Enterprise Resource Planning

(ERP)

ERP: Process-oriented, Enterprise-wide, Transaction-tracking Information

Systems• Since the 60’s, information technology has helped finance, HR,

and production managers keep track of key financial and material transactions.

• Separate databases were developed for each function, but they rarely talked to one another.

• The last decade witnessed the widespread deployment of Enterprise Resource Planning Systems (ERP).– Process-oriented databases that integrate these separate systems,

making each process’s inputs and outputs (financial, material, and labor) much more visible to managers.

Enterprise Resource Planning (ERP) Systems Defined

• Enterprise Resource Planning Systems are computer systems that integrate application programs in accounting, sales, manufacturing, and other functions in the firm.

• This integration is accomplished through a common database shared by all the application programs (Financial, HR, and Marketing & Operations)

Typical ERP Architecture

Shared Database

Sales & Distribution

Financial Accounting

Human Resources

Manufacturing & Logistics

Major ERP benefits:

1. On-line/real time information available throughout all the functional areas of an organization; potential to (someday) enable web-based commerce;

2. Standardized data, entered once at the point it is created, improving accuracy (data integrity/information quality)

3. ”Best-practices" process models included in most applications, which at least forces organizations to consider updating processes.

4. With time and resources shifted from inputting, processing, organizing, and verifying data ( “busy work” that burns through time and money), more is available for innovating, problem solving and direct service to customers.

5. Heck, our old legacy systems wouldn’t survive Y2K anyhow!

ERP systems

Leading vendors• SAP• Oracle• PeopleSoft• JD Edwards• Baan (acquired by Invensys)

ERP “Modules”• HRMS • Financials • Manufacturing• Distribution• Sales

SAP

Human Resources

• Payroll• Benefits administration• Applicant data

administration• Personnel development

planning• Workforce planning (WF)• Schedule & shift planning• Time management• Travel expense

accounting

Financial Accounting

• Financials

• Controlling

• Asset management

SAP R/3 Applications

Manufacturing & Logistics

• Materials management (MM)

• Plant maintenance (PM)

• Quality management (QM)

• Production planning & control (PP)

• Project management system

Sales & Distribution • Prospect & customer

management

• Sales order management

• Configuration management

• Distribution

• Export controls

• Shipping and transportation management (SD)

• Billing, invoicing, and rebate processing

SAP R/3 Applications

Basic Data•Customers•Vendors•Materials•Bill of Materials, CAD•WorkPlan, Plant maintenance plan, Inspection Plan, CAP•Work Center•Production Resources and Tools•Rough – Cut planning profile•Equipment•Document•Classification

WORKFLOW•Word Processing•Mail•Communication•Telefax, EDI, Internet

SD•Customer order processing•Customer requirements

PP•Demand Management•Materials planning

Rough Cut capacity planning

Planned orders

Capacity leveling

SD•Shipping, billing, transport

Sales planning•Profit planning•SOP

Project system•Network•Projects

QM•Inspection lot•Inspection order

MMDirect requisitionPurchasing

Invoice Verification

PM•Repair•Maintenance

Macro level Integration Example

Warehouse management

Inventory ManagementGoods ReceiptMaterial Valuation

OrderCreationReleaseConfirmation

SAP

By 2000, ERP sales had cooled.

• Y2K issues had been addressed

• Market matured -- firms that wanted and could afford (@ $20K - $50K/seat) ERP systems had them.

• The “best practices” offered few competitive advantages if everyone had them.– For instance, with virtually all the top 100 chemical

firms using SAP AG's ERP applications and following SAPs best practices, none had an edge.

And the “P” in Early ERP systems was grossly overstated

• ERP systems compile vital information into a single, company-wide system.

• However, the “P” in ERP is a misnomer;

– ERP systems are fundamentally transaction management systems.

– Early ERP systems were focused inwardly, not outward toward customers and suppliers.

• Early ERP systems also lacked functionality in key areas such as:

– transportation planning, inventory management, shop floor control, and electronic commerce.

This gap spawned a new breed of software,

known as supply chain management software

• Emerged as ERP users attempted to recoup their IT investments (~$20K-~$50K/seat) by improving the management of supply and demand.

• These supply-chain planning applications use ERP information to:– plan and manage demand

– plan and manage capacity

– plan and manage production

– plan and manage distribution

Supply Chain Planning Systems Address Strategic, Operational, and Tactical Issues

Supply Chain Management Vendors/Functionality

Emerging TechnologiesCRM (Customer Relationship

Management) – a strategy or philosophy - not a specific

piece of technology - designed to optimize customer profitability, revenue, and satisfaction;

– predicated on the assumption that investments in customer retention can be very profitable.

Impact of improved customer-based metrics