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Enterprise Resource Planning

Enterprise Resource Planning. Dr. David L. Olson James & H.K. Stuart Professor of MIS Dept. of Management, UNL. History of ERP. Extension of materials resource planning Integrate a firm’s computing for reporting, planning, & control – common architecture

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Enterprise Resource Planning

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  1. Enterprise Resource Planning Dr. David L. Olson James & H.K. Stuart Professor of MIS Dept. of Management, UNL

  2. History of ERP • Extension of materials resource planning • Integrate a firm’s computing for reporting, planning, & control – common architecture • Multifunctional, Integrated, Modular • In 1990 industry about $1 billion • SAP, Baan, PeopleSoft, JDEdwards, Oracle, others • Rapid growth in late 1990s • Some relation to Y2K fears, but not the main reason • Mergers in early 2000s • Peoplesoft bought JDEdwards; • Oracle bought Peoplesoft

  3. History of ERP • SAP: All-comprehensive in theory, apply best-practices • Very intrusive, very expensive, require massive changes in operations • If changes a core business competency, don’t; • While theory centralized, many implementations modular • PeopleSoft – human resources • Finance & Accounting a common first module

  4. New Market Shares 2004Van Arnum, www.chemicalmarketreporter.com 24 Jan 2005 22-23

  5. Geographic Sales 2004Van Arnum, www.chemicalmarketreporter.com 24 Jan 2005 22-23

  6. ERP Project Failure

  7. Comparative Modules

  8. Relative ERP Module Use(Mabert et al. 2000; Olhager & Selldin, 2003)

  9. BAAN Industry-Specific Variants

  10. Microsoft Great Plains Business Solutions

  11. Reasons for Implementing ERPmeasured on 1-5 scale (5 best)

  12. Reasons for Implementing ERPmeasured on 1-5 scale (5 best)

  13. Implementation Time Required • 6 months or less 9% • 7 to 12 months 25% • 13 to 18 months 24% • 19 to 24 months 21% • 25 to 36 months 11% • 37 to 48 months 6% • Over 48 months 2% Rate of technology change makes 18 month IT projects dubious although ERP a major system, longer times appropriate

  14. Estimated System Life – 20th Century Less than 3 years 3.1% 3-5 years 12.2% 5-7 years 30.6% 7-10 years 26.5% over 10 years 27.6% • Now less: • Due to technology change • Designed obsolescence

  15. Expected ROIMabert et al. (2000); Olhager & Selldin (2003)

  16. SAP: Best Practices • A key to original product • The most efficient way to perform a task • SAP devotes considerable research to best practices • 800 to 1000 best practices reported in their R/3 system • Davenport [1998]: • Firm’s vary in what is best for them • Business world dynamic • Rigid approach has dangers • If a firm develops a competitive advantage, they give it up by adopting “best practices”

  17. Non-ERP Process • Salesperson enters customer order • Salesperson notifies CRM of order • CRM employee records order • Salesperson notifies accounting • Accounting employee records sale • Salesperson notifies warehouse • Warehouse employee records order • Warehouse employee notifies packing & shipping • Shipping employee records order • Shipping employee notifies procurement • Procurement employee records order for raw materials replacement • Procurement employee notifies production to make more • Production employee records order

  18. ERP System Process • Sales person enters customer order on sales order system (SOS) • SOS: • Notifies CRM • Notifies Accounting • Records sale in Accounting System • Notifies Warehouse • Records order on Warehouse Management System (WMS) • WMS • Notifies packing & shipping • Records order on Packing and Shipping System (PSS) • PSS • Notifies procurement • Records order for raw materials with Procurement Management System (PMS) • PMS • Notifies production to do work • Enters manufacturing order on Production Planning System (PSS)

  19. Strategic Approach Mabert et al. [2000] • Single ERP package 40% • Several ERP packages best-of-breed 4% • Single ERP package supplemented 50% • Multiple ERP packages supplemented 5% • Totally in-house 0.5% • In-house supplemented 1% Over 50 vendors (130 providers on market at that time) SAP & PeopleSoft 25%

  20. Implementation Strategies Used

  21. System Cost

  22. Cost Component % of total implementation

  23. Cost Impact • Also affects operations • Intent was to lower operations cost • Initially, often the reverse • Often use data warehouse system • Very efficient data storage • Very expensive

  24. ERP MaintenanceNah et al. (2001) • Corrective • Incorporate vendor patches, fix problems • Adaptive • Implement new features, internal customization, implement interfaces • Perfective • New versions • Preventive • Monitor response time, errors, track maintenance activities

  25. ERP System Migration • Over time, need to adopt changes • Minor modifications • Maybe system replacement • Vendors change products • WHY • The longer the time between upgrades, the harder • Easier to support a smaller number of software versions • Migrations can increase sales of seats, add-ons

  26. BOLT-ON Software • Demand planning • Inventory management • E-Procurement • BtoB • Integrated suite systems (I2) • Order tracking • Factory planning & scheduling • On-line collaboration • Warehouse management • Data mining

  27. Example Bolt-OnsMabert et al. [2000]

  28. Middleware • ERP interfaces to external applications difficult to program • Middleware is an enabling engine to allow such external applications eto ERP • Data oriented products - shared data sources • Messaging-oriented - direct data sharing

  29. Example of MiddlewareD. Thomas, Computer Weekly 5/18/2004 p. 1 • British American Tobacco PLC • Wanted to reduce the cost of moving data around Enterprise Application Integration software • Hoped to save 75% of integration projects through MIDDLEWARE Cast Iron Systems Inc.’s Application Router • Transfer data between • point-of-sale, • Oracle databases, • Siebel CRM, • SAP ERP

  30. Data Storage Systems • Data Warehousing • Orderly & accessible repository of known facts & related data • Subject-oriented, integrated, time-variant, non-volatile • Massive data storage • Efficient data retrieval • CRM one data mining application • Can use all of this data • Common ERP add-on

  31. Database Product Comparison

  32. Supply Chains • Collections of organizations working together • Raw materials – products – retail • Old manufacturing: vertical integration • Military logistics • Now appropriate for e-business

  33. Supply Chain • Raw Materials Suppliers • Processing Plants • Assembly Plants • Service Centers (warehouses) • Retail outlets

  34. ERP Tools in Supply ChainsKelle & Akbulut, Int. J. Prod. Econ. 93-94 (2005) 41-52 • Supply chain integration valuable • Buyers improve production plans & delivery schedules • Suppliers use buyer inventory info to plan their production & inventory control • Improve customer service quality • Speed payment cycle • Cost savings • Identify & overcome bottlenecks

  35. ERP ToolsKelle & Akbulut, Int. J. Prod. Econ. 93-94 (2005) 41-52 • Real-time transaction tracking • Internal process integration • Decision Support Tools (through Add-ons) • Advanced Planning & Scheduling (APS) • Demand Planning & Revenue Management (DPRM) • Customer Relationship Management (CRM) • Sales Force Automation (SFA) • Supply Chain Management (SCM)

  36. Supply Chain Coordination Effects • Value • Logistic efficiencies • Coordinated advertising • Large scale service • Joint optimal policy will always save total system cost • 1-30% for supplier • 25-60% for buyer • NEED TO NEGOTIATE

  37. Obstacles to Supply Chain Tool Use • Real-time transaction tracking • Unwillingness to share information • Need to show monetary benefits & savings • Too much data, too many details • Data analysis (data mining) • Activity based costing to focus on value-added • Internal process integration • Doesn’t support operational decisions • Cooperative models, share benefits

  38. Advanced Planning Systems • Computer technology makes supply chain capable of dealing with demand uncertainty • Forecasting • Inventory reduction • Optimized transportation costs • Advanced planning systems use operational data to analyze material flows in supply chain • Use historical demand for forecasts • Easy to collect data • Dynamic nature makes long-range forecasting difficult

  39. Advanced Planning System Providers

  40. Open System LinkageB. Bacheldor, Informationweek.com, 19 Jan 2004, p. 30 • Radio-frequency identification (RFID) technology • Allows remote data input • Requires middleware to translate RFID data into formats usable by applications • Oracle: RFID-ready version for supply-chain applications soon • SAP: Auto-ID Infrastructure links RFID data to other systems

  41. RFIDR. Boucher Ferguson, eweek, 17 Jan 2005, p. 32 • Wal-Mart • Top 100 suppliers expected to be RFID-enabled by mid-January 2005 • Electronic bar codes • Allows collaborators to access data quicker • Bayer Corp. • Acsis software integrates RFID into their SAP • Compare Wal-Mart data with their own • The Gillette Co. • OATSystems Inc. software links real warehouses to data warehouses

  42. Portals of Major ERP VendorsStein & Davis [1999]; Stein [1999]

  43. ERP Security Threats

  44. CPU Support • Originally mainframe • SAP R/2 – 1974 • Client/Server architecture early 1990s • More flexible • SAP R/3 • SAP announced discontinuing R/3 • Outcry by customers – delayed to 2011

  45. Expected Benefits from ERPMabert et al. (2000); Olhager & Selldin (2003)1-not at all; 5-to a great extent

  46. Benefits from ERPMabert et al. (2000); Olhager & Selldin (2003)1-not at all; 5-to a great extent

  47. Lessons Learned • ERP implementation projects problematic • Variety of ways to implement • Benefit assessment problematic • Different ways to design ERP • Customization of vendors popular • Many enhancements available • Supply chain opportunities • Requires open systems

  48. ERP Success FactorsBusiness Horizons 2000 • Senior management involvement • Cross-functional implementation team • Extra effort up-front defining detailed plan • Clear guidelines on performance measures • Clear guidelines on using outside consultants • Detailed plans to train users

  49. Apparent Future

  50. Advantages & Disadvantages • System Integration • Improved understanding across users • Less flexibility • Data Integration • Greater accuracy • Harder to correct • Better methods • More efficiency • Less freedom & creativity • Expected lower costs • More efficient system planned • Dynamic needs, training typically underbudgeted, hidden implementation costs

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