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ERP Systems Overview

ERP Systems Overview. Introduction to ERP System Options. ERP Claims. Create value through integrating activities across organization Implementation of best practices Standardization of processes One-source data On-line access to information. Role in Business. Accounting basis

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ERP Systems Overview

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  1. ERP Systems Overview Introduction to ERP System Options Olson: ERP 2

  2. ERP Claims • Create value through integrating activities across organization • Implementation of best practices • Standardization of processes • One-source data • On-line access to information Olson: ERP 2

  3. Role in Business • Accounting basis • US products – some extension of MRP • Combine business computing • Unified system sharing one set of data • Advantages in efficiency, accuracy • Best Practices • Apply the best process for each function Olson: ERP 2

  4. Historical Growth • 1970s & 1980s – more development than growth • 1990s – became widely adopted by large firms • Late 1990s – growth exploded with fears of Y2K problems • Post-2000 – growth slowed • Saturated market, economy dipped • Seeking to • Fill in gaps with larger firms • Make products useful for smaller firms • Emphasize Internet Olson: ERP 2

  5. Benefits of ERP • Davenport [1998]: • Increases speed of information flows • O’Leary [2000]: • Create value through integration of activities • Best practices improve operations • Standardization increases efficiency • One-source data more accurate, easier to access Olson: ERP 2

  6. Benefits of ERP • Better organizational planning • Better communication • More collaboration • Weil [1999]: • Applied Robotics increased on-time deliveries 40% through ERP • Delta Electronics reduced production control labor requirements 65% Olson: ERP 2

  7. Why ERP? • Technical: • Integration of computer systems foster consistency, efficiency • Financial: • Integrating applications saves money • Organizational: • All members of organization use same system Olson: ERP 2

  8. Conception vs. Reality • Integrated System • In fact, vendors usually sell modules • Would like to sell full system • Buyers reduce cost, risk, by starting smaller scale • Risk of converting entire system • Complex cost impact Olson: ERP 2

  9. SAP: Best Practices • A key to original product • 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” Olson: ERP 2

  10. ERP Supported Functions Olson: ERP 2

  11. CPU Support • Originally mainframe • SAP R/2 – 1974 • Client/Server architecture early 1990s • More flexible • SAP R/3 • Something new? • Portal systems (MySAP.com) Olson: ERP 2

  12. 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 Olson: ERP 2

  13. ERP System Options & Selection Methods Alternative ERP project forms Budgeting methods Olson: ERP 2

  14. IS/IT Projects • Typically • Late • Over budget • Fail to satisfy design specifications • ERP projects • Are larger than normal • Can be expedited (if you do it vendor’s way) • Cost range $5 million to over $100 million (+) Olson: ERP 2

  15. Alternative ERP Options Olson: ERP 2

  16. Changing Nature of IT • Technology is highly dynamic • ERP projects often take years to install • Vendors are responding by expediting • As long as you do it their way • Improved versions may be on market by the time you install your system • This is one advantage of an ASP Olson: ERP 2

  17. Financial techniques for Capital Budgeting • Payback • Discounted cash flow • Cost-benefit analysis These are the more formal mechanisms implied by Hinton & Kaye as capital budgeting Anything with as great an impact as ERP needs to have some estimate of cost, benefits • Need to recognize that precise numbers not worth obtaining Olson: ERP 2

  18. Survey of ManufacturersMabert et al. (2000); Olhager & Selldin (2003) Olson: ERP 2

  19. Expected Installation TimeMabert et al. (2000); Olhager & Selldin (2003) Olson: ERP 2

  20. Estimated Installation CostMabert et al. (2000); Olhager & Selldin (2003) Olson: ERP 2

  21. Cost ProportionsMabert et al. (2000); Olhager & Selldin (2003) Olson: ERP 2

  22. Mabert et al. [2000]Survey of 400+ manufacturers Olson: ERP 2

  23. Expected ROIMabert et al. (2000); Olhager & Selldin (2003) Olson: ERP 2

  24. Mabert et al. [2000]Survey of 400+ manufacturers • Even for ERP systems, only 53% used formal methods • For smaller IT projects, payback most popular • Most systems expected to take years to install • Trend is to make much faster • Cost varies widely • You have a choice as to where you spend • Training tends to be underbudgeted • Not all expect big return Olson: ERP 2

  25. Taiwan ERPC.-T. Yeh, M. Miozzo, T. Vurdubakis, Journal of Enterprise Information Management 19:1, 2006, 30-49 • International vendors (like SAP) • BPR based on Western practice • The rest of the world not necessarily the same • Has created many misfits • Especially in small-to-medium sized enterprises • Business opportunity for small domestic vendors Olson: ERP 2

  26. Taiwan’s industrial success • Flexible, decentralized network of SMEs • Focus on export trade in consumer goods • Agility & adaptability important • Vendor ERPs don’t support that • BPR forces clients of ERP to “do it their way” • They (SAP) think they know better • Problems • First, middle, last name doesn’t fit Indian, Chinese • Egypt – pricing determined after receipt of goods – Oracle didn’t do it that way Olson: ERP 2

  27. ERP Revolution • SAP claims organization can create its own solution • By selection of modules • In reality, organizations required to re-engineer their business processes to conform to ERP • Standish Group – 90% of ERP implementations have cost, schedule overruns • Many failures – FoxMeyer, Hershey’s Olson: ERP 2

  28. Vendor Response to Market • 1990s market (large organizations) saturated • Vendors built • products for new end-users • Non-profit • SMEs • New types of ERP • Web-enables • CRM, SCM products • New markets • China, India • Less system rigidity • Faster implementation • Industry-focused systems Olson: ERP 2

  29. Vendor efforts • Make systems less rigid • End-user organizations often modify • Between standardization & customization • Complications • Implementation • Upgrades Olson: ERP 2

  30. Taiwan ERP market Case studies – 14 organizations in Taiwan • SAP – 38% • Oracle – 16% • Domestic get rest • Prices • $600,000 to $1,400,000 • Much lower than US Olson: ERP 2

  31. Implementation Options • DIRECT • Vendor implements system for customers • Domestic vendors • INDIRECT • Vendor trains consultants who implement ERP • International vendors • In Taiwan, Direct option usually used • Few reliable consultants available • Consultants prefer large vendors (more experience with) • Competitive domestic market • Lower prices Olson: ERP 2

  32. Taiwan ERP trends • More Wide Enterprise Systems • From hi-tech to traditional manufacturing • From Large to SME • From growth stage to maturity • From internal information integration to external information communication Olson: ERP 2

  33. China ERP Market • Growing rapidly • Government support • Accession to WTO • Need for competitiveness • International vendors play the major role • Domestic vendors have software more akin to accounting packages • Taiwan ERP vendor collaboration • R&D, distribution, joint ventures, investment Olson: ERP 2

  34. Summary • ERP software has had a major impact on organizational computing • Technological, financial, organizational benefits • Also expensive, massive, inflexible • Many hidden costs • Complex adoption decision Olson: ERP 2

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