starting 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.

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Organizations Motivated Behavior

• An 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.