Enterprise Resource Planning (ERP)

1
Enterprise Resource Planning (ERP)

• Group 6
• Zhenyu Zhu (Adam)
• Rich Stansfield
• John Palmer
• Ryan Kramme

2
What will we cover today?

• The Background Knowledge of ERP--Adam
• One case study of failed ERP implementation
  (Raskas Foods)--Rich
• One case study of successful ERP implementation
  (Cisco Systems)--John
• ERP Best Practices / Summary--Ryan

3
Background of ERP

• History of ERP
• What is ERP?
• Major ERP suppliers
• Why companies want to implement ERP
• ERP implementation procedures

4
History of ERP

• 1960's-focused on Inventory control issues
• 1970's focused on MRP (Material Requirement
  Planning) systems
• 1980's focused on the concept of MRP-II
  (Manufacturing Resources Planning) which was an
  extension of MRP
• Early 1990's MRP-II was further extended to cover
  areas like Engineering, Finance, Human Resources,
  Projects Management, etc.
• Beginning of ERP as we know it today

5
History of ERP (Cont.)

ERP
MRP II
MRP
Inventory control
1960s
1970s
1980s
1990s
6
The Concept of ERP

• ERP software ties all departments in a company
  together into one common system
• ERP allows Information Technology to integrate
  with your company's core business processes to
  achieve specific business objectives
• Information Technology
• Core Processes
• Specific Business Objectives

7
Enterprise Integration
Purchase
Inventory
ERP
Manufacturing Units
Sales
HR
Treasury
8
The Relationship Among Three Components of ERP
Information Technology integrates with your
company's core business processes
Business management practice
Specific business objectives
9
ERP Market Space

• 16 Billion Total Annual Spending (2002)
• The Steady Stream of ERP Investments Fenella
  Scott, Jim Shepherd AMR research August 24,
  2002
• U.S. Federal Government spending on ERP and
  related systems and services will increase at a
  compound annual growth rate of 13
• 2002 3.5 Billion
• 2007 6 Billion
• http//www.input.com/article_printver.cfm?art
  icle_id606 (Viewed March 18)

10
Major ERP Suppliers

• The Top Five ERP Vendors
• 1. SAP
• 2. Oracle Corporation
• 3. Peoplesoft, Inc.
• 4. JD Edwards Company
• 5. Baan International
• http//erp.ittoolbox.com/pub/erp_overview.htmr2
  (Viewed March 18, 2003)
• Microsoft purchased two ERP vendors Great Plains
  in 2001 and Navision in 2002
• http//erp.ittoolbox.com/documents/document.asp?i
  1662 (Viewed March 18, 2003)

11
Market Share for ERP Suppliers
12
Different Markets for Different Providers

• 11 of the companies surveyed are still using
  homegrown (legacy) applications
• SAP is the market leader in Manufacturing
  companies
• Oracle shows strength in both Manufacturing and
  Service companies
• PeopleSoft is the market leading is Services
  companies
• The Steady Stream of ERP Investments Fenella
  Scott, Jim Shepherd August 26, 2002 AMR
  Research

13
Leading ERP Companies
14
Benefits of ERP

• Improve productivity
• Increase customer demand (sales)
• Increase competitive advantage
• Increase market share
• Position company for sale

15
Business Drivers for ERP
www.amrresearch.com/Research/Alerts/Pdf/020826aler
t14775.pdf (viewed March 16, 2003)
16
How Does ERP Improve the Business?

• ERP helps improve information sharing, enhance
  business performance, and promote service
  efficiency
• 1. Allow companies to better understand their
  business.
• 2. Helps companies standardize business
  processes and more easily enact best practices.
• 3. More efficient processes enable companies to
  concentrate their efforts on serving their
  customers, maximizing profit, and building a
  competitive advantage.

17
ERP Cost/Benefit Analysis

• Average Cost for ERP
• Among the 63 companies
  surveyedincluding small, medium and large
  companies in a range of industriesthe average
  cost for an ERP implementation was 15 million.
• Average Payback for ERP (Time Dollars)
• Among the 63 companies surveyed, it took
  eight (8) months after the new ERP system was
  implemented to see any benefits. The median
  annual savings from a new ERP system was 1.6
  million.
• http//www.cio.com/research/erp/edit/erpbasics.htm
  lerp_abc (viewed March 24, 2003)

18
ERP Strategies

• 1. The Big Bang-companies cast off all their
  legacy systems at once and install a single ERP
  system across the entire company.
• 2. Franchising-Independent ERP systems are
  installed in each unit, while linking common
  processes, such as financial bookkeeping, across
  the enterprise.
• 3. Slam Dunk-ERP dictates the process design in
  this method where the focus is on just a few key
  processes, such as those contained in an ERP
  system's financial module. The slam dunk is
  generally for smaller companies expecting to grow
  into ERP by initially purchasing only a few
  modules.

19
ERP Implementation Procedure

• Steps for ERP implementation
• Cost analysis
• Blueprinting of Business Processes
• Staff Training
• Integration
• Data Conversion
• Going Live with ERP

20
ERP Winners Legend, Losers Nightmare

• While 9 out of 10 ERP implementations failed
  in India, the one success story produced such
  spectacular results that it was enough to keep
  the entire ERP market alive!
• http//216.239.57.100/search?qcacheji6Ym4n6lLYC
  www.expresscomputeronline.com/20020107/focus6.shtm
  lERPmarketstatistichlenieUTF-8 2002.Jan
  7

21
Case Study 1
Failed ERP Implementation at Raskas Foods, Inc.
22
Raskas Foods, Inc.

• One of the 150 Largest Privately held companies
  in St. Louis
• Purchased by Schreiber Foods in October, 2002

St. Louis Business Journal, April 2002
23
Raskas Foods Background

• Founded in 1888
• Nations first private label manufacturer of cream
  cheese for retail grocery distribution
• Sales of over 280 million in 2002
• 3 Manufacturing Plants

24
Raskas Foods, Inc.

• Dr. Heschel Raskas, President and CEO
• Ed Thibeault, Sr. Vice President Marketing and
  Sales
• Rich Coker, Sr. Vice-President Operations
• Rich Scheuerman, Sr. Vice-President Finance

25
Raskas Foods, Inc.
Four Factions to Satisfy

• Owners
• Marketing
• Operations
• Finance

26
Owners

• Seven owners, all related
• Three were employed by Raskas
• Two had been looking to sell Raskas for over ten
  years
• Wanted to position Raskas Foods for sale

27
Marketing

• Finance helped Marketing get Gross-to-Net and
  Cognos BI software
• ERP wouldnt do anything for them
• Since Finance helped Marketing get their
  programs, Marketing was willing to back Finance
  on the ERP project provided that Marketing
  wouldnt have to supply any bodies to the
  implementation process

28
Operations

• Operations has wanted a new plant since 1994
• Operations liked their homegrown Excel based
  system
• Operations traded support for the ERP system in
  exchange for future support from Finance for a
  new plant as soon as certain production levels
  were met.

29
Finance

• Finance felt about the legacy Accounting system
  that the wheels were about to come off the cart
• Wanted an entire packageIts time to get into
  the Big Leagues
• Just came off successful implementation of
  Gross-to-Net and Cognos for Marketing

30
The ERP Package

• Approved in early 1999
• Adage ERP package
• SCT consultants
• Budgeted 2.2 million
• Anticipated 6 months to 1 year to complete
• Waited until after the Y2K problem to implement
• Completed the Blueprint of Business Processes
• Training for IS

31
Project Personnel

• Mike Doyle (Finance), Project Manager
• Cliff Thomason (Finance), Project Facilitator
• John Lazare (IT), Project Lead
• Wayne Dixon, Director - IT, was left out

32
Problems

• Implementation started in April of 2000
• Employees found that the ERP system didnt do
  things the same way they did things
• Changes approved to keep Operations involved
• Stopped for fall Busy Season September 2000

33
Startup-January, 2001

• No momentum restarting
• Had to upgrade the software to the latest release
• Budget increases to 3.3 million

34
Large Sales Increase

• The number two private label Cream Cheese
  manufacturer develops quality and delivery
  problems
• Spring 2001, Operations gets approval for a new
  plant
• Operations pulls key people from ERP for new
  plant startup

35
More Problems.

• Work on the ERP implementation stopped for fall
  busy season again
• By February, something was wrong.
• March 2002, lack of Upper Level Management
  interest in ERP
• April 2002, a successful ERP implementation was
  no longer necessary

36
Lessons Learned

• The budget will increase when changes are made
• Senior level personnel have to stay involved
• Everyone involved in the project has to be 100
  dedicated to the project
• The people involved in the ERP project have to be
  key employees
• ERP has to be the number one priority

37
Case Study 2
Successful ERP Implementation at Cisco Systems,
Inc.
38
Cisco, NOT Sysco!
Just to clarify, the company I will be talking
about today is not the food company Sysco, it is
Cisco Systems, Inc.
YES
NO
39
Company Background
Corporate Overview

• Worldwide leader in networking for the Internet
• Provide Internet Protocol-based (IP) networking
  suite of solutions
• Cisco solutions are in most corporate, education,
  and government networks worldwide

http//newsroom.cisco.com/dlls/company_overview.ht
ml (viewed March 14, 2003)
40
Company Background-Cont.

• Founded in 1984 by a group of computer scientists
  from Stanford University
• Publicly traded starting in 1990 (NASDAQ CSCO)
• 13.71 per share (as of April 4, 2003 400 PM)
• 34,987 employees (as of February 2003)

http//newsroom.cisco.com/dlls/corpfact.html
(viewed March 14, 2003) Cisco Systems, Inc.
Annual Report 2002, page 1
41
Company Background-Cont.

• Global company (HQ in San Jose, CA)

• 2002 Net Sales of 18.9 Billion

http//newsroom.cisco.com/dlls/corpfact.html
(viewed March 14, 2003) Cisco Systems, Inc.
Annual Report 2002, page 1
42
John Chambers-President CEO of Cisco Systems,
Inc.
Cisco Systems, Inc. Annual Report 2002, page 3
43
Core Product Offering

• Cisco provides the broadest line of solutions for
  transporting data, voice, and video within
  buildings, across campuses, or around the world
• Primary products are routers and switches
• Main competitors are 3Com and Dlink
• Market share leader with over 75 of the market

http//newsroom.cisco.com//dlls/corpfact.html
(viewed March 14, 2003) Austin, Robert, Cisco
Systems, Inc. Implementing ERP, Harvard
Business School Online Case Study 9-699-022
(Rev May 6, 2002)
44
Company Structure

• Centralized functional organization
• Manufacturing, customer support, finance, human
  resources, IT, and sales are centralized
• Product Marketing and RD are decentralized into
  the following Lines of Business
• Enterprise (Large Corporations)
• Small / Medium Business
• Service Provider

Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
45
Time for a Change

• January 1993, Cisco was 500 million company
  running a Unix-based legacy software package
• CIO Pete Solvik saw the need for change
• Initially, Cisco avoided an ERP solution

Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
46
Pete Solvik-CIO
We wanted to grow to a 5 billion-plus company.
We were not able to make changes to the
application to meet our business needs anymore.
The application had become too customized. The
software vendor did offer an upgrade but we knew
even after the upgrades it would still be a
package for 300 million companies--and were a
1 billion dollar company.
Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
47
Randy Pond-Dir. of Manuf.
We knew we were in big trouble if we did not do
something. Anything we did would just run over
the legacy systems we had in place. It turned
into an effort to constantly band-aid our
existing systems. None of us were individually
going to go out and buy a package.the disruption
to the business for me to go to the board and say
Okay, manufacturing wants to spend 5 or 6
million dollars to buy a package and by the way
it will take a year or more to get in. was too
much to justify.
Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
48
The Final Straw

• System failure in January, 1994
• Company shut down for 2 days
• February, 1994 assembled team in charge of
  finding a suitable replacement application
• Decided on the Big Bang implementation strategy

Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
49
Carl Redfield-SVP of Manuf.
I knew we wanted to do this quickly. We were
not going to do a phased implementation, we would
do it all at once. We were not going to allow a
lot of customization either. Also, we wanted to
create a schedule that was doable and make it a
priority in the company as opposed to a second
tier kind of effort.
Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
50
A Team Effort

• Team consisted of internal resources (Cisco
  employees), consultant (KPMG), and ERP software
  vendor (Oracle)

Solvik said, Our orientation in pulling people
out of their jobs to work on the project was if
it was easy then we were picking the wrong
people. We pulled people out that the business
absolutely did not want to give up.
Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
51
Software Vendor Selection

• 20 person team did extensive research on ERP
  providers
• 5 vendors in 2 days
• 10 days to draft RFP for vendors
• Visited vendor reference clients
• Scheduled 3 day onsite software demos
• Entire process took only 75 days!

Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
52
Why Oracle?

• Win-win situation for both Cisco and Oracle

Pond said, Oracle wanted this win badly. We
ended up getting a super deal. There are,
however, a lot of strings attached. We do
references, allow site visits and in general talk
to many companies that are involved in making
this decision.
Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School
Online Case Study 9-699-022 (Rev May 6, 2002)
53
Project Approval

• Target timeline was 9 months
• Projected cost was 15 million
• Largest capital project ever approved by Cisco

Pond said, Before we even get the first slide up
I hear the chairman speaking from the back of the
room. He says How much? I said I was getting
to it and he responded I hate surprises. Just
put up the slide right now. After I put it up
he said Oh my God, there better be a lot of good
slides.
Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
54
Implementation Team

• Expanded from 20 to 100 members (See slide 55)
• Steering committee at top to ensure project
  visibility, sponsorship, and motivation
• Split into 5 key areas (Order Entry,
  Manufacturing, Finance, Sales/Reporting, and
  Technology)
• All areas consisted of internal Cisco
• employees, KPMG consultants, and
• Oracle consultants

Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
55
Cisco ERP Implementation Team Structure
Executive Steering Committee
Project Management Office
Sales/Reporting
Technology
Finance
Manufacturing
Order Entry
Business Lead
Business Lead
Business Lead
IT Lead
IT Lead
IT Lead
IT Lead
IT Lead
Business Consultants
IT Consultants
Business Consultants
Business Consultants
Business Consultants
IT Consultants
IT Consultants
IT Consultants
IT Consultants
Users
Users
Users
Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
56
ERP Rollout

• Broke into phases called CRPs (Conference Room
  Pilots)
• CRP0 Training and technical configuration
• CRP1 System works for each specific area
• CRP2 Modifications (red, yellow, or green),
  continued training, and initial testing (See
  slide 57)
• CRP3 Full system testing preparation to go
  live

Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School
Online Case Study 9-699-022 (Rev May 6, 2002)
57
List of Red Modifications

• Packout-custom barcoding, queues, inventory, and
  shipping modifications
• Canada-separate set of books for separate
  currency
• Product Configurator-enables Cisco to enter
  rules for product ordering
• OE Form-discounts, cost data, multinational
  orders, etc.
• Net Change Bookings-daily log of all order
  activity

Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
58
Initial Challenges

• Hardware failures
• System instability
• Software unable to handle initial volume

Solvik said, I wouldnt say the company hit a
wall, but I would say we had major day to day
challenges that needed to be solved quickly to
avoid significant impact to the company.
Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
59
Vendor Commitment

• Team effort-overcame problems within 3 months

Solvik said, So for about 60 days we were in
complete SWAT-team mode, get this thing turned
around. For example, the president of the
hardware vendor was our executive sponsor. This
vendor probably had 30 people on site at one
point. They were all over it. They lost money
on this big time. It was great for them to get
such a great reference, but it was a tough
experience for them. Remember we had bought a
capability, so everything they did to add
capacity was out of their own pocket.
Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School
Online Case Study 9-699-022 (Rev May 6, 2002)
60
ERP Results

• Project completed on-time (See slide 61)
• Project completed on budget
• Cisco ERP team bonus totaling 200,000
• Overall successful systems replacement
• Minimal company interference

Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
61
ERP Implementation Dates

• Project Kickoff
• Prototype Setup Complete
• Implementation Team Training
• Process, Key Data, Modification Designs Complete
• Functional Process Approval
• Hardware Benchmark and Capacity Plan Validated
• Critical Interfaces, Modifications and Reports
  Complete
• Procedures and End-User Documentation Complete
• CRP Pilot Complete-Go/No Go
• End-User Training Begins
• Data Conversion Complete
• Go Live!

• June 2, 1994
• July 22, 1994
• July 31, 1994
• August 31, 1994
• September 30, 1994
• October 15, 1994
• December 1, 1994
• December 16, 1994
• December 22, 1994
• January 3, 1995
• January 27, 1995
• January 30, 1995

Austin, Robert, Cisco Systems, Inc.
Implementing ERP, Harvard Business School Online
Case Study 9-699-022 (Rev May 6, 2002)
62
Lessons Learned
Why was Ciscos ERP Implementation a Success?

• Recognized the problem developed a realistic
  plan of attack
• Project was a high priority in the company
• Upper management supported the project
• All areas of the company were involved
• Diligent vendor/consultant selection
• Limited customization
• Meet target implementation dates
• Stayed within the initial project budget

63
Projects Do Fail. They Fail for Many Different
Reasons.

• Source Thompson, Olin, Who to Blame for Project
  Failure?, www.Technologyevaluation.com,
• Sept 20, 2002

64
ERP Best PracticesLets analyze what can
increase our chances of a successful ERP
implementation
65
Characteristics of IT Best Practices

• Knowledge of business process and ERP is
  essential to becoming an informed buyer
• Effectively Communicate company goals to the
  Software Providers
• Multiple Bids/Proposals
• Effectively Evaluate and Compare Bids
• Active Leadership Role in Project

66
Knowledge is Power

• Thorough knowledge and understanding of the
  entire business process being effected
• Understand which (or all) business divisions are
  to be incorporated into your new ERP system
• Distinguish between Customized vs. Standard ERP
  Software

Source Davenport, Thomas, Putting the
Enterprise into the Enterprise System, Harvard
Business Review, July-Aug 1998.
67
Multiple Bids

• Unlike most IT functions an In-house bid is not
  normally an option
• Provide each potential provider with identical
  information

68
Comparing Bids

• Make sure that you are comparing Apples to Apples
• Decide which system will best fit your companys
  needs
• Hire a third party consultant

Source P.J. Jakovljevic, The Joy Of
Enterprise Systems Implementations,
www.TechnologyEvaluation.com, July 8, 2002
69
Customization vs. Standard Application

• Decision depends on multiple factors
• Company Goals
• Happy with Current Productivity?
• Desiring Change?
• Employee Willingness to Change
• Implementing/Upgrading a enterprise system
  offers a good opportunity for enterprises to
  review their key business processes and
  resources.

Source P.J. Jakovljevic, The Joy Of
Enterprise Systems Implementations,
www.TechnologyEvaluation.com, July 8, 2002
70
Standard Application

• Cheaper
• Requires Company Operational Processes to Change
• Constantly requires Employees to Change
• Vendors try to structure the systems to reflect
  best practices

Source Davenport, Thomas, Putting the
Enterprise into the Enterprise System, Harvard
Business Review, July-Aug 1998.
71
Customization

• Already an Industry Leader No Major Changes
  Needed
• Adapt the Software to Business Functions
• Unique Business Operations
• Less Change for Employees
• More Expensive and Complex Implementation

Source Davenport, Thomas, Putting the
Enterprise into the Enterprise System, Harvard
Business Review, July-Aug 1998.
72
Contract Negotiations

• Detailed
• Time Frame
• Price
• Users are strongly advised to require fixed time
  and cost contract commitments

Source P.J. Jakovljevic, The Joy Of
Enterprise Systems Implementations,
www.TechnologyEvaluation.com, July 8, 2002
73
ImplementationBig Bang vs. Phased Approach

• Big bang has attributed to a number of failures
• Once and its done theory - False

• Phased approach-new parts are introduced
  incrementally.
• Start with mature parts that need the least
  customization
• Builds momentum, support and enthusiasm

Source P.J. Jakovljevic, The Joy Of
Enterprise Systems Implementations,
www.TechnologyEvaluation.com, July 8, 2002
74
All the previous factors discussed can effect the
implementation of an ERP system, however one
factor has the ability to outweigh all other
circumstances.
75
Employees

• Top Management
• Project Leader
• Project Champion

76
Top Management

• The person at the top of the organization can
  stop or fix most of these problems before they
  derail the project.
• Enthusiasm Trickles Down
• Top Management, If they know I care, they care.

Source Thompson, Olin, Who to Blame for Project
Failure?, www.Technologyevaluation.com, Sept
20, 2002
77
Project Manager

• The best person for the job . . Cannot be spared
  from their current role.
• Relieved of all previous job duties.
• Understand the whole business process.

Source Thompson, Olin, Who to Blame for Project
Failure?, www.Technologyevaluation.com Sept 20,
2002
78
Project Champion

• Typically an influential employee-not a member of
  the management team.
• Created in the Phased In approach after seeing
  positive results.

79
Strategies for ERP Implementation

• Background Research
• Use consultant to
• Review Business Process
• Narrow down vendors
• Evaluate proposals
• Standard Application
• Strict Contract
• Phased Implementation
• Employee Support Starting at the Top

80
Questions?