Introduction to ERP

Agenda

Introduction
History of organizational systems
Functional systems
ERP Definition
Value Chain
ERP Vendors
Core ERP Modules
ERP Disadvantages
Conclusion

History of organizational
systems

Calculation systems
Functional systems
Integrated systems

Calculation systems

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

A System/370 Model 145

(1970s)

removable-disk hard drive

s

Hard drives

A very nice-looking magtapedrive

Magtapes

Batch processing

Printer

800 lines/minute with 48 character

train, 136 columns with 6 or 8 lines
per inch spacing

Stack of Computer Printout

Paper

Functional systems

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

THE SOLUTION: MANAGEMENT

INFORMATION SYSTEMS
Common Departments Working
Interdependently

Minicomputer

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
(From Business Process Engineering by
A.W. Scheer)

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

Legacy Systems

Each department has its own system

Infrastructure specific
Inefficient processes
Potential for inaccuracies

Limitations of Legacy
Systems

Legacy systems used in large enterprises of

the 1970s and 1980s have limitations.
They were developed in-house or by
different vendors using several different
DBMSs, languages and packages
Difficult to increase the capacity of such
systems or unable to upgrade them with the
organizations business changes, strategic
goals and new information technologies

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Enterprise System
Approach

Internally focused systems

Support functional areas, business

processes and decision-making within an
organization
New information (value) is added at every
step

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Externally Focused
Systems

Coordinate business activities with

customers, suppliers, business partners
and others who operate outside the
organization

The Need for Integrated

Enterprise Systems

Advantages of integrated systems

Centralized point of access

Conversion needed

Enterprise Resource Planning (ERP)

vendors offer different modules

Components that can be selectively

implemented
E.g., modules of mySAP business suite

The Rise of Enterprise Systems

Packaged applications

Written by third-party vendors

Used by many different organizations
Useful for standardized, repetitive tasks
Cost effective
E.g., Microsoft Money and Quicken

Custom applications

Developed exclusively for a specific organization

Designed for particular business needs
Higher development costs

Integrated systems
or
Enterprise Resource Planning
System

Introduction

Enterprise Resource Planning: a process

of planning and managing all resources and
their use in the entire enterprise
ERP System is an enterprise-wide
information system designed to coordinate
all the resources, information, and activities
needed to complete business processes
such as order fulfilment or billing.

ERP Systems Defined

(cont.)

ERP (enterprise resource planning systems) comprises

of a commercial software package that promises the
seamless integration of all the information flowing
through the companyfinancial, accounting, human
resources, supply chain and customer information
(Davenport, 1998).

ERP systems are configurable information systems

packages that integrate information and informationbased processes within and across functional areas in
an organization (Kumar & Van Hillsgersberg, 2000).
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One database, one application and a unified

interface across the entire enterprise (Tadjer,
1998).

ERP systems are computer-based systems

designed to process an organizations
transactions and facilitate integrated and realtime planning, production, and customer
response (OLeary, 2001).

ERP Objective

To integrate all departments and functions across

a company onto a single computer system that
can serve all of the enterprises needs
For example, improved order entry allows
immediate access to inventory, product data,
customer credit history, and prior order
information
This availability of information raises productivity
and increases customer satisfaction

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Enterprise Resource Planning

Evolution of ERP
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 Mgnt.)
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)

ERP: Bringing the Organization Together

ERP integrates (or integrated set of IT systems)

so that employees can make enterprise wide decisions
by viewing enterprise wide information on all business
operations (enterprise wide information)
Keyword in ERP is
enterprise

ERP systems
focus on
all processes,
departments
and operations
for the entire
enterprise

Best Practices-Based Software

Most ERP vendors build best practices into

their ERP systems

Identify business processes in need of change

Future updates are smoother if businesses
change their business processes to fit with ERP
systems

Is following the best practices always the

best strategy?

If companies have competitive advantage from

unique business processes
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Supply Chain

47

VALUE CHAIN ANALYSIS

EXECUTING BUSINESS
Business process A
STRATEGIES
standardized set of activities
that accomplish a specific task,
such as a specific process

Value chain analysis Views

a firm as a series of business
processes that each add value
to the product or service

Value Chain
Flow of information through a set of business
activities
Core activities functional areas that process inputs
and produce outputs
Support activities enable core activities to take place

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VALUE CHAIN ANALYSIS

EXECUTING BUSINESS
STRATEGIES
Porters Value Chain

Core Activities

Inbound logistics activities

Receiving and stocking raw materials, parts and

products

Cisco delivery of electronic components from

suppliers
Operations and manufacturing activities

Order processing and/or manufacturing of end

products

Dell component parts assembled to make products

Outbound logistics activities

Distribution of end products

Amazon.com delivery of books to customers

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Core Activities (cont.)

Marketing and Sales activities

Presale marketing activities (e.g.,

creating marketing brochures)
Amtrak use of IS to update prices and
schedules

Customer service activities

Postsale activities
HP downloads related to purchased
products
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Support Activities

Administrative activities

Infrastructure activities

Employee management

Technology development activities

Implement hardware and software needed

Human resource activities

Support of day-to-day operations (for all functional areas)

Design and development of applications to support the

primary activities

Procurement activities

Purchasing of goods and services (inputs into the primary

activities)

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What is ERP?

Enterprise Resource Planning

Support business through optimizing,
maintaining, and tracking business
functions
Broken down into business processes

HRM
Distribution
Financials
Manufacturing

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

Common set of data

Help in integrating applications for
decision making and planning
Allow departments to talk to each other
Easy to integrate by using processed
built into ERP software
A way to force BPR (reengineering)
Easy way to solve Y2K problem

Vendors

ERP Vendors

There were five dominating ERP software suppliers:

SAP, Oracle, PeopleSoft, Baan and J.D. Edwards.
They controlled more than 60% of the multi- billion
dollar global market.
Each vendor had a specialty in one particular
module area such as

Baan in manufacturing,
PeopleSoft in human resources management,
SAP in logistics, and
Oracle in financials

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SAP AG

SAP AG (Systeme, Anwendungen, und Produkte in

Datenverarbeitung), or Systems, Applications and Products in
Data Processing
In 1979, SAP launched SAP R/2, a mainframe-based ERP
In 1992 SAP R/3 was launched based on client/server
By 1999 SAP became the third largest software vendor in the
world and the largest in the ERP sector with a market share of
about 36% serving over 17,000 customers in over 100 countries.
In 1999 SAP extended the ERP functions by adding CRM, SCM,
sales-force automation and data warehousing.
SAPs Internet-enabled ERP solutions are provided by the
recently launched ERP product called mySAP.COM

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Oracle Corporation

founded in 1977 in the USA, is best-known for its

database software and related applications and is the
second largest software company in the world after
Microsoft.
second to SAP in the enterprise systems category with
over 5,000 customers in 140 countries.
Oracles ERP system is known as Oracle
Applications, having more than 50 different modules
in six major categories: finance, accounts payable,
human resources, manufacturing, supply chain,
projects and front office.
Now taken over PeopleSoft and JD Edwards
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PeopleSoft Inc.

Started in 1987 in California, with specialization in

human resource management and financial
services modules.
Enterprise solutions from PeopleSoft include
modules for manufacturing, materials management,
distribution, finance, human resources and supply
chain planning.
One of the strengths of PeopleSoft is the recognition
by its customers that it is flexible and collaborative
In 2005 PeopleSoft became a part of Oracle offering
PeopleSoft 9
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J.D.Edwards

founded in 1977 in Denver (cofounded by Jack Thompson,

Dan Gregory and C. Edward McVaney) with long
experience of supplying software for the AS/400 market.
Its ERP product called OneWorld is capable of running on
multiple platforms and with multiple databases, ... [and]
revolutionizes enterprise software by liberating users from
inflexible, static technologies
The product includes modules for finance, manufacturing,
distribution/logistics and human resources, quality
management, maintenance management, data warehousing,
customer support and after-sales service
Now a part of Oracle offering JD Edwards EnterpriseOne and JD
Edwards World
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Baan

Found in 1978 with expertise in software for

the manufacturing industry
ERP solution areas that Baan covers include
finance, procurement, manufacturing,
distribution, integration and implementation,
planning, sales, service and maintenance,
business portals, collaborative commerce
and business intelligence.
Bought by Infor in 2006

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Microsoft Business
Solutions Great Plains
Dynamics

ERP Product selection Criteria

Goal:
To select the
Most Suitable Software
Package Solution

Functionality

5 Strategic
Requirement
Levels

Technology

Vendor

Support

Costs

Current Situation

JD Edwards was merged with PeopleSoft

Then PeopleSoft was merged with Oracle in 2005
Baan was bought by Invensys (in 2000), then SSA
Global Technologies (in 2003) and changed the name
to SSA ERP
SSA ERP was acquired by Infor in 2006
Now 3 largest ERP companies:

SAP : logistics
Oracle : financial, HRM
Infor: manufacturing
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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

Core and Extended ERP

Components

Core components support primary internal

activities
Extended components support primary
external activities

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ERP Systems and Organizations

Generally a misleading perception that ERP system

can improve organizations functionalities overnight.
Achieving all-round cost savings and service
improvements is very much dependent on:

how good the chosen ERP system fits to the organizational

functionalities and
how well the tailoring and configuration process of the
system matched with the business culture, strategy and
structure of the organization.

ERP system is expected to improve both backbone

and front-end functions simultaneously.

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ERP Characteristics
Real Time
Integrated System

Best Practice

Customizing
(Configuration)

Process Oriented

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ERP Characteristics (cont.)

Modular design comprising many distinct business

modules such as financial, manufacturing,
accounting, distribution, etc.
Use centralized common DBMS
Integrated modules provide seamless data flow
among the modules, increasing operational
transparency through standard interfaces

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ERP Characteristics (cont.)

Generally complex systems involving high cost

Flexible and offer best business practices
Require time-consuming tailoring and
configuration setups for integrating with the
companys business functions
Work in real time with online and batch
processing capabilities
They are Internet-enabled

Core ERP Modules

Accounting management
Financial management
Manufacturing management
Production management
Transportation management
Sales & distribution management
Human resources management
Supply chain management
Customer relationship management
E-Business

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ERP Advantages
What benefits

How

Reliable information
access

Common DBMS, consistent and accurate

data, improved reports.

Avoid data and

operations
redundancy

Modules access same data from the central

database, avoids multiple data input and
update operations.

Delivery and cycle

time
reduction

Minimizes retrieving and reporting delays.

Cost reduction

Time savings, improved control by enterprisewide

analysis of organizational decisions

Easy adaptability

Changes in business processes easy to adapt

and restructure.

Improved scalability

Structured and modular design with

Improved
maintenance

Vendor-supported long-term contract as part

of the system procurement

Global outreach

Extended modules such as CRM and SCM

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ERP Disadvantages

Disadvantages

How to overcome

Time-consuming

Minimize sensitive issues, internal politics and

raise general consensus

Expensive

Cost may vary from thousands of dollars to

millions.
Business process reengineering cost may be
extremely high

Conformity of the
modules

The architecture and components of the

selected system should conform to the
business processes, culture and strategic
goals of the organization

Vendor dependence

Single vendor vs. multi-vendor consideration,

options for best of breeds, long-term
committed support.

Features and
complexity

ERP system may have too many features and

modules so the user needs to consider
carefully and implement the needful only

Scalability and
global outreach

Look for vendor investment in R&D, long-term

commitment to product and services, consider

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Conclusion?