Hour 2: ERP Modules

Historical development
Historical
Initial Computer support to business
Easiest to automate payroll & accounting
Precise rules for every case
Early 1970s
centralized mainframe computer systems
MIS systematic reports of financial
performance
Variance analysis between budget and actual

MRP
Material requirements planning
Inventory reordering tool
Evolved to support planning
MRPII extended to shop floor control
SAP Modules
SD Sales & Distribution
MM Materials Management MRP
PP Production Planning MRPII (with others)
QM Quality Management
PM Plant Maintenance
HR Human Resources
FINANCIAL FI Financial Accounting
CO Controlling
AM Asset Management
PS Project System
R/3 INTERNAL WF Workflow: prompt actions
IS Industry solutions: best practices
Comparative Modules
SAP Oracle PeopleSoft JDEdwards
SD Marketing, Sales Supply chain Order management
MM Procurement Supplier relationship Inventory, procurement
PP Manufacturing Manufacturing mgmt
QM Enterprise perform Technical foundation
PM Service Enterprise service
HR Human Resources Human capital mgmt Workforce management
FI Financials Financial mgmt sol. Financial management
CO Time & Expense mgmt
AM Asset Management Enterprise asset mgmt
PS Projects Project management
WF Order Management
Contracts Subcontract, real estate
Industry-Specific Focus
Each vendor has turned to customized ERP
products to serve industry-specific needs
Examples given from BAAN, PeopleSoft
Microsoft also has entered the fray
BAAN Industry-Specific
Variants
Discrete Manufacturing Process Manufacturing
Aerospace & Defense Chemicals
Automobile Food & Beverage
Industrial Machinery Pharmaceuticals
Electronics Cable & Wire
Telecommunications Pulp & Paper
Construction Metals
Logistics
PeopleSoft Industry Solutions
Communications Consumer Products Federal
Government
Financial Services Healthcare Higher Education
High Technology Industrial Products Public Sector
Professional
Services
Staffing
Utilities Wholesale
Distribution
Microsoft Great Plains Business
Solutions
Accounting & Finance
Customer Relationship Management
E-Business
Human Resources & Payroll
Manufacturing
Project Accounting
Supply Chain Management
Relative ERP Module Use
(Mabert et al. 2000; Olhager & Selldin, 2003)
Module Use reported - US Use reported Sweden
Financial & Accounting 91.5% 87.3%
Materials Management 89.2% 91.8%
Production Planning 88.5% 90.5%
Order Entry 87.7% 92.4%
Purchasing 86.9% 93.0%
Financial Control 81.5% 82.3%
Distribution/Logistics 75.4% 84.8%
Asset Management 57.7% 63.3%
Quality Management 44.6% 47.5%
Personnel/HR 44.6% 57.6%
Maintenance 40.8% 44.3%
R&D Management 30.8% 34.2%
Relative Module Use
Mabert et al. (2000) surveyed Midwestern
US manufacturers
Some modules had low reported use (below
50% in red)
Financial & Accounting most popular
Universal need
Most structured, thus easiest to implement
Sales & Marketing more problematic
Why Module Use?
Cost:
Cheaper to implement part of system
Conflicts with concept of integration
Best-of-Breed concept:
Mabert et al. found only 40% installed system as
vendor designed
50% used single ERP package; 4% used best-of-breed
Different vendors do some things better
Conflicts with concept of integration
Middleware
Third-party software
Integrate software applications from several
vendors
Could be used for best-of-breed
Usually used to implement add-ons (specialty
software such as customer relationship
management, supply chain integration, etc.)
Customization
Davenport (2000) choices:
Rewrite code internally
Use existing system with interfaces
Both add time & cost to implementation
The more customization, the less ability to
seamlessly communication across systems
Federalization
Davenport (2000)
Roll out different ERP versions by region
Each tailored to local needs
Core modules shared
some specialty modules unique
Used by:
Hewlett-Packard
Monsanto
Nestle
EXAMPLES
Dell Computers
Chose to not adopt
Siemens Power Corporation
Implementation of selected modules
Dell Computers
Evaluation of SAP R/3
Need to continue project
evaluation
Initial project adoption
1994 Dell began implementation of SAP R/3
enterprise software suite
Spent over 1 year selecting from 3,000
configuration tables
After 2 year effort ($200 million), revised
plan
Dell business model shifted from global focus
to segmented, regional focus



Rethinking
In 1996 revised plan
Found SAP R/3 too inflexible for Dells
new make-to-order operation
Dell chose to develop a more flexible
system rather than rely on one integrated,
centralized system
Best-of-Breed
I2 Technologies software
Manage raw materials flow
Oracle software
Order management
Glovia software
Manufacturing control
Inventory control
Warehouse management
Materials management
SAP module
Human resources
Core Competencies
Glovia system interfaced with
Dells own shop floor system
I2 supply chain planning software
This retained a Dell core competency
Would have lost if adopted publicly available
system
Points
Demonstrates the need for speed
Prolonged installation projects become outdated
Need to continue to evaluate project need after
adoption
Tendency to stick with old decision
But sunk cost view needed
Demonstrates need to maintain core
competitive advantage
Adopting vendor ERP doesnt
Siemens ERP Implementation
Hirt & Swanson (2001)
Nuclear fuel assembly manufacturer
Engineering-oriented
Siemens Power Corporation
1994 Began major reengineering effort
Reduced employees by 30%
1996 Adopted SAP R/3 system
Replacement of IS budgeted at $4 million
Some legacy systems retained

Siemens Modules
FI Finance
CO Controlling
AR Accounts receivable
AP Accounts payable
MM Materials management
PP Production planning
QC Quality control
Implementation
To be led by users
Project manager from User community
Consultant hired for IT support
IS group only marginally involved
Project Progress
Oct 1996 Installed FI module
Sep 1997 Installed other modules
On time, within budget
Permanent Team
Made project team a permanent group
Project manager had been replaced
2
nd
PM retained
SAP steering committee
SAP project team formed
SAP steering committee
7 major user stakeholders
Guided operating policy
major expenditures
major design changes
SAP project team formed
15 members from key user groups
part-time
Trainer
User help
Advisors to middle management

Training
End users became more proficient with time
Average of 3 months to learn what needed
Management training took longer
Management didnt understand system well
Often made unrealistic requests
Operations
During first year
Major errors in ERP configuration
Evident that users needed additional training
New opportunities to change system scope
suggested
Two years after installation
R/3 system upgrade
Summary
Core idea of ERP complete integration
In practice, modules used
More flexible, less risk
Can apply best-of-breed concept
Ideal, but costly
Related concepts
Middleware integrate external software
Customization tailor ERP to organization
Federalization different versions of ERP in different
organizational subelements