Enterprise Resource Planning Systems: Why?

ERP Drivers ERP Characteristics ERP Benefits ERP Implementation

What is an Enterprise Resource Planning System?

An ERP System can be defined as an accounting-oriented information system for identifying and planning the enterprisewide resources needed to take, make, ship and account for customer orders

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ERP System Drivers

Executive Management

Middle Management

Operational Management

Operations

Sales Human Production Finance & Enterprise Resource Planning Systems Resources @ Distribution

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Example: Core Business Solution Landscape

Customer Systems
Supply Chain Management Warehouse Management Systems Ordering
Stock Transfer Order Conditions Replenishment Sales Order

CRM
Pricing Conditions Promotion

6 6 5 5
140 different EDI and ALE interfaces

System of Customer
Sales Order

Configure Vehicle Loads

3 3

2 Request 2 to change sales order any time

1 1

Plan Replenishment Shipment

Delivery Note

Transport planning System

Carrier Selection Update Shipment Status

System of Carrier
Request Accept? No / Yes Schedule Receive Order Invoice

Appointment

Shipment

External A
Barcode 4 4 Reader in n small warehouses

Goods Issue Invoice

In transit

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Public Sector Procurement Process? - Complexity

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Interfaces - Current State Intel (1995)

SECURITY HELP RCC CUSTOMER PNA INFRASTRUCTURE JAPAN FORECAST JAPAN DAISY DARE PRICE BOOK DPA PRICE AGREEMENTS MDS CWS EDI OEM QUOTE EUC EXTRACTS SARP NOVA PRICE BOOK DAISY ELECTRONIC TRANSFER WMS

Configurator
EUC EXTRACTS

JASTAR

STAR

ESTAR

PGS JAPAN PRICE BOOK

A/R PMS EDI

G/L

A/P

PRODUCT CODE DEMAND FORECAST

RST EUC EXTRACTS

MAX

COMPONENTS COST NIMS EUC EXTRACTS DATA WAREHOUSE DPA AVAILABILITY

CLS AMAPS

GPS II ISET MPS GIMS

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ERP Drivers
Systems Not Y2K Compliant Disparate Systems Poor/Uncompetitive Performance Poor Quality/Visibility of Info
27% 26% 24% 21% 20% 19% 15% 15% 12% 11% 10% 6% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 37% 42%

Program Motivation

Cost Structure Too High Not Responsive Enough to Customers Complex, Ineffective Business Processes Business Processes or Systems Not Integrated Unable to Implement New Business Strategies Business Becoming Global Difficult to Integrate Acquisitions Obsolete Systems Inconsistent Processes Unable to Support Growth

% Respondents
Note: Based on multiple answers per respondent
Source: Deloitte Consulting and Benchmarking Partners (Based on a study of 62 companies that have gone live with an ERP system)

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Business Process Focused

Customer Order Process Customer Order Process
Create inquiry

A business process describes a sequence of activities or tasks for the creation of goods and services, affecting the success of the company Each process consists of a sequence of steps In a company there are several individual processes that are typically interdependent Goal is to Integrate these processes

Create quotation Create sales order

Create delivery

Generate picking list / request Send / print delivery documents Post goods issues Create invoice Send / print billing document

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Business Process Engineering

It helps companies to: Resist the temptation to automate obsolete processes with modern technology Stress the importance of simplicity Search for new ways to organize work Establish change as a constant of business in todays world Recognize and realize the potential of new technology

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ERP Drivers
Technology Rationales
Year 2000 Disparate Systems Poor existing systems Difficult to integrate acquisitions

Strategic Rationales
Added functionality eBusiness

Competitive Rationales

Business Process Rationales

Personnel reduction IT cost reduction Productivity Improvements Financial cycle close

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Enterprise Resource Planning Systems (ERP)

ERP systems are the result of business process engineering. They are information systems that facilitate the flow of information between all functions within a business. They organise and execute the millions of transactions that are fundamental to many large businesses. One huge database for storing transaction data. Eliminate many of the existing legacy systems.

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ERP Evolution

EDI

e-Commerce SFA CRM SCM

e-business

Planning Scheduling Distribution MRP Payroll GL AP AR 1970s MRP11 HR

ERP FMIS 1980s 1990s @ ERP 2000s

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ERP System

Finance

Enterprise Resource Planning System

Executive Management
Human Resources

Middle Management

Operational Management
Sales & Distribution

Production

Operations

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ERP Characteristics
Links all business processes automatically Reduce inter-processing time (transactions occur one time at the source) Maintain an audit trail of all transactions Utilise a common database Perform internal conversions automatically (tax, foreign currency, legal rules for payroll) Improve customer service by putting data at the fingertips of employees Involve employees in the entire functional cycle

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OKIs Goals
Strategic position Oki Data for future Consolidate legacy systems Unmodified package software to grow with Leverage new software to stimulate business processes change Fix Y2k issues

Oki Data is a $500M Company with 750 Employees

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Raytheons Goals
Replace thirty year old non-integrated legacy systems Obtain benefits of business process re-engineering Use ERP to drive integration One time entry and access to information Facilitate achievement of Raytheon Aircraft Company five year plan

$19.8 billion in revenues More than 100,000 employees worldwide

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ERP Benefits

Inventory Personnel Reductions Productivity Improvements IT Cost Reduction

Tangible Benefits

Cash Management Revenue/Profit Procurement Order Management/Cycle Time Financial Close Cycle Maintenance Transportation/Logistics Supplier Managment On-Time Delivery
Source: Deloitte Consulting and Benchmarking Partners (Based on a study of 62 companies that have gone live with an ERP system)

Time-based benefits have exceeded original expectations

Anticipated Actual

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

% Respondents With Measurable Results

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SAP R/3 Order Entry IBM Storage

Benchmarks - 110 days after production

Focus Area Enter pricing data into system Check customer credit upon order Enter customer order in system % Manual order/ship to total # of orders/ships Generate customer invoice after ship Respond to customer billing inquiry Ship evaluation unit from customer request Ship repair/replacement part Credit returned drive Obtain commit date for customer order Unconstrained SJ manufactured drives Allocated; non-SJ manufactured drives 9/1/93 Cycle Time 5 - 80 Days 15 - 20 Minutes 30 Minutes 75% 2 - 23 Days 15 - 20 Minutes 3 - 30 Days 3 - 44 Days 1 - 5 Months 2 Hrs 3 Weeks Reengineered Target 10/1/93 5 Minutes Automatic 5 Minutes 0% 1 Day Real Time 2 Days 2 Days 5 Days Real Time Real Time 2 Hrs3 Weeks SAP Performance 01/20/95 5 Minutes Automatic 15 Minutes 0% 8 Hours Real Time 2 Days 3 Days 10 Days

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SAP R/3 Order Entry-IBM Storage

Additional Benchmarks
Focus Area Target 9/1/93 Cycle Time SAP Performance 01/20/95 98% 700 Hrs/Mo 5 Minutes 1 Day Automatic

Accuracy of product pricing at time of ship Monthly reconciliations of Bus. Mgmnt Info Entering/Updating product info into system Set-up of customer profile in system Average selling price calculation

100% Automatic 5 Minutes 30Min. Automatic

N/A 1300 Hrs/Mo 5 - 10 Days 3 - 5 Days 6 Hrs

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Toyotas Benefits
Create Sales /Prodn Plan Final Prod'n Schedule Create Sales Order Complete Finished Vehicle Enquiry on Complete Vehicle Delivery to Status Dealer Create Invoice to Finance Company Payment From Finance Company Create Retail Delivery Record

Systems
Current TOPS POST EXCEL POST BSS VTS VOS BSS ALC VTS BSS VTS VTS VTS MSA MSA VTS

Future

ERP
POST

ERP
POST

ERP

ERP
ALC

ERP

ERP

ERP

ERP

ERP

Benefits
Leadtime Flexibility Cost Lean Org.

= No Change = Improvement

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Benefits Achieved

Davenport 2003
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ERP Benefit Priority

Davenport 2003
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Benefits Over Time

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Current and future usage

Current and Future Usage
ERP module Financials HR Procurement Sales & marketing supply chain management Portals Business intelligence CRM SRM PLM 0.0%
95.6% 88.3% 72.2% 65.0% 61.1% 43.3% 41.1% 37.2% 35.6% 30.0% 27.2%

1.7% 3.3% 12.8% 5.6% 6.7%

19.4% 23.3% 30.0% 32.2% 18.9% 16.1%

20.0%

40.0%

60.0%

80.0% 100.0% 120.0%

Accenture 2004

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ERP Vendors
Advanced Manufacturing Research 43 ERP vendors EWS $23billion in sales 2003 27% sales in financial modules Mid size company focus Top ERP system vendors include:
SAP Oracle (Peoplesoft - J D Edwards) SSA (Baan) Microsoft Minicom

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Gartner Magic Quadrant Mid Market Manufacturing

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ERP Implementation Evolution

time

Continuous Change

Y2000

Market Changes

New Business Requirements

Euro

Mergers

New Functionality

Technology Changes
Upgrades

Legal Changes

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ERP Example
5,500 SAP users 6 countries 8 major business units Over 40 key systems replaced, including primary manufacturing support system, corporate and field financial and purchasing systems, marketing expense control systems, and project management systems 7,500+ SAP transactions, 100+ reports, 150+ forms, 50+ interfaces to existing systems

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ERP Implementation
Large organizations spend 2-3 years on their initial implementation Parallel implementations vary from weeks to months Smaller organisation have implemented in 3 to 4 months A People project more than anything else

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ERP Implementation Budget

Design and implementation 35% Software 10% Hardware 10% Training and change management 35% Data cleansing 10%

Hammer 20000
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Extent of Implementation

Piloted Implemented in a single business unit Implemented throughout the organisation Implemented in about half the organisation Implemented in most functions and business units
Accenture 2004

1.70% 7.90% 14.00% 32.60% 43.80%

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ERP Uptake

26% SAP Customers

Financials (100%) 5
Human Resources (58%)

Logistics (94%) 3 6

9 6

1 2 5

3 4

10 modules

7 modules

5 modules

>50% respondents >50% workforce SAP users

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Lifecycle of ERP Implementations

Never Complete

49% 34% 19% 16% 10% 3% 1% 10% 20% 30% 40% 50% 60%

Definition of Complete

Go Live Stabilization Achieved Capabilities Realized Benefits Realized Legacy Turned Off Funding Over

0%

% Respondents
Source: Deloitte Consulting and Benchmarking Partners (Based on a study of 62 companies that have gone live with an ERP system)

Note: Based on multiple answers per respondent

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ERP Evolution

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Proposed implementations (>2 years)

Davenport 2003
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Application Integration Reality

Heterogeneous solutions
Many different vendors Custom made solution Proprietary technology Point-to-Point Integration
ERP non-SAP ~25 systems, different versions

Business Reality
ERP legacy ~15 systems SAP R/3 ~30 systems, Versions 3.11 - 4.6B E-Procurement 10 units Technical systems Trading Collaborative Engineering e-Sales eMarkets

Risking future success

Complex business environment Maintenance nightmare Multiple dependencies

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Disadvantages of ERP Systems

Complex Expensive Demands highly trained staff Often very lengthy implementation periods Inter-module functions least understood by business but high on the list of why to buy Creates internal conflict within organisations

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WHY Study ERP Systems

Affects most major corporations Affects competitor behaviour Affects business partners requirements Changed the nature of consulting firms A tool for reengineering Diffused many best practices Changed the nature of information systems function Changed the nature of jobs in all functional areas Costs are high Basis for eBusiness

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