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Hour 5: ERP System Installation

Hour 5: ERP System Installation. Special IS Project In-house: massive IS project, heavy system design features. ERP Implementation Project. If vendor system Much less system design than otherwise Vendor software already programmed Only need interfaces Have help from vendor, consultants

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Hour 5: ERP System Installation

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  1. Hour 5: ERP System Installation Special IS Project In-house: massive IS project, heavy system design features

  2. ERP Implementation Project • If vendor system • Much less system design than otherwise • Vendor software already programmed • Only need interfaces • Have help from vendor, consultants • Opportunities to outsource

  3. ERP as an IS Project • At least 7 optional ways to implement ERP • Outsourcing (ASP) the easiest • But risky • Next easiest is single vendor source without modifications • Not necessarily least expensive, nor greatest benefits • All others involve significant IS project

  4. Relative Use of ERP Implementation StrategiesMabert et al. [2000]

  5. Implementation Strategy Use • Dominant strategy in manufacturing: • Single vendor • Over half added internal modifications • Very few best-of-breed • Almost none developed totally in-house

  6. IS/IT Project Management Results • Conventional IS/IT projects have trouble with time, budget, functionality • ERP projects have slightly more structure, but still face problems • Underestimation of required time common • Vendors have made easier & faster • Enhancement of systems another trend • Reintroduces time problem

  7. Systems Failure Method • systematic method for analysis of failure • successfully applied - wide variety of situations • by reviewing past failures, avoid future failure • as organizations rely more on computers, there is a corresponding increase in significant business interruptions • yet of 300,000 large & mid-sized computer system installations, <3% had disaster recovery plans

  8. Failures in Planning • negative disasters: decision culminating in physical result, later substantially modified, reversed or abandoned after heavy resource commitment • power generation facility on campus • positive disasters: decision culminating in physical results implemented despite heavy criticism, subsequently felt by many informed people to have been a mistake • Anglo-French SST; BART in San Francisco

  9. Failures of Projects • information technology • 1992 - London Ambulance Service • 1.5 million pound system on line 26 Oct 1992 • immediately lost ambulances • <20% of dispatched ambulances reached destinations within 15 minutes of summons • (before system, 65% met 15 minute standard)

  10. Failures of Projects • Some never work • others over budget, very late, or both • others perform less than design • others meet design specifications, but maintenance & enhancement nightmares

  11. System Failure Method • failureis regarded as an output of transformation processed from system • place trial system boundaries around situation • experiment with various configurations • reach conclusion about system • need to model system in some detail • at different levels • be careful not to make too fine, lose important inter-relationships

  12. common results failure commonly a result of • organizational structure deficiencies • lack of performance-measuring, control • no clear statements of purpose • subsystem deficiencies • lack of effective communication between subsystems • inadequate design • insufficient consideration of environment; insufficient resources • imbalance of resources production quantity; test quality

  13. FoxMeyer Drug Large drug distributor Wanted to implement ERP

  14. FoxMeyer Corp • Holding company in health care services • wholesale distribution of drugs & beauty aids • served drug stores, chains, hospitals, care facilities • US: 23 distribution centers • Sought market niches, such as home health care

  15. FoxMeyer • Due to aging population & growth in health care, expected high growth • Market had extreme price competition, threatening margins • Long-term strategies: • efficiently manage inventory • lower operating expenses • strengthen sales & marketing • expand services

  16. Prior FoxMeyer IS • 3 data processing centers, linked • included electronic order entry, invoice preparation, inventory tracking • 1992 began migration of core systems • Benefits not realized until system fully integrated

  17. FoxMeyer Process • Customer fills out electronic order • Order sent to 1 of the 3 data processing centers • Orders sent to the appropriate distribution center (within 24 hours) • Orders filled manually and packaged • Had just completed national distribution center with multiple carousels & automated picking • Could track inventory to secondary locations

  18. New System • Needed new distribution processes & IS to capitalize on growth • Wanted to be able to undercut competitors • Replacing aging IS key • PROJECT: 1994 - hoped to save $40 million annually (estimated cost $65 million) • complete ERP installation & warehouse automation system (another $18 million)

  19. FoxMeyer Project • Select ERP • hundreds of thousands of transactions • meet DEA & FDA regulations • benchmarked & tested for months • picked SAP R/3 • hired Andersen Consulting to integrate • hired Pinnacle Automation for warehouse automation system

  20. Operations • FoxMeyer expected the new systems to improve operational efficiency • Signed several giant contracts • counted on savings, underbid competitors • Counted on being up and running in 18 months

  21. Problems • SAP & warehouse automation system integration • two sources, two installers - coordination problems • New contracts forced change in system requirements after testing & development underway • Late, Over budget • SAP successfully implemented

  22. Outcomes • Lost key customer - 15% of sales • To recoup, signed new customer, expected $40 million benefit from ERP immediately - pushed ERP project deadline ahead 90 days, no time to reengineer • Warehouse system consistently failed • late orders, incorrect shipment, lost shipments • losses of over $15 million • August 1996 filed for Chapter 11 • McKesson bought

  23. McKesson Followup • Mid-1990s started implementation of SAP R/3 • Cancelled project in 1996 after spending $15 million • 1997 acquired FoxMeyer • Carefully designed new R/3 implementation • Dropped a number of modules • Implemented modules one at a time • Cautious rollout schedule, rigorously followed • Separate testing group formed • At last report $50 million system on time, in budget

  24. McKesson • Massive changes in 3,000 end user jobs • Careful analysis of changes • Surveys • Focus groups • Demonstrations • Computer-based training

  25. Lesson • Implementing ERP a major undertaking • Can easily bankrupt a company • However, it can also be done • Opportunity for great benefits

  26. System Architecture & ERP • System architecture displays computer systems used to support organization • Open systems architecture allows greater integration possibilities • Important in supply chains, e-business • ERP systems initially quite closed

  27. Open Architecture • Many external systems being added to ERP • CRM • Supply chain • Internet for e-business • Need to integrate independent ERPs across organizations • Messaging services used

  28. Analysis & Design Control Frameworks • Traditional standards for application development • ERP implementation usually involves installation of vendor software • Still need for treatment as installation project • Early in project, extensive customization needed • The more system flexibility, the more difficulties in implementation • Object-oriented framework benefits extension, tailorability, customizability

  29. Application Service Providers • Outsource ERP • Popular • Unocal pared IT staff 40% in two years • Focus on core competencies, shed cost centers • Many specific functions can be outsourced • Outsourcing benefits • Speed • Organization lacks IT skills • ASP the most popular way to outsource

  30. ASP Risks • Your applications and data are controlled by others • Service failures out of your control • Confidentiality failure a possibility • Performance issues possible

  31. Relative Implementation Effort

  32. Implementation Effort • Implementing ERP places strain on in-house information systems groups • Consultants are expensive • Sometimes need special expertise • Tradeoff: control vs. time & cost

  33. Summary • ERP driven by idea of quality software support • Software quality has long been important • Many ERP implementation strategies available • Tradeoff in control vs. time & cost

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