Week 7: Enterprise Information Systems

1. Week 7: Enterprise Information Systems MIS 2101: Management Information Systems

2. Agenda • Graham Cracker Video • Introduction to Enterprise Systems • Enterprise Resource Planning • Introduction to SAP • Class Project • Midterm Exam

3. Functional Business Model • Alfred P. Sloan developed the functional organizational model in the 1930s as chairman of General Motors • The functional model was very successful for decades, but foreign competition in the 1980s highlighted problems with the model: • Flexibility and rapid decision-making were not possible • Organizations had become overstaffed and top-heavy • Ability to respond to change was limited

4. Top Management Information Flow Information Flow Information Flow Information Flow Information Flow Marketing Sales Manufacturing Logistics Finance & Accounting Material & Product Flow Information and material flows in a functional business model

5. Legacy System Approach

6. Business Process Model • In a process-oriented company, the flow of information and management activity are “horizontal”—across functions • The “horizontal” flow promotes flexibility and rapid decision-making • Michael Hammer’s Reengineering the Corporation encouraged managers to take a “horizontal” business process view of their companies

7. Process View of Business Customer Order Process Sales Function Accounting Function Purchasing Function Production Function Logistics Function Material Order Process A process view of business

8. Enterprise System Approach Integrated Database

9. Enterprise Resource Planning • Enterprise resource planning (ERP) – integrates all departments and functions throughout an organization into a single IT system • enterprise-wide decisions by viewing enterprise-wide information

10. Manufacturing Roots of ERP • Materials Requirements Planning (MRP) software was developed in the 1960s and ‘70s • MRP software allowed firms to start with a sales forecast and develop production and raw material plans • For companies with many products, raw materials and shared production resources, MRP was not possible without a computer • Electronic Data Interchange (EDI) allowed a company to communicate its purchase requirements electronically • Sharing long-range production schedules between manufacturers and suppliers was the beginning of supply chain management (SCM)

11. Enterprise Resource Planning • Large ERP vendors include • SAP • Oracle • ERP Core Components • Financial Management • Operations Management • Human Resource Management • ERP Extended Components • Supply Chain Management (SCM) • Customer Relationship Management (CRM)

12. Enterprise Resource Planning • “Ground up” integration of business processes • A single application ties together multiple business functions • Accounting, purchasing, HR • Applies “best practices” to these processes

13. Architecturally… The ERP system contains the central database Business units utilize the central system All must conform to the data and procedural standards of the application Configuration is notoriously difficult Implementations are notoriously complex Enterprise Resource Planning

14. ERP Vendors • Consolidation is currently taking place in the ERP software business • PeopleSoft purchased ERP vendor J.D. Edwards in 2003 • Oracle, after a long battle, acquired PeopleSoft in 2005 • SAP and Oracle are now the two largest ERP vendors • Microsoft is challenging SAP and Oracle to sell ERP systems to small- and medium-sized businesses

15. Best of Breed Approach • Best of Breed approach: implement ERP modules from different vendors based on actual or perceived advantages • The Best of Breed approach may become obsolete due to implementation challenges • Software must be written to connect different systems • Upgrading modules is more complicated with multiple vendors • Real-time data integration is frequently not available

16. ERP Benefits • Real Benefits • IBM can reprise its product inventory in five minutes rather than five days • A company takes half a day to generate financial statements instead of several days • Sales people can give accurate quotes in 15 mins rather than several hours • Costs • Large Company - $50 - 500 mn • Midsize company - $10 – 20 mn

17. ERP for Midsize Companies • By 1998, most Fortune 500 companies had installed ERP systems • ERP companies began to focus on midsize companies (1,000 or fewer employees) • Midsize companies in Europe have an estimated $50 billion annual IT budget • IT budget for US midsize companies is even larger • To capture the midsize market, SAP developed Industry Solutions—preconfigured versions of its R/3 software for specific industries such as: • Oil and gas, automotive, banking, chemicals, etc. • Application hosting also makes ERP more attractive for midsize companies

18. The Formula for Enterprise System Success Secure executive sponsorship Most failures due to lack of top-level management support Get help from outside experts Consultants are specifically trained Implementation tends to happen faster Thoroughly train users Most overlooked, underestimated and poorly budgeted expense Training can prevent dissatisfaction Take a multidisciplinary approach to implementations Include end users from all functional areas in the implementation

19. SAP

20. SAP • Systeme, Anwendungen, Produkte in der Datenverarbeitung, or • Systems, Analysis and Products in Data Processing. • Largest software company in Europe • Third largest in the world • After Microsoft, IBM

21. Architecture • SAP R/3 system is based on Client/Server architecture that is comprised of three tiers: • Presentation server: Your local PC that has SAPGUI. • Application server: The application server is used to run the business application programs in the R/3 client/server concept. The application modules are loaded from the data base server to the application server as required. Thus the application server requires only storage capacity to accommodate UNIX, Swapping and the SAP runtime environment. • Database server: The data base server stores the SAP application programs and data in the R/3 client/server concept. It also handles the SAP update program and batch jobs.

22. SD FI MM CO R/3 PP AM Client / Server PS QM PM WF HR IS SAP R/3 Enterprise • The R/3 architecture is comprised of application and database servers. • The application servers house the software and the database servers handle document updates and master file databases. • Variety of Hardware and Software Architectures • SAP can use a number of database programs • to actually store the data. Oracle DB2

23. SAP R/3 Enterprise • FI - The Financial Accounting module is the computerized 'book of records'. It is designed for managing general ledgers, accounts payable, fixed assets and external reporting. It is the integration point that most system components relate in one way or another. • CO - Controlling module manages the flow of costs and revenues. It facilitates an organization's internal planning, management and decision making process. It is tightly integrated with other system components. It collects transactions from the other modules, using related data for internal accounting, reporting and management of funds. • AM - Asset Management module tracks, values, depreciates and also records purchases and sales of a company's assets. • PS- Project Systems module is used for grants, contracts and plant fund functioning. Project Systems module helps with the planning, managing, controlling and figuring the costs of research and development. • WF Workflow--links the integrated SAP application modules with cross-application technologies, tools and services • IS Industry Solutions--combine the SAP application modules and additional industry-specific functionality. Special techniques have been developed for industries such as banking, oil and gas, pharmaceuticals, etc.

24. SAP R/3 Enterprise • HR - This is an integrated system that supports planning and administration of personnel activities; everything from hiring to separation or retirement. Employee records, payroll, benefits and time recording are all handled in Human Resources module. • PM - Plant Maintenance module maintains the company's equipment, labor, material and work time. • QM - Quality Management module aims to improve the quality of the company's goods. Planning, execution, inspections and certificates are examples of activities processed in QM. • PP - Production Planning module manages your company's production process, including capacity planning, master production planning, material requirements planning ans the study of shop floor. • MM - Materials Management module supports the procurement function occuring in day-to-day business operations. It underpins the supply chain, processing purchase orders and goods receipts. • SD - Sales Distribution module deals with the whole process from production to delivery, including sale orders, pricing, picking and other warehouse processes such as packing and shipping. • CA - Cross Applications module lies on top of the individual modules and manages the workflow, business information warehouse, office and workplace, industry solutions and new dimension products. .

25. Benefits of SAP R/3 • Worldwide Usage • Comprehensive multi-currency translation • Multiple language support • Customized reporting and document generation for individual countries • Multi-company support • Local support in most major industrialized countries • Country specific functionality • Open System • R/3 allows the interplay and portability of applications, data and user interfaces • Based on international standards for interfaces, services and data formats • Architecture is aligned with recognized open systems standards

26. Benefits of SAP R/3 • Designed for all Types of Business • Provides a complete business solution across all business functions. • System addresses critical business processes and provides an enterprise-wide solution: • One system supports global business and accounting practices. • Standardized business processes across the organization, yet tailoring by individual business units is allowed. • Supports multiple business structures per business process to accommodate differences between business units

27. Benefits of SAP R/3 • Integration • Integrated Processes • Operational. financial, and managerial principles are satisfied simultaneously • Common Database • Application Integration • One point of data entry • Consistency across all user applications • Technical Integration • On-line interactive edit and update • Elimination of redundant data • Data Integrity • Real-Time Processing • Transactions within system update the underlying databases immediately

28. Benefits of SAP R/3 • Flexibility • Customers can customize business modules to realize best business practices • System provides necessary interfaces to incorporate external software. • Scalability, accommodates acquisitions and growth • System can be configured the way you want to do business in the future • Allows customized screens processing and reports • System runs on multiple hardware platforms

29. Database and Application Server SAP vs. MS Office Nothing is saved on your PC. Only things saved on our server in Missouri are saved, and they are saved for good.

30. Master Data • Master data is relatively fixed • Material Master Data • Vendor Master Data • Customers Master Data • Before making the master data configurations, you must have completely defined the organizational structures • Changes as policy changes

31. Transaction Data • Includes internal and external exchanges that describe business activities • Unlike master data, aggregate transactional data is dynamic – each transaction is unique • Stored at various stages of a business process • Customer orders, purchase orders, production orders, customer payments

32. Saving in Windows vs. SAP • In SAP, there are very few delete options: • Don’t save if things don’t look 100% correct! Exit the transaction and start over

33. Data Set Number (##) • I am data set number 00, not you! • Make sure you use your number when you see ## in the exercises Enter Cred. Contr. area ##CR and Currency USD

34. The Marketing Function • What is the role of Marketing (4 Ps) • Product: What products to produce • Promotion: How the products are to be promoted and advertised • Place: How the products should be distributed for maximum customer satisfaction • Price: What price should be charged for the products

35. The integration of marketing with sales order and accounting • Example: Pricing • Automatically compute prices for a customer • Based on sales history and customer attributes • Based on payment history (from accounting) • Facilitates “price discrimination”

36. Pricing in SAP Net price for order, including discounts Base price is $240/case The production cost of the 10 cases is $1,992 Discount is 10 percent

37. Price Discounts in SAP If a line in the order is over $1000, the discount is 5 percent If a line in the order is over $1500, the discount is 10 percent

38. Stages in Customer Relationship • Prospecting • Potential new customers are evaluated and development activities (e-mails, sales calls, mailings, etc.) are planned • Acquiring • Salespeople develop business prospects into customers • Sales tasks (processing inquiries, quotes, and sales orders) become increasingly important in this phase.

39. Stages in Customer Relationship • Servicing • Technical support, warranty work, product returns, quality problems, complaint handling • Retention • The rate at which a prospect becomes a customer is low, so retention is critical • It is easier to retain good customers than to find new ones • Anticipate changes in customer requirements

40. Customer Relationship Management • Helps a company streamline interactions with customers and make them consistent • Goal is to provide a “single face to the customer” • Any employee in contact with a customer should have access to all information on past interactions • Information about a customer should reside in the ERP system, not with the employee • CRM also provides a company with tools to analyze the vast quantities of sales data available from the ERP system

41. Core CRM Activities • One-to-One Marketing: • Customers are categorized and products, promotions, and pricing are tailored accordingly. • Sales may be increased by cross-selling and upselling • Sales Force Automation (SFA): • New customers are automatically routed to the appropriate sales representative • Customer needs are forecasted based on the customer’s history and transactions • Sales Campaign Management: • Helps a company organize a marketing campaign and compile its results.

42. Core CRM Activities (continued) • Marketing Encyclopedias: • Database of promotional literature • Material can be routed to sales representatives or customers as needed • Call Center Automation: • Customer support can be improved with the assistance of a knowledge management database • New solutions to unique customer query can be added to the knowledgebase, making it “smarter”

43. Target Group Selection Target Group Selection Marketing and Campaign Marketing and Campaign Planning Planning Modeling Modeling • • Segment creation Segment creation • • Planning Planning • • Selection Selection • • Budgeting Budgeting • • Monitoring Monitoring • • Campaign Analysis Campaign Analysis Phone Web Mobile e Phone Web Mobile e - - mail mail Success Success • • BW BW Measurement Measurement Campaign Execution Campaign Execution 3 3 Party Data Party Data • • rd rd Activity Management Activity Management Profiles Profiles • • Example: Campaign Planning

44. Benefits of CRM • Lower costs: • Better response times in call center operations and better use of sales force time lowers costs. • Higher revenue: • Segmenting customers provide improves selling, increasing revenues. • Improved strategy and performance measurement: • With CRM in place, management can think about different performance measures: • Should salespeople be rewarded for exceeding sales quotas and marketing people rewarded for finding new customers? • Should both receive rewards that are based on some measure of customer satisfaction? • CRM can lead to all personnel thinking in terms of a company-wide effort to satisfy customers.

45. CRM Success and Failure • CRM is often incorrectly viewed as a technology implementation driven by the IT department • CRM should be viewed as a business strategy! • Examples of what CRM systems can do • Volvo Cars of North America is using predictive modeling to find new customers • Financial companies are using CRM to move from being one-time sellers to selling a range of financial products

46. Sales and Order Processing

47. Sales Organization Distribution Channel Wholesale Retail Direct Distribution Channel • The way sales materials reach the customer.

48. Sales Organization Divisions Product Line 1 Product Line 2 Product Line 3 Division • Divisions are associated with product lines

49. Sample Sales Order

50. Customer Order Cycle 2 1 1 Sales Order Processing Pre-Sales Activities Inventory Sourcing Payment Billing Delivery 2 3 3