Enterprise Resource Planning (ERP)

1
Enterprise Resource Planning (ERP)

• Doug Anderson
• William Hodge
• Raj Vardhan

2
How ERP Affects Managers

• Finance
• Production
• Human Relations
• Customer relations
• Sales
• Warehousing/Inventory
• Manufacturing
• Purchasing

3
Definition

• ERP (enterprise resource planning)
• A business strategy that integrates
  manufacturing, financial and distribution
  functions to dynamically balance and optimize the
  enterprise's resources.
• An integrated application software suite that
  balances manufacturing, distribution and
  financial business functions. ERP is the
  technological evolution of manufacturing
  requirements planning (MRP) II through the
  introduction of relational database management
  systems (RDBMSs), computer-aided software
  engineering (CASE), fourth-generation language
  (4GL) development tools and client/server
  architecture. When fully implemented, ERP can
  enable enterprises to optimize their business
  processes and allows for necessary management
  analysis and appropriate decision making in a
  quick and efficient manner. As more-robust
  technology is implemented, ERP improves an
  enterprise's ability to react to market changes.
  Gartner Group

Source www4.gartner.com/6_help/glossary/GlossaryM
ain.jsp, viewed 10/13/03
4
ERP Scope
MANUFACTURING
FINANCIAL
DISTRIBUTION
HUMAN RELATIONS
ERP
SALES
INVENTORY
WAREHOUSING
5
ERP Scope
Sources www.sap.com/businessmaps/pdf/Industrial_M
achinery__Components_Solution_Map.pdf , viewed
10/13/03
6
ERP Evolution

• Manual records
• Separate Inventory control Production control
• 1960s Material Requirements Planning (MRP)
• Use bill of material, inventory, and schedule to
  plan production
• 1970s Closed loop MRP
• Adds sales operations planning, master
  production scheduling, capacity requirements
  planning to MRP
• 1980s Manufacturing Resource Planning (MRP II)
• Business planning, production planning (sales
  operations planning), master production
  scheduling, MRP, capacity requirements planning,
  and the execution support systems for capacity
  and material
• 1990s Enterprise Resource Planning (ERP)
• MRP II with graphical user interface, relational
  database, use of fourth-generation language, and
  computer-assisted software engineering tools in
  development, client/server architecture, and
  open-system portability

• Sources
• Preston W. Blevins, Enterprise Resource Planning
  (ERP) An Executive PerspectiveAn Update, APICS
  2000 International Conference Proceedings, pp.
  208-216
• George W. Plossl, Making ERP Systems Really
  Work, APICS 2000 International Conference
  Proceedings, pp. 122-125
• APICS Online Dictionary, members.apics.org/Publica
  tions/dictionary Viewed 10/29/03

7
Sophistication Levels

• Data Management System
• Organization views ERP as a large repository for
  organizational data
• Data printed on reports distributed
• No analysis
• Software Modules/Shared Database
• All systems use same data
• Most common perception
• Manufacturing Philosophy
• Collection of Rules Procedures for planning
  reporting

Source Karl M. Kapp, Maximizing Your ERP
System, APICS 2002 Conference Proceedings, Paper
B-02
8
Sophistication Levels

• Business Philosophy
• Upper Management sets parameters, thresholds,
  etc.
• Organization relies on ERP for information and
  direction
• Begins to provide a strategic advantage
• Knowledge Management System
• Use of information to make intelligent and timely
  decisions
• Contains information, alerts, reports to
  provide decision makers with accurate, up-to-date
  information

Source Karl M. Kapp, Maximizing Your ERP
System, APICS 2002 Conference Proceedings, Paper
B-02
9
ERP Suppliers

• SAP
• PeopleSoft
• J.D. Edwards (PeopleSoft)
• Oracle
• Baan (SSA Global)
• Computer Associates
• IFS
• Microsoft (Axapta, Great Plains, Navision)
• Manugistics
• Agilisys
• many others

10
ERP Market

• Manufacturing Sector
• 1999 15 B (Peak)
• 2002 8.5 B
• 2007 11.9 B (Proj.)
• 5.8 growth

Sources David Kodama, Jump Starting ERP,
Managing Automation, March, 2002
www.arcweb.com/common/inc/news_win2.asp?ID328,
Viewed 10/18/03
11
ERP Market

• Historical Market
• Large manufacturing companies (Tier 1)
• 15 B at peak (1999)
• Driven by Y2K concerns
• Historical Results
• Incredibly risky for early adopters
• bet-our-company type of failure
• Heavy reliance on consultants significantly
  increased project costs

Sources www.arcweb.com/common/inc/news_win2.asp?I
D328, Viewed 10/18/03 Carol V. Brown, Iris
Vessey, Managing the Next Wave of Enterprise
Systems Leveraging Lessons from ERP, MIS
Quarterly Executive, Vol. 2, No. 1, March 2003
12
ERP Market

• Future Market
• Mid-size companies (Tier 2)
• 2002 41 of total market, 6.3 growth
• ERP Services
• Tier 1 re-architecting solutions
• Tier 2 68 of total revenue
• Pre-packaged solutions
• Portal solutions
• Europe, Middle East, and Africa

Sources www.arcweb.com/common/inc/news_win2.asp?I
D328, Viewed 10/18/03
13
Points to Ponder

• Structured Methodology Strategy
• People
• Process focused

14
ERP Points to ponder - II

• 1) assess the risks of the change up front (the
  most serious are the changes needed in the
  business, not the changes in the technology),
• (2) mitigate the causes of highest risk at the
  front end and as the project progresses,
• (3) adjust the method of managing the project to
  minimize the remaining risks.

Sources www.misqe.org/jsp/showabstract.jsp?ob126
ob24
15
Selection Criteria

• Functional Specs - what you want to do with the
  software and what the software will accomplish.
  (If you don't spend time and money every vendor
  in the market is a candidate in your list !)

16
ERP and Windows OS

• Due to changes in Windows operating systems ERP
  companies are not able to use the same software
  to include the modern technological changes and
  hence they spend a fortune on developing new
  codes every 5 years.
• This results in huge software budgets apart from
  the networking expenses and hence the total
  operating budgets are increasing year after year.

17

• Case Study

18
Company Info

• Index Membership SP 600 Small Cap
• Sector Capital Goods
• Industry Construction Services
• Employees (last reported count)1,938

Source Jacob Thomas Interview, 10/29/03
19
Financial Results

• Sales and Service Billings increased while the
  Profits were gradually decreasing.
• Two companies were acquired within the same
  period.
• New European operations started.

Source Jacob Thomas Interview, 10/29/03
20
Project

• Project Sponsor
• CFO
• Project Manager
• Project Director
• Original Project Schedule
• Duration 9 Months
• Original Go Live Date September 30, 2001
• Original Project Budget
• 300,000
• Conversion of Payroll Module from World to One
  World software of JD Edwards ERP.

Source Jacob Thomas Interview, 10/29/03
21
Selection

• Selection Team
• Business units
• Insituform East (sister company)
• IS Department
• Proposals
• J.D. Edwards selected since JD Edwards was the
  main vendor for all the other modules.

Source Jacob Thomas Interview, 10/29/03
22
Selection

• Modules selected
• Payroll
• Human Resources
• All other modules will reside on the World
  Software while the above two alone will be on the
  One World Software Such systems are called
  Co-existence systems They use the same DB2
  database while the front end programs are coded
  in C in the One World Software

Source Jacob Thomas Interview, 10/29/03
23
Implementation

• Both the Payroll and HR to go live together.
• 10 consultants were used.
• Software customized to meet all requirements.
• Couple of Project Directors were involved.
• Target to go live was Sept 2001 Went live in
  Dec 2001.
• Took 3 more months to iron out the rest of the
  issues.

Source Jacob Thomas Interview, 10/29/03
24
Project Results

• Original Project Budget - 300,000
• Final Project Cost - 600,000
• Functionality - gt 85 of desired functionality
  within one year.
• Future Projects To move all the other modules
  to One World. Target date to complete the
  project is June 2005.

Source Jacob Thomas Interview, 10/29/03
25
ERP Example
26
ERP Example
27
ERP Example
28
ERP Example
29
ERP Example
30
ERP Example
31
ERP Example
32
ERP Example
33
ERP Example
34
ERP Example
35

• Case Study

36
Company Info

• Privately held
• Sector Services
• Industry Printing and Distribution
• Employees Around 500
• Operations in US and UK

37
Financial Results

• Sales for year 2002 330 Million
• Budget for IS for 2002 20 Million
• Sales for year 2001 - 343 Million
• Budget for IS for 2001 18 Million
• 2002 - Lost some major clients to competitors due
  to higher prices on warehousing and product
  distribution.

38
Project

• Project Sponsor
• CFO
• Project Manager
• IS Director
• Original Project Schedule
• Duration 15 Months
• Original "Go Live" Date April 1999
• Original Project Budget
• 8 Million
• Conversion of Legacy system to JD Edwards ERP

39
Selection

• Selection Team
• Business Units
• IMS (Group Company until 2002)
• IS Department
• Proposals
• JD Edwards World selected as the Hardware
• AS/400 was already available and there
• was no need to buy a system. The only
  ERP
• with all functionalities to run on
  AS/400 at that
• time.

40
Selection

• Modules Selected
• Sales Order
• Accounts Receivables
• Accounts Payables
• Distribution/Logistics (Shipping)
• Warehouse Inventory
• Purchase Order

41
Implementation

• All modules to go live together.
• 25 consultants were used.
• Software customized to meet all user needs.
• Two Project Directors were involved.
• Target to go live April 1999 Went live in
  October 1999 !
• Took more than a year to iron out issues.

42
Project Results

• Original Budget - 8 Million
• Final Project Cost - 18 Million
• Functionality - gt 90 within one year.
• Future Projects Manufacturing and EDI
  (Electronic Data Interchange) enhancements for
  Bankers.

43
Comments

• The users in the company realized the benefits
  after 2 years of implementation.
• Orders were repeated for various warehouses with
  one single mouse click.
• The total order processing time from start to
  finish improved almost 30 .
• Financial Reports were produced by the users
  without any need of additional Programming.

44
Lessons Learned

• Multi Currency module did not go live as it had
  several issues. Resulted in using excel
  spreadsheet for a couple of weeks !! Microsoft
  Products are useful !!
• Let the Team Members decide as they know the
  actual requirements of the "users"

Source Bob Bradshaw Interview
45

• Case Study

46
Background

• Products
• Equipment for public safety vehicles
• Light bars, flashers, sirens, speakers, and push
  bumpers
• Small Manufacturing Enterprise
• Created 1974
• Revenue 50 Million
• Employees 270
• 2 manufacturing sites (1 for sub assemblies)
• Purchased by Britax Ltd. 1998

• Source
• www.code3pse.com/about.asp viewed 10/15/03
• Ray Scott Interview, 10/15/03

47
Background

• IS Department
• Size 5, including Director
• Budget 0.5 Million
• Previous ERP Experience
• Home Grown system
• Not integrated
• Not Y2K compatible

Source Ray Scott Interview, 10/15/03
48
Project

• Project Sponsor
• Vice President of Operations
• Project Manager
• CFO
• Original Project Schedule
• Duration 10 Months
• Original Go Live Date September 30, 1999
• Original Project Budget
• 1.5 Million

Source Ray Scott Interview, 10/15/03
49
Selection

• Selection Team
• Business units
• Code3
• Kustom Signals (sister company)
• IS Department
• Proposals
• J.D. Edwards selected

Source Ray Scott Interview, 10/15/03
50
Selection

• Modules selected
• Financial
• Order entry
• Product configuration
• Product data management
• Inventory control
• Shop floor control
• Shipping
• Sales
• Sales reporting

Source Ray Scott Interview, 10/15/03
51
Implementation

• Financials installed first
• Manufacturing modules installed together
• ERP Vendor implemented system
• 3 Consultants used throughout project
• Pilot individual modules
• No customized code
• Changed business processes to match software

Source Ray Scott Interview, 10/15/03
52
Results

• Initial results
• Did not pilot Go Live
• Quite a struggle for first 2 weeks
• Duplicate Invoices Orders
• CEO suggested going back to old system after 1
  month
• Major problems worked out in 6 months
• Really comfortable in 2 years
• Project Manager (CFO) full time for 2 years

Source Ray Scott Interview, 10/15/03
53
Project Results

• Actual Project Schedule
• Go Live Date June 30, 1999 (ahead of schedule)
• Original Project Budget
• 1.5 Million (on budget)
• Functionality
• gt80 of desired functionality within 2 years

Source Ray Scott Interview, 10/15/03
54
Precision Pattern, Inc.

• Case Study

55
Background

• Products
• Executive Aircraft Furniture
• Small Manufacturing Enterprise
• Founded 1972
• Revenue 30 Million
• Employees 300
• 1 manufacturing site
• Part of Cabin Management Group of Decrane
  Aircraft, Ltd.

Source Kate Keltz Interview, 10/16/03
56
Background

• IS Department
• Size 3
• Previous ERP Experience
• Home Grown Foxpro system
• Inadequate for many uses
• Written in late 1970s early 1980s

Source Kate Keltz Interview, 10/16/03
57
Project

• Project Sponsor
• President
• Project Manager
• IS Manager
• Original Project Schedule
• Original Go Live Date August 31, 2003
• Original Project Budget
• 1.2 Million

Source Kate Keltz Interview, 10/16/03
58
Selection

• Selection Team
• Business unit
• IS Department
• Characteristics
• High Volume, Custom Order manufacturing
• Very MRP-based
• Proposals
• Originally 5-6 vendors
• Glovia selected

Source Kate Keltz Interview, 10/16/03
59
Selection

• Modules selected
• Financial (3 divisions)
• Planning
• Engineering
• Purchasing
• Sales
• Inventory

Source Kate Keltz Interview, 10/16/03
60
Implementation

• Financials installed first (May 2003)
• Manufacturing modules installed together
• ERP Vendor implemented system
• No consultants used in project
• No changes to business processes
• Customized a fair amount
• Software designed for automotive industry (High
  volume, Repetitive manufacturing)
• Minimal training

Source Kate Keltz Interview, 10/16/03
61
Results

• Initial results
• Financials successfully implemented
• Manufacturing modules still being implemented
• Actual Project Schedule
• Go Live Date November 2, 2003 (projected)

Source Kate Keltz Interview, 10/16/03
62
Five Success Factors

• For Complex, Value-Chain-Spanning projects
• 1. Top Management is engaged in the Project,
  not just involved.
• 2. Project Leaders are veterans and team members
  are decision makers.
• 3. Third parties fill gap in expertise and
  transfer their knowledge.
• 4. Change management goes hand-in-hand with
  project management.
• 5. A satisficing mindset prevails.

Source Carol V. Brown, Iris Vessey, Managing
the Next Wave of Enterprise Systems Leveraging
Lessons from ERP, MIS Quarterly Executive, Vol.
2, No. 1, March 2003
63
Success Factors

• Engage Top Management, not just involve
• Insituform CFO
• Schwarz CFO
• Code3 VP Operations
• Precision Pattern President

64
Success Factors

• Experienced Project Leaders other team members
  are decision makers
• Insituform Leader Project Director
• Schwarz Leader IS Director
• Code3 Leader CFO
• Precision Pattern Leader IS Manager

65
Success Factors

• Third parties used to fill gaps in expertise and
  training
• Insituform 10 consultants
• Schwarz 25 consultants
• Code3 Vendor used to install software,
  Consultants used to determine configuration rules
• Precision Pattern Vendor used to install
  software, No consultants used

66
Success Factors

• Change Management
• Insituform Customized to meet all requirements
• Schwarz Customized to meet all user needs
• Code3 Very few changes to software Business
  processes changed to match software best
  practices
• Precision Pattern Many changes to software
  Software changed to meet manufacturing style

67
Success Factors

• Satisficing Mindset
• Insituform
• Schwarz
• Code3 Very few changes to software
• Precision Pattern Many changes to software

68
Standish Group CHAOS ReportIT Projects
classification
Type I Success on time, on budget, promised
functionality Type II Challenged over-budget,
over-time and or missing
functionality Type IIIFailed Severely
impaired projects cancelled projects
Source Lacity, Mary C., Course presentation
clserver.ppt, p. 10
69
Project Classifications

• Insituform Type II (Over budget, Late
  completion)
• Schwarz Type II (Over Budget, Late completion)
• Code3 Type I (On Budget, On-time completion)
• Precision Pattern Type II (Late completion

70
Lessons Learned

• The commandments
• 1. Thou Shalt Acquire and Sustain thy
  Managements Support.
• 2. Thou Shalt Establish Accountabilities for the
  Accuracy of thy Data.
• 3. Thou Shalt Set Objectives and Measure thy
  Performance Against Them.
• 4. Thou Shalt not Place thy Least Experienced in
  thy Companys Most Critical Position.
• 5. Thou Shalt not Economize on Educating thy
  People.
• 6. Thou Shalt not Endeavor Implementation Without
  Experience.
• 7. Thou Shalt not Duplicate the Informal System
  on thy Computer.
• 8. Thou Shalt not Bear False Witness Declaring
  Extended ERP a Data Processing System.
• 9. Thou Shalt not Omit Tasks in thy Haste nor
  Prolong Them for thy Comfort.
• 10. Thou Shalt not Expect Extended ERP to
  Eliminate all thy Problems

Source Blevins, Preston W., Enterprise Resource
Planning (ERP) An Executive PerspectiveAn
Update, APICS 2000 International Conference
Proceedings, pp. 208-216
71
References

• http//www.openitx.com/archives/archives.asp?i700
  94