11/8/031 enterprise resource planning (erp) doug anderson william hodge raj vardhan

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Enterprise Resource Planning (ERP)

Doug AndersonWilliam HodgeRaj Vardhan

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How ERP Affects ManagersHow ERP Affects Managers

FinanceProductionHuman RelationsCustomer relationsSalesWarehousing/InventoryManufacturingPurchasing

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DefinitionDefinition “ERP (enterprise resource planning)

A business strategy that integrates manufacturing, financial and distribution functions to dynamically balance and optimize the enterprise's resources.

An integrated application software suite that balances manufacturing, distribution and financial business functions. ERP is the technological evolution of manufacturing requirements planning (MRP) II through the introduction of relational database management systems (RDBMSs), computer-aided software engineering (CASE), fourth-generation language (4GL) development tools and client/server architecture. When fully implemented, ERP can enable enterprises to optimize their business processes and allows for necessary management analysis and appropriate decision making in a quick and efficient manner. As more-robust technology is implemented, ERP improves an enterprise's ability to react to market changes.”

– Gartner Group

Source: www4.gartner.com/6_help/glossary/GlossaryMain.jsp, viewed 10/13/03

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ERP ScopeERP Scope

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ERP ScopeERP Scope

Sources: www.sap.com/businessmaps/pdf/Industrial_Machinery_&_Components_Solution_Map.pdf , viewed 10/13/03

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ERP EvolutionERP Evolution Manual records

Separate Inventory control & Production control 1960s – Material Requirements Planning (MRP)

Use bill of material, inventory, and schedule to plan production 1970s – Closed loop MRP

Adds sales & operations planning, master production scheduling, & capacity requirements planning to MRP

1980s – Manufacturing Resource Planning (MRP II) Business planning, production planning (sales & operations planning), master

production scheduling, MRP, capacity requirements planning, and the execution support systems for capacity and material

1990s – Enterprise Resource Planning (ERP) MRP II with graphical user interface, relational database, use of fourth-generation

language, and computer-assisted software engineering tools in development, client/server architecture, and open-system portability

Sources: •Preston W. Blevins, “Enterprise Resource Planning (ERP): An Executive Perspective—An Update”, APICS 2000 International Conference Proceedings, pp. 208-216•George W. Plossl, “Making ERP Systems Really Work”, APICS 2000 International Conference Proceedings, pp. 122-125•APICS Online Dictionary, members.apics.org/Publications/dictionary Viewed 10/29/03

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Sophistication LevelsSophistication Levels

Data Management System Organization views ERP as a large repository for

organizational data Data printed on reports & distributed No analysis

Software Modules/Shared Database All systems use same data Most common perception

Manufacturing Philosophy Collection of Rules & Procedures for planning & reporting

Source: Karl M. Kapp, Maximizing Your ERP System”, APICS 2002 Conference Proceedings, Paper #B-02

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Sophistication LevelsSophistication Levels

Business Philosophy Upper Management sets parameters, thresholds, etc. Organization relies on ERP for information and direction Begins to provide a strategic advantage

Knowledge Management System Use of information to make intelligent and timely decisions Contains information, alerts, & reports to provide decision

makers with accurate, up-to-date information

Source: Karl M. Kapp, Maximizing Your ERP System”, APICS 2002 Conference Proceedings, Paper #B-02

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ERP SuppliersERP Suppliers SAP PeopleSoft J.D. Edwards (PeopleSoft) Oracle Baan (SSA Global) Computer Associates IFS Microsoft (Axapta, Great Plains, Navision) Manugistics Agilisys

many others…0

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SAP PSFT ORCL MSFT CA

Revenue ($ Billion)

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ERP MarketERP Market

Manufacturing Sector1999: $15 B (Peak)2002: $8.5 B2007: $11.9 B (Proj.)5.8% growth

Sources: David Kodama, “Jump Starting ERP”, Managing Automation, March, 2002; www.arcweb.com/common/inc/news_win2.asp?ID=328, Viewed 10/18/03

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Historical MarketLarge manufacturing companies (“Tier 1”)

$15 B at peak (1999)Driven by Y2K concerns

Historical Results “Incredibly risky” for early adopters

“bet-our-company” type of failureHeavy reliance on consultants significantly increased

project costs

Sources: www.arcweb.com/common/inc/news_win2.asp?ID=328, Viewed 10/18/03; Carol V. Brown, Iris Vessey, “Managing the Next Wave of Enterprise Systems: Leveraging Lessons from ERP”, MIS Quarterly Executive, Vol. 2, No. 1, March 2003

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Future MarketMid-size companies (“Tier 2”)

2002 – 41% of total market, 6.3% growthERP Services

Tier 1 – re-architecting solutionsTier 2 – 68% of total revenue

Pre-packaged solutionsPortal solutionsEurope, Middle East, and Africa

Sources: www.arcweb.com/common/inc/news_win2.asp?ID=328, Viewed 10/18/03

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Points to PonderPoints to Ponder

Structured Methodology – Strategy

People

Process focused

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ERP – Points to ponder - IIERP – Points to ponder - II

1) assess the risks of the change up front (the most serious are the changes needed in the business, not the changes in the technology),

(2) mitigate the causes of highest risk at the front end and as the project progresses,

(3) adjust the method of managing the project to minimize the remaining risks.

Sources: www.misqe.org/jsp/showabstract.jsp?ob1=26&ob2=4

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Selection CriteriaSelection Criteria

Functional Specs - what you want to do with the software and what the software will accomplish. (If you don't spend time and money every vendor in the market is a candidate in your list !)

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ERP and Windows OSERP and Windows OS

Due to changes in Windows operating systems ERP companies are not able to use the same software to include the modern technological changes and hence they spend a fortune on developing new codes every 5 years.

This results in huge software budgets apart from the networking expenses and hence the total operating budgets are increasing year after year.

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Case Study

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Company InfoCompany Info

Index Membership: S&P 600 Small CapSector: Capital GoodsIndustry: Construction ServicesEmployees (last reported count):1,938

Source: Jacob Thomas Interview, 10/29/03

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Financial ResultsFinancial Results

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400

2002 2001 2000

Rev

GrossProfitGM %

Sales and Service Billings increased while the Profits were gradually decreasing.

Two companies were acquired within the same period.

New European operations started.


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Project Project Project Sponsor

CFOProject Manager

Project DirectorOriginal Project Schedule

Duration: 9 MonthsOriginal “Go Live” Date: September 30, 2001

Original Project Budget$ 300,000 Conversion of Payroll Module from World to One World software of

JD Edwards ERP.


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SelectionSelection

Selection TeamBusiness units

Insituform East (sister company)IS Department

Proposals J.D. Edwards selected since JD Edwards was the

main vendor for all the other modules.


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SelectionSelection

Modules selected:PayrollHuman Resources

All other modules will reside on the World Software while the above two alone will be on the One World Software – Such systems are called Co-existence systems – They use the same DB2 database while the front end programs are coded in C ++ in the One World Software


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ImplementationImplementation

Both the Payroll and HR to go live together.10 consultants were used. Software customized to meet all requirements.Couple of Project Directors were involved.Target to go live was Sept 2001 – Went live in

Dec 2001.Took 3 more months to iron out the rest of the

issues.


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Project ResultsProject Results

Original Project Budget - $ 300,000Final Project Cost - $ 600,000Functionality - > 85 % of desired functionality

within one year.Future Projects – To move all the other modules

to One World. Target date to complete the project is June 2005.


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ERP ExampleERP Example

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Case Study

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Company InfoCompany Info

Privately heldSector – Services Industry – Printing and DistributionEmployees – Around 500 Operations in US and UK

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Financial ResultsFinancial Results

Sales for year 2002 – 330 MillionBudget for IS for 2002 – 20 MillionSales for year 2001 - 343 MillionBudget for IS for 2001 – 18 Million2002 - Lost some major clients to competitors

due to higher prices on warehousing and product distribution.

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ProjectProject

Project SponsorCFO

Project Manager IS Director

Original Project ScheduleDuration: 15 MonthsOriginal "Go Live" Date – April 1999

Original Project Budget$ 8 MillionConversion of Legacy system to JD Edwards ERP

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SelectionSelection Selection Team Business Units IMS (Group Company until 2002) IS Department Proposals JD Edwards World selected as the Hardware AS/400 was already available and there was no need to buy a system. The only ERP with all functionalities to run on AS/400 at that time.

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SelectionSelection

Modules Selected Sales Order Accounts Receivables Accounts Payables Distribution/Logistics (Shipping) Warehouse & Inventory Purchase Order

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All modules to go live together.25 consultants were used.Software customized to meet all user needs.Two Project Directors were involved.Target to go live April 1999 – Went live in

October 1999 !Took more than a year to iron out issues.

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Original Budget - $ 8 MillionFinal Project Cost - $ 18 MillionFunctionality - > 90 % within one year.Future Projects – Manufacturing and EDI

(Electronic Data Interchange) enhancements for Bankers.

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CommentsComments

The users in the company realized the benefits after 2 years of implementation.

Orders were repeated for various warehouses with one single mouse click.

The total order processing time from start to finish improved almost 30 %.

Financial Reports were produced by the users without any need of additional Programming.

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Lessons LearnedLessons Learned

Multi Currency module did not go live as it had several issues. Resulted in using excel spreadsheet for a couple of weeks !! Microsoft Products are useful !!

Let the Team Members decide as they know the actual requirements of the "users"

Source: Bob Bradshaw Interview

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Case Study

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BackgroundBackground

Products Equipment for public safety vehicles

Light bars, flashers, sirens, speakers, and push bumpers

Small Manufacturing Enterprise Created 1974 Revenue: $50 Million Employees: 270 2 manufacturing sites (1 for sub assemblies) Purchased by Britax Ltd. 1998

Source: •www.code3pse.com/about.asp viewed 10/15/03

•Ray Scott Interview, 10/15/03

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IS DepartmentSize: 5, including DirectorBudget: $0.5 Million

Previous ERP Experience“Home Grown” systemNot integratedNot Y2K compatible

Source: Ray Scott Interview, 10/15/03

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ProjectProject

Project Sponsor Vice President of Operations

Project Manager CFO

Original Project Schedule Duration: 10 Months Original “Go Live” Date: September 30, 1999

Original Project Budget $1.5 Million


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SelectionSelection

Selection TeamBusiness units

Code3Kustom Signals (sister company)

IS DepartmentProposals

J.D. Edwards selected


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SelectionSelection

Modules selected: Financial Order entry Product configuration Product data management Inventory control Shop floor control Shipping Sales Sales reporting


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Financials installed firstManufacturing modules installed togetherERP Vendor implemented system3 Consultants used throughout projectPilot individual modulesNo customized codeChanged business processes to match software


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ResultsResults

Initial results:Did not pilot “Go Live”“Quite a struggle” for first 2 weeks

> Duplicate Invoices & OrdersCEO suggested going back to old system after 1 monthMajor problems worked out in 6 months“Really comfortable” in 2 years

> Project Manager (CFO) full time for 2 years


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Actual Project Schedule“Go Live” Date: June 30, 1999 (ahead of schedule)

Original Project Budget$1.5 Million (on budget)

Functionality>80% of desired functionality within 2 years


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Precision Pattern, Inc.

Case Study

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Products Executive Aircraft Furniture

Small Manufacturing Enterprise Founded 1972 Revenue: $30 Million Employees: 300 1 manufacturing site Part of Cabin Management Group of Decrane Aircraft, Ltd.

Source: Kate Keltz Interview, 10/16/03

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IS DepartmentSize: 3

Previous ERP Experience“Home Grown” “Foxpro” systemInadequate for many usesWritten in late 1970’s – early 1980’s


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ProjectProject

Project SponsorPresident

Project Manager IS Manager

Original Project ScheduleOriginal “Go Live” Date: August 31, 2003

Original Project Budget$1.2 Million


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SelectionSelection

Selection Team Business unit IS Department

Characteristics High Volume, Custom Order manufacturing Very MRP-based

Proposals Originally 5-6 vendors Glovia selected


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SelectionSelection

Modules selected:Financial (3 divisions)PlanningEngineeringPurchasingSalesInventory


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Financials installed first (May 2003)Manufacturing modules installed togetherERP Vendor implemented systemNo consultants used in projectNo changes to business processesCustomized a “fair” amount

Software designed for automotive industry (High volume, Repetitive manufacturing)

Minimal training


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ResultsResults

Initial results:Financials successfully implementedManufacturing modules still being implemented

Actual Project Schedule“Go Live” Date: November 2, 2003 (projected)


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Five Success Factors Five Success Factors

For Complex, Value-Chain-Spanning projects:“1. Top Management is engaged in the Project, not just

involved.2. Project Leaders are veterans and team members are

decision makers.3. Third parties fill gap in expertise and transfer their

knowledge.4. Change management goes hand-in-hand with project

management.5. A satisficing mindset prevails.”

Source: Carol V. Brown, Iris Vessey, “Managing the Next Wave of Enterprise Systems: Leveraging Lessons from ERP”, MIS Quarterly Executive, Vol. 2, No. 1, March 2003

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Success FactorsSuccess Factors

Engage Top Management, not just involveInsituform: CFOSchwarz: CFOCode3: VP OperationsPrecision Pattern: President

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Experienced Project Leaders; other team members are decision makers

Insituform: Leader – Project DirectorSchwarz: Leader – IS DirectorCode3: Leader – CFOPrecision Pattern: Leader – IS Manager

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Third parties used to fill gaps in expertise and training

Insituform: 10 consultantsSchwarz: 25 consultantsCode3: Vendor used to install software, Consultants

used to determine configuration rulesPrecision Pattern: Vendor used to install software, No

consultants used

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Change ManagementInsituform: Customized to meet all requirementsSchwarz: Customized to meet all user needsCode3: Very few changes to software; Business

processes changed to match software “best practices”

Precision Pattern: Many changes to software; Software changed to meet manufacturing style

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Satisficing MindsetInsituform: Schwarz:Code3: Very few changes to softwarePrecision Pattern: Many changes to software

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Standish Group CHAOS Report:

IT Projects classification

Standish Group CHAOS Report:

IT Projects classification

Type I: Success; on time, on budget, promised functionality

Type II: Challenged; over-budget, over-time and or missing functionality

Type III:Failed; Severely impaired projects; cancelled projects

Source: Lacity, Mary C., Course presentation “clserver.ppt”, p. 10

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Project ClassificationsProject Classifications

Insituform: Type II (Over budget, Late completion)

Schwarz: Type II (Over Budget, Late completion)Code3: Type I (On Budget, On-time completion)Precision Pattern: Type II (Late completion

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Lessons LearnedLessons Learned“The commandments:

1. Thou Shalt Acquire and Sustain thy Management’s Support.2. Thou Shalt Establish Accountabilities for the Accuracy of thy Data.3. Thou Shalt Set Objectives and Measure thy Performance Against Them.4. Thou Shalt not Place thy Least Experienced in thy Company’s Most

Critical Position.5. Thou Shalt not Economize on Educating thy People.6. Thou Shalt not Endeavor Implementation Without Experience.7. Thou Shalt not Duplicate the Informal System on thy Computer.8. Thou Shalt not Bear False Witness Declaring Extended ERP a Data

Processing System.9. Thou Shalt not Omit Tasks in thy Haste nor Prolong Them for thy Comfort.10. Thou Shalt not Expect Extended ERP to Eliminate all thy Problems”

Source: Blevins, Preston W., “Enterprise Resource Planning (ERP): An Executive Perspective—An Update”, APICS 2000 International Conference Proceedings, pp. 208-216

11/8/031 enterprise resource planning (erp) doug anderson william hodge raj vardhan

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