Flattening the Organization with Enterprise Resource Planning Applications

1. Flattening the Organization with Enterprise Resource Planning Applications Lecture 4 “How international business works”

2. “New Model – 2013” Environment Integrated Business Applications Business Intelligence Customer Relationship Management (CRM) EDI Translator Message Handling Call Center EDI Processor Flat File A P I Catalog Management Systems Web Server Supplier Relationship Management (SRM) Transaction Monitor “BIG DATA” Exchange Application Server

3. The Traditional Vertically Integrated Organization Sales Dept. Production Dept. Distribution Dept.

4. Sales Dept. Production Dept. Distribution Dept. Check Station Check Station Sales Prod. Dist. System System System The Traditional Vertically Integrated Organization w/ Check Stations

5. Important Consequences • During the latter half of the 1990’s there were some very important negativeconsequences associated with the vertical hierarchical management models • What single group within the private sector labor force suffered the most layoffs during the mid to late 1990’s? • Why the layoffs?

6. Important Consequences • Private sector organizations were streamlining operations by: • flattening organizational structures, • managing across organizational boundaries (cross-functional process management), • eliminating redundant “check stations”, • and outsourcing non-core activities. • What does that mean?

7. Horizontally Integrated Processes Domain “B” Production Domain “C” Shipping Domain “A” Sales Input Functions Output Customer Order Process # 1 A A A B B B C C C D D D Customer Order Process # 2 E E E

8. Horizontal Processes Most all management “experts” agree that managing processes horizontally is much more efficient than the old vertical model However, the actual implementation of horizontal process management has been VERY difficult Why?

9. Horizontal Processes • Organizational culture is entrenched • Technologically difficult to support • Managerial tradition (remnant “guild” influence) requires “control” through: • Isolated/Filtered Information Flow, • Islands of Automation, • Intolerance for Power Sharing • Isolationist (in-sourced) supply chain view

10. Background Information

11. Traditional Process-Oriented Management • In many cases companies spent millions of dollars on the process re-engineering effort, then gave up on the project because the enabling IT costs were significantly higher than the re-engineering costs • Realigning IT with new organizational process structures is the most costly (not the hardest) aspect of process-oriented change

12. Traditional Process-Oriented Management After many failures, industry as a whole, stopped proprietary development of “systems” and purchased “management solutions” from vendors These solutions are called Enterprise Resource Planning (ERP) Although sold/marketed as an IT solution, in reality ERP is a high-level management concept

13. Process-Oriented Management through ERP • Enterprise Resource Planning systems are the antithesis of process re-engineering • Organizations purchase cross-functional (horizontal) processes and the integrated enabling IT in a “pre-packaged” format • The organization will have to adapt to the processes that are implied in the ERP software • ERP is customized for industry verticals (automotive, pharmaceuticals, aerospace, petro-chemical, and more recently ---public sector)

14. Pre-packaged ERP Solutions Most Fortune 1000 CEO’s have abandoned traditional re-engineering and IT development in favor of ERP ERP forces IT enabled cross functional process integration on the organization This reduces the risk of political tampering and stalling that is associated with traditional re-engineering efforts No proprietary legacy systems need be maintained

15. Achieving Alignment • Reengineer the process, and then develop an integrated information system that aligns with the business process. • Adopt an off-the-shelf ERP software solution and reengineer internal business processes to align with the solution. • SAP, PeopleSoft, Oracle, etc. • Most larger US/International companies have selected the second option. • Why?

16. Achieving Alignment • The Drivers: • Globalization • Out-sourcing • Off-shoring • Mergers & Acquisitions • Strategic Partnering • The Enablers: • Telecom Infrastructure • High/Cheap Bandwidth • Reliable Platforms and Networks • Large Stores of Integrated Data

17. Purchase Sell Create Value Suppliers Back Office (ERP) Front Office Customers Supply Chain Demand Chain Extended Enterprise IntegrationEnables outsourced business models The Extended Enterprise

18. How to ImplementERP

19. In-house Development • Most large U.S. and International companies have discounted this option. • New proprietary developments are risky and costly. • There are many new options for “Mixing and Matching” commercial off-the-shelf components

20. ERP Solutions • These are pre-engineered and integrated solutions that connect the complete scope of the business applications. • The solutions are usually modular; e.g., • Financial and Accounting • Human Resources, • Sales and Distribution, • Manufacturing and Logistics. • Full implementations are called Enterprise Resource Planning (ERP) Systems, but are in reality process-based management solutions, packaged as a complete system.

21. The Antithesis of Reengineering • Reengineering calls for process redesign prior to searching for technology solutions. • A ERP software solution is implemented in an opposite fashion: • A set of “reference” process, data, and function models are purchased. • Then, the organizational processes are aligned with the standard software solution.

22. Process Oriented Implementation Some ERP Software is designed to execute predefined business processes. The information system (resulting from the software implementation) is aligned with the business process, enabling process management and cross-functional process integration.

23. Process Oriented Implementation (Cont.) The ERP software modules are designed so that they explicitly execute a best practice business process. This process is called the Reference Business Process or Reference Model.

24. Reference Models

25. Reference Models • A reference model is a set of pre-engineered and integrated organizational views. • For example one type of reference model might be a business process (one view of an organization) and a depiction of the data flows (another view of an organization) that are aligned with the business process. • ERP Software either implicitly or explicitly executes pre-defined business processes; hence, by definition it is based on the reference model concept.

26. Reference Models • The main benefit of a reference model is that certain tedious views (e.g, the data view as realized in a data model) do not have to be individually developed for every implementation. • The idea is to design and develop once, and then replicate many times. • The reference model may have to be tailored for individual organizations, but this effort is significantly less than approaching each implementation as a new software project.

27. Reference Models

28. Industry Specific Reference Model • Complete ERP Business Implementation • Function Model • Process Model • Information Flow Model • Communication Model • Organization Model • Distribution Model • Data Model

29. customer order eERM Customer Order order header customer time order item product function 1 function 1.1 function 1.2 function 1.3 function 1.1.1 function 1.1.2 customer order function 1 Updated ERP For Completed Resource, Capacity and Updated ERP Schedule From ERP Product With Production Internet-Based EDI Transaction Plan eERM Customer Order Accounting Notified Manufacturing Complete Manufacture Provide function 1.1 function 1.2 function 1.3 Accounting Completed Production Plan Plan Product Support Process Order Notification Order Accounting Notified Submitted Arrives Distribution Complete order header Engineering Provide Distribution Distribute Engineer Technical time customer Completed Notified Product Product Support Technical Documentation Initial ERP (SGML Tagged) Existing Product PDM Vault Data function 1.1.1 Legacy Text Data function 1.1.2 order item product Developing the Integrated IS Reference Model from the Integrated Enterprise Model Domain Specific Customer added extensions Industry Specific IS Reference Model (i.e. Aerospace) Integrated Process Engineering Model (Business Process Analysis/Business Process Engineering) Basic Reference Model

30. The Value of Reference Model-based ERP Systems ERP reference models define an explicit and optimized link between business processes and the supporting IT infrastructure. Management has complete visibility into these linkages. Updates to processes or to IT are managed through a centralized object repository that functions as a configuration management facility for these linkages.

31. Why Do Projects Get in Trouble? • The ERP software executes the functions in a business process. • The business process could be explicit; e.g., as in the SAP or Oracle business process reference model. • The business process could be implied; e.g., Microsoft or PeopleSoft. • The implementing organization has a target business process; i.e., the way that they desire to execute their business functions. • The difference is called the “gap.”

32. Material master is to be created Specify material type Material type is specified Specify material number Specify industry sector XOR Material number is assigned externally Industry sector is specified Material number is assigned internally XOR Updated ERP For Completed Resource, Capacity and Updated ERP Schedule From ERP Product With Production Maintain material master warehouse view Maintain material master accounting view Maintain material master purchasing view Maintain material master classification view Internet-Based EDI Transaction Plan Accounting Notified Manufacturing Complete XOR Manufacture Provide split valuation is specified Mat. master purchasing view is maintained Mat. master classification view is maintained Mat. master warehouse view is maintained Accounting split valuation is not specified Plan Completed Production Plan Product Support Process Order Notification Create valuation types Order Submitted Accounting Notified Arrives Distribution Complete Engineering Provide Distribution Distribute Engineer Technical Completed Product Product Notified Support Technical Documentation Initial ERP (SGML Tagged) Existing Product PDM Vault Data Legacy Text Data Gap Analysis The Gap Target Business Process Reference Business Process Can You Adapt to the Difference?

33. The Gap • If the target business process aligns with the business process that is implied by the software, then implementation is only slightly difficult. • If there is a large gap, then extreme implementation difficulty is encountered. • Customization is required, or • Internal business process change is required

34. ERP Summary

35. What is the Importanceof ERP Software? • ERP software is more reliable than proprietary software. • Its functionality has been tested extensively by the developers. • It has been used in other enterprises, so problems have been discovered and corrected.

36. What is the Importanceof ERP Software? ERP software provides efficient operations, because it is designed around industry “best practices.” Reports on corporate information are produced on schedule or by request, without special computing skills.

37. What is the Importanceof ERP Software? • ERP software provides the means for enterprise-wide access to real-time information. • ERP software provides the ability to manage product flows and allocations with real-time data. • Managers and workers can use data to plan and program projects, monitor the progress of projects, and manage resource allocations. • Customers receive better service and information on their products.