ERP – Enterprise Resource Planning

1. ERP – Enterprise Resource Planning Presented By: David Giles Matthew Haack LeRue Holbrooke

2. Topics of our presentation • Overview of ERP • Best Practices of implementing ERP • Summary of ERP Vendors • Case studies of ERP Implementations

3. What is ERP? • Enterprise Resource Planning is the implementation of software that allows companies the ability to integrate their software to work more efficiently and hopefully provide better customer service. • Integrates several business functions: Finance, Accounting, Logistics, HR, Sales & Marketing, ETC… Davenport, Thomas. “Putting The Enterprise Into The Enterprise System” Harvard Business Review. July-August 1998. pp. 121-131

4. How does ERP work • The simplest way to describe ERP is to think of it like a building block that you can add to on any side. • These building blocks are known as modules that work together by sharing information. • The information that the modules share can vary from finance to manufacturing and all points in between.

5. Before ERP

6. Enterprise Resource Modules

7. ERP Model Managers and Stakeholders Financial Applications Reporting Applications Human Resource Management Applications Sales and Delivery Applications Manufacturing Applications Central Database Sales Force And Customer Service Reps Back-office Administrators And Workers Customers Suppliers Service Applications Employees Human Resource Management Applications Inventory And Supply Applications Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 1998. Managers and Stakeholders Financial Applications Reporting Applications Human Resource Management Applications Sales and Delivery Applications Central Database Manufacturing Applications Sales Force And Customer Service Reps Back-office Administrators And Workers Customers Suppliers Service Applications Employees Human Resource Management Applications Inventory And Supply Applications Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 1998.

8. History of ERP

9. Where is ERP headed • Enterprise Resource Planning will become more and more prevalent in the business world as prices for technology reduce and software vendors try to find new customers. • ERP will also be moved back onto a central computer such as a host so that more customers can use their ERP software anywhere.

10. Project Lifecycle www.peoplesoft.com

11. ERP Implementation Best Practices • Business process review / re-engineering • Establish knowledgeable project team • Ensure software compatibility with industry practices and requirements • Prepare organization for change • Establish sufficient training methods • Perform gradual implementation • Keep short project lifecycles

12. Promised Benefits of ERP • Improved Productivity • What was the improved productivity at MEMC? • Improved Customer Demand Management • Cost Reductions • Manufacturing Efficiencies Seewald, N., “Enterprise Resource Planning Tops Manufacturers’ IT Budgets,” Chemical Week, New York, Sep 11, 2002, Vol. 164, Issue 35, p.34

13. Hidden Costs of ERP • Organizational Culture Change • Testing • Data Conversion • Data Analysis • Transition From Outside Consultants

14. Hidden Cost of Training • Costs usually underestimated • Owens-Corning • Original Estimate – 6% of Project Budget • Actual Results – 13% of Project Expense • Train the Trainers White, J.B., D. Clark and S. Ascarelli. “The German Software Is Complex, Expensive, and Wildly Popular.” Wall Street Journal, March 14, 1997, A1, A12.

15. Hidden Costs of Integration • Typically 30% of Project Cost • Unplanned customizations raise cost • Incremental integrations more successful Vowler, J. “You Cannot Afford to Ignore Integration.” Computer Weekly, June 3, 1999, 44.

16. ERP Overview of Vendors • PeopleSoft / JD Edwards • SAP • Oracle • Baan, IFS, Great Plains, Lawson, et. al.

17. ERP Vendor Revenues (2002) Per each companies FY 2002 annual report www.sap.comwww.oracle.com www.peoplesoft.com

18. ERP Vendor Net Incomes (2002) Per each companies FY 2002 annual report www.sap.comwww.oracle.com www.peoplesoft.com

19. ERP By Customer Size (2003 Data) Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04

20. ERP By Company Type (2003 Data) Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04

21. ERP Functions Utilized (2003 Data) Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04

22. Costs of ERP By Vendor (2003 Data) Peerstone Research Group via http://www.peerstone.com/pdfs/Samples_of_Quantitative_Data_from%20_ERP_Studies.pdf 3-15-04

23. CASE STUDY FoxMeyer Drug

24. Enterprise Resource Modules

25. FoxMeyer Drug • Formerly $5 billion in revenue (1995) • 2400 employees in 21 states • Pharmaceutical products • Major customers – hospitals & universities • 4th largest distributor of pharmaceuticals in U.S. Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5th Americas Conference Milwaukee WI Aug. 1999

26. FoxMeyer – Why ERP? • Align technology with business strategy • Basic strategy of growing the business • Unisys mainframe nearing capacity – orders including more than 300,000 items each day • Decided client/server was best option • Project “Delta III” initiated in 1993 Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

27. “Delta III” Project Plan • 18 months • $65 million cost • Estimated $40 million in annual savings • Outsourced to Andersen Consulting (now Accenture) and Pinnacle Automation • CEO & CIO were co-project champions Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5th Americas Conference Milwaukee WI Aug. 1999

28. FoxMeyer Drug Consultants • Andersen Consulting (Accenture) • Provided Implementation Support • On-Site staff of 50 people at one point • Pinnacle Automation • Supplied conveyor equipment • Supplied Warehouse Automation System • SAP – Provided ERP package Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

29. Why Pinnacle Warehousing? • FoxMeyer required software capable of: • High volume of transactions • Complex pricing models • SAP not a leader in warehouse management at the time. • SAP could have provided software, but at a high cost. Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

30. Recipe For Disaster? • Two software systems (SAP & Pinnacle) • Two consulting firms (Andersen & Pinnacle) • Highly complex pricing models • High frequency of daily transactions • Short project timeline of 18 months

31. Delta III Project Results • 6 months late – finished late 1995 • Project Costs over $100 million ($35 million greater than original plan) • Bankruptcy in 1996 • $40 million in projected annual savings never realized Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

32. What Went Wrong? • Management Failures: • University Healthcare Consortium • Treatment of Warehouse Employees • Lack of internal IT involvement Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5th Americas Conference Milwaukee WI Aug. 1999

33. University Healthcare Consortium (UHC) • Nationwide network of teaching hospitals • July 1994 agreement • FoxMeyer given contract to sell to UHC • Projected annual sales of more than $1 billion • Agreement never led up to potential Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

34. UHC Changed Project Focus • Original goal was to supplement mainframe capacity • Sheer volume of UHC deal required immediate volume capacity increases • Delta III project timeline accelerated Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

35. FoxMeyer’s Distribution Network Prior to ERP • 23 Distribution Centers • Customer completed electronic order • Orders filled manually at each site Olson, David Louis. Introduction to Information Systems Project Management. Publisher: McGraw-Hill/Irwin; Book and CD-ROM edition (August 14, 2000) ISBN: 0072424206

36. New Warehouse Plan • 1 national distribution center (Ohio) • Automated order fulfillment • Cashflow savings from better inventory management Olson, David Louis. Introduction to Information Systems Project Management. Publisher: McGraw-Hill/Irwin; Book and CD-ROM edition (August 14, 2000) ISBN: 0072424206 Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

37. Warehousing Transition • Ohio warehouse opened 3 months late • Automated system not 100% functional • Workers not properly trained on new system • Old mainframe system ran out of capacity before completion Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

38. Warehouse Workers • Morale problems with closure of old warehouses • Orders were half-filled or not filled at all • Shipments to new warehouse damaged and unfit for sale • Large inventory shrink - $34 million Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

39. Andersen’s View According to Andersen Spokesperson: “We delivered, the work we performed was successfully completed, and we were paid in full.” Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

40. Pinnacle’s View According to Christopher Cole, COO of Pinnacle Automation: “…the problem wasn’t the [automation equipment]; it was the way that they [FoxMeyer] were running orders through the system.” “the old mainframe system choked and died.” Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

41. SAP Perspective Peter Dunning Executive VP of Global Accounts with SAP: “It’s one of those stories where the operation was a success, and the patient died.” Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

42. Outside Perspective According to Adam Feinstein, research associate at Salomon Brothers: “They spent a lot of money and tried to put together a progressive management information system, but they overspent and bit off more than they could chew.” Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

43. Summary of viewpoints • Andersen was happy to get paid and was not concerned enough about Pinnacle. • Pinnacle blamed old systems and warehouse workers for their system failures. • SAP software worked, but not fully integrated as a true ERP solution • FoxMeyer absent from viewpoints because of a lack of internal involvement Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

44. Lessons Learned • Perform BPR prior to project • Use realistic objectives • Do not rush projects without testing • Provide adequate training at all levels • Prepare Organization For Change • Gradual Implementation is beneficial • Re-evaluate Sourcing Strategies • De-Escalation cannot be ruled out

45. What Happened After Bankruptcy? • After bankruptcy, a holding company called Avatex bought majority share of remaining value. • McKesson (former #1 competitor) announced intent to purchase remaining assets in October 1996 • FoxMeyer is no more

46. The University of Missouri System Source: www.system.missouri.edu

47. The University of Missouri — Columbia Predominantly a residential campus. Fall 2003 enrollment — 26,805 20,441 undergraduate 6,354 graduate & professional 5,107 teaching and research staff 6,605 administrative and support staff

48. University of Missouri — Kansas City • Mixed residential/commuter campus. 36% of the students attend part-time • Fall 2003 enrollment 14,244 • 6,850 undergraduate • 5,038 graduate & professional • 2,368 teaching and research staff • 1,763 administrative and support staff.

49. University of Missouri — Rolla Institution of science and engineering The enrollment Fall 2002 was 5,240 3,849 undergraduate 1,391 graduate

50. University of Missouri — St Louis Large non-traditional student population 59% of students enrolled part-time The enrollment for Fall 2003 was 15,605 (12,630 undergraduate, 2,975 graduate). 1,412 teaching and research staff 1,135 administrative and support staff.