ERP Systems Overview

1
ERP Systems Overview

• Introduction to ERP
• System Options

2
ERP Claims

• Create value through integrating activities
  across organization
• Implementation of best practices
• Standardization of processes
• One-source data
• On-line access to information

3
Role in Business

• Accounting basis
• US products some extension of MRP
• Combine business computing
• Unified system sharing one set of data
• Advantages in efficiency, accuracy
• Best Practices
• Apply the best process for each function

4
Historical Growth

• 1970s 1980s more development than growth
• 1990s became widely adopted by large firms
• Late 1990s growth exploded with fears of Y2K
  problems
• Post-2000 growth slowed
• Saturated market, economy dipped
• Seeking to
• Fill in gaps with larger firms
• Make products useful for smaller firms
• Emphasize Internet

5
Benefits of ERP

• Davenport 1998
• Increases speed of information flows
• OLeary 2000
• Create value through integration of activities
• Best practices improve operations
• Standardization increases efficiency
• One-source data more accurate, easier to access

6
Benefits of ERP

• Better organizational planning
• Better communication
• More collaboration
• Weil 1999
• Applied Robotics increased on-time deliveries 40
  through ERP
• Delta Electronics reduced production control
  labor requirements 65

7
Why ERP?

• Technical
• Integration of computer systems foster
  consistency, efficiency
• Financial
• Integrating applications saves money
• Organizational
• All members of organization use same system

8
Conception vs. Reality

• Integrated System
• In fact, vendors usually sell modules
• Would like to sell full system
• Buyers reduce cost, risk, by starting smaller
  scale
• Risk of converting entire system
• Complex cost impact

9
SAP Best Practices

• A key to original product
• Davenport 1998
• Firms 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

10
ERP Supported Functions
11
CPU Support

• Originally mainframe
• SAP R/2 1974
• Client/Server architecture early 1990s
• More flexible
• SAP R/3
• Something new?
• Portal systems (MySAP.com)

12
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

13
ERP System Options Selection Methods

• Alternative ERP project forms
• Budgeting methods

14
IS/IT Projects

• Typically
• Late
• Over budget
• Fail to satisfy design specifications
• ERP projects
• Are larger than normal
• Can be expedited (if you do it vendors way)
• Cost range 5 million to over 100 million ()

15
Alternative ERP Options
16
Changing Nature of IT

• Technology is highly dynamic
• ERP projects often take years to install
• Vendors are responding by expediting
• As long as you do it their way
• Improved versions may be on market by the time
  you install your system
• This is one advantage of an ASP

17
Financial techniques for Capital Budgeting

• Payback
• Discounted cash flow
• Cost-benefit analysis
• These are the more formal mechanisms implied by
  Hinton Kaye as capital budgeting
• Anything with as great an impact as ERP needs to
  have some estimate of cost, benefits
• Need to recognize that precise numbers not worth
  obtaining

18
Survey of ManufacturersMabert et al. (2000)
Olhager Selldin (2003)
19
Expected Installation TimeMabert et al. (2000)
Olhager Selldin (2003)
20
Estimated Installation CostMabert et al. (2000)
Olhager Selldin (2003)
21
Cost ProportionsMabert et al. (2000) Olhager
Selldin (2003)
22
Mabert et al. 2000Survey of 400 manufacturers
23
Expected ROIMabert et al. (2000) Olhager
Selldin (2003)
24
Mabert et al. 2000Survey of 400 manufacturers

• Even for ERP systems, only 53 used formal
  methods
• For smaller IT projects, payback most popular
• Most systems expected to take years to install
• Trend is to make much faster
• Cost varies widely
• You have a choice as to where you spend
• Training tends to be underbudgeted
• Not all expect big return

25
Taiwan ERPC.-T. Yeh, M. Miozzo, T. Vurdubakis,
Journal of Enterprise Information Management
191, 2006, 30-49

• International vendors (like SAP)
• BPR based on Western practice
• The rest of the world not necessarily the same
• Has created many misfits
• Especially in small-to-medium sized enterprises
• Business opportunity for small domestic vendors

26
Taiwans industrial success

• Flexible, decentralized network of SMEs
• Focus on export trade in consumer goods
• Agility adaptability important
• Vendor ERPs dont support that
• BPR forces clients of ERP to do it their way
• They (SAP) think they know better
• Problems
• First, middle, last name doesnt fit Indian,
  Chinese
• Egypt pricing determined after receipt of goods
  Oracle didnt do it that way

27
ERP Revolution

• SAP claims organization can create its own
  solution
• By selection of modules
• In reality, organizations required to re-engineer
  their business processes to conform to ERP
• Standish Group 90 of ERP implementations have
  cost, schedule overruns
• Many failures FoxMeyer, Hersheys

28
Vendor Response to Market

• 1990s market (large organizations) saturated
• Vendors built
• products for new end-users
• Non-profit
• SMEs
• New types of ERP
• Web-enables
• CRM, SCM products
• New markets
• China, India
• Less system rigidity
• Faster implementation
• Industry-focused systems

29
Vendor efforts

• Make systems less rigid
• End-user organizations often modify
• Between standardization customization
• Complications
• Implementation
• Upgrades

30
Taiwan ERP market

• Case studies 14 organizations in Taiwan
• SAP 38
• Oracle 16
• Domestic get rest
• Prices
• 600,000 to 1,400,000
• Much lower than US

31
Implementation Options

• DIRECT
• Vendor implements system for customers
• Domestic vendors
• INDIRECT
• Vendor trains consultants who implement ERP
• International vendors
• In Taiwan, Direct option usually used
• Few reliable consultants available
• Consultants prefer large vendors (more experience
  with)
• Competitive domestic market
• Lower prices

32
Taiwan ERP trends

• More Wide Enterprise Systems
• From hi-tech to traditional manufacturing
• From Large to SME
• From growth stage to maturity
• From internal information integration to external
  information communication

33
China ERP Market

• Growing rapidly
• Government support
• Accession to WTO
• Need for competitiveness
• International vendors play the major role
• Domestic vendors have software more akin to
  accounting packages
• Taiwan ERP vendor collaboration
• RD, distribution, joint ventures, investment

34
Summary

• ERP software has had a major impact on
  organizational computing
• Technological, financial, organizational benefits
• Also expensive, massive, inflexible
• Many hidden costs
• Complex adoption decision