Introduction to ERP

Calculation systems
1950-80
Single purpose
Eliminate tedious human work
Examples: Payroll, General ledger,
Inventory
Technology used: Mainframes, magnetic
tapes, batch processing

Functional systems
1975-20??
Use computers to improve operations
Applications: Human resources, order
entry, manufacturing resource planning
Technologies: Mainframes, PCs, LANs

Functional systems
Typically contained within a department
Islands of automation
Applications independently developed
and deployed
Driving force: availability of minicomputers

Functional system applications

Human resources System

Accounting and finance systems
Sales and marketing System
Operations management System
Manufacturing Systems

Human Resources

Recruiting
Compensation
Assessment
Development and Training
Planning

Accounting and Finance

General Ledger
Financial Reporting
Costing
Budgeting
Accounts Payable
Accounts receivables

Sales and Marketing

Lead tracking
Sales forecasting
Customer management

Operations
Order management
Inventory management
Customer service

Manufacturing
Inventory
Planning

Types of Organizational
information Systems

Administrative systems
Scheduling / Transaction systems
Value oriented systems
Reporting and controlling systems
Analysis and information systems
Planning and decision support systems

Problems with function based

application
Sharing of data between systems
Data duplication
Data inconsistency
Applications that dont talk to one another
Limited or lack of integrated information
Isolated decisions lead to overall
inefficiencies
Increased expenses

Solution to disparate systems?

Integration
Consolidation
Right-sizing
Business Process Redesign
Enterprise wide system

Integrated systems
or
Enterprise Resource Planning
System

What is ERP?
ERP is a set of integrated business
applications, or modules which carry out
common business functions such as
general ledger, accounting, or order
management
An ERP system is an attempt to
integrate all functions across a company
to a single computer system that can
serve all those functions specific needs.

What is ERP?
It may also integrate key customers and
suppliers as part of the enterprises
operation.
It provides integrated database and
custom-designed report systems.
It adopts a set of best practices for
carrying out all business processes.

ERP History

1960s - Systems Just for Inventory Control

1970s
- MRP Material Requirement
Planning (Inventory with material planning
& procurement)
1980s - MRP II Manufacturing Resources
Planning (Extended MRP to shop floor &
distribution Management.)
Mid 1990s - ERP Enterprise Resource
Planning (Covering all the activities of an
Enterprise)
2000 onwards ERP II Collaborative
Commerce (Extending ERP to external
business entities)

Vendors

An ERP Example: Before ERP

Sends report

Sales Dept.

Customer
Demographic
Files

Orders
Parts

Customers

Checks for Parts

Calls back Not in stock
We ordered the parts

Accounting
Files

Accounting
Sends report

Sends report

Invoices
accounting

Vendor
Order is placed
with Vendor
Purchasing
Files

Purchasing

Ships parts

Warehouse

We Need parts #XX

We ordered the parts

Inventory
Files

An ERP Example: After ERP

Orders
Parts

Sales Dept.

Customers

Inventory Data
If no parts,
order is placed
through DB

Accounting
Financial Data exchange;
Books invoice against PO

Order is submitted
to Purchasing.
Purchasing record
order in DB

Database

Books inventory
against PO

Order is placed
with Vendor

Warehouse

Vendor

Purchasing
Ships parts
And invoices accounting

Selecting ERP
Vendors

Depending on your organization's size and

needs there are a number of enterprise
resource planning software vendors to
choose from in the large enterprise,
midmarket and small business ERP
markets.
Large Enterprise ERP (ERP Tier I)
The ERP market for large enterprises is
dominated by three companies: SAP,
Oracle and Microsoft.

Selecting ERP
Vendors
Midmarket ERP (ERP Tier II)
For the midmarket vendors include Infor,
QAD, Lawson, Epicor, Sage and IFS.
Small Business ERP (ERP Tier III)
Exact Globe, Syspro, NetSuite, Visibility,
Consona, CDC Software and Activant
Solutions round out the ERP vendors for
small businesses.

ERP Implementation
Approaches
The big bang install a single ERP system
across the entire organization
Franchising Independent ERP systems
are installed in different units linked by
common processes, e.g., bookkeeping.
Slam dunk install one or several ERP
modules for phased implementation of
key business processes.

What makes ERP different

Integrated modules
Common definitions
Common database
Update one module, automatically
updates others
ERP systems reflect a specific way of
doing business
Must look at your value chains, rather
than functions

Benefits of ERP Systems

Improving integration, flexibility
Fewer errors
Improved speed and efficiency
More complete access to information
Lower total costs in the complete supply
chain
Shorten throughput times
Sustained involvement and commitment
of the top management

Benefits of ERP Systems

(contd)

Reduce stock to a minimum

Enlarge product assortment
Improve product quality
Provide more reliable delivery dates and
higher service to the customer
Efficiently coordinate global demand,
supply and production

Benefits of ERP Implementation

(META Group Survey)

Benefits are mostly in terms of cost containment

rather than revenue increase.
53 companies (out of 63) reported annual savings of
over $5 millions with the median annual saving of $1.6
million. Nine companies account for 73.4% of the
reported savings.
The study found that much of the ERP value is in
indirect, non-quantifiable benefits.
A number of companies surveyed had a negative net
present value.

Major Challenges to ERP Implementation

Limitations of ERP technical capabilities
Inconsistency with existing business
processes
Costs - implementation (hardware, software,
training, consulting) and maintenance
Impact on organizational structure (front
office vs. back office, product lines, etc.)
Changes in employee responsibilities

Major Challenges to ERP Implementation

Flexibility of software system

upgrades
Implementation timelines
Availability of internal technical
knowledge and resources
Education and training
Implementation strategy and execution
Resistance to change

Hidden Costs of ERP

Training
Integration and testing
Data conversion
Data analysis
Consultants
Replacing best and brightest staff after
implementation
Implementation teams can never stop
Waiting for ROI
Post-ERP depression

Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002.

Total Cost of ERP Ownership (in millions

of $) - META Group Survey
System

Medium Average

13.6
5.7
0.4

0.8
0.8

16.4 Oracle

PeopleSoft

7.4

Smallest

Largest Baan

16.1

26.5

JD Edwards

3.9

21.6 Lawson

1.9

4.1

5.4

11.2

1.4

15.5

1.3

SAP

13.9

52.2

0.8

SSA

1.7

7.6

0.7

42.8

58.6
308.2
29.6

From: Implementation Study Reveals Costs, Benefits, The

Performance Advantage, APICS, October 1999, p.7

Difficulty in implementation
Very difficult
Extremely costly and time intensive
Typical: over $10,000,000 and over a
year to implement
Company may implement only certain
modules of entire ERP system
You will need an outside consultant

ERP Implementation - Key Enablers

(APQC Best-Practice Report)

The organization is prepared for the change.

The executive leaders are active and visible in
their support.
The initiative is seen as a business imperative by
the organization.
The resources are available to conduct the
project completely.
A good packaged system is used and not
customized.
The user group is trained to use the software
before it is implemented.

Common Pitfalls
Do not adequately benchmark current
state
Did not plan for major transformation
Did not have executive sponsorship
Did not adequately map out goals and
objectives
Highly customized systems to look like
old MRP systems

Survey of ERP
implementations
Done by ittoolbox.com in 2004

For more detail:

http://projectmanagement.ittoolbox.com/documents/research/

Overview
375 IT and business professionals
52% anticipate budget increases for
new ERP implementations/new modules
SAP and PeopleSoft/J.D. Edwards were
cited as the most popular ERP packages
46% indicated that the main challenge
to successful ERP implementations was
inadequate definition of requirements
and resistance to change

How would you characterize your budget for new ERP

implementations/new modules deployments for 2004 compared to
your budget in 2003?

Who is directly responsible for determining

your ERP implementations/new modules
deployments?

Who are the other key decisionmakers/influencers in decisions to add new

ERP packages/new modules?

Do you currently have an ERP

package?

If your answer is "Yes", which ERP package(s)

do you currently use?

Are you considering adding new modules to

your existing ERP package?

If your answer is "Yes", which modules are

you planning to add?

If you plan to deploy a new ERP package

and/or add modules to your existing
packages, when would this implementation
take place?

Who do you partner with for new ERP

implementations and additions of new
modules?

What do you see as the main challenges to

successful ERP implementations within your
organization?

For more details

http://projectmanagement.ittoolbox.co
m/documents/research/