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    Enterprise

    Resource

    PlanningBy : Rahul Gupta

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    Contents

    What is ERP?

    ERP Evolution

    Characteristics of ERP Systems

    ERP Market Share

    ERP System Cost Components ERP

    Advantages

    Disadvantages

    Conclusion

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    Historical Context of ERP

    Historically, companies created islands of automation. A

    hodge-podge of various systems that operated or

    managed various divergent business processes.

    Sometimes these systems were integrated with each other and

    sometimes they werent.

    The total organizational costs of maintaining a patchwork of

    redundant and overlapping systems has grown over the years to

    the point where the cost of maintaining these systems is greater

    than installing a new system.

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    What is ERP?

    It integrates all departments and functions across

    a company onto a single computer system thatcan serve all those different departments

    particular needs.

    ERP automates the tasks involved in performing a

    business process

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    An example: order

    fulfillment

    Problems:

    Delays, lost orders, keying into differentcomputer systems invites errors

    Before ERP

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    An example: order fulfillment

    (2)

    Front-Office Functions Back-Office Functions

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    ERP Evolution

    1960-70s

    MRP (Material Requirement Planning)Inventory and process time reduction with new

    production planning systems

    1980s MRP II (Manufacturing Resource Planning )

    Greater reductions due to the integration with

    accounting and human resource systems

    1990s ERP

    Focused on clients. Real time transactions.Corporate optimization.

    2000s ERP Extended or ERP II

    Focused on clients, optimizing the whole business

    network; including suppliers and clients

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    Characteristics of ERP Systems

    Integration: seamless integration of all the information flowing

    through a company financial and accounting, human resource

    information, supply chain information, and customer information.

    Best Practices: ERP vendors talk to many different businesses

    within a given industry as well as academics to determine thethe

    best and most efficient way of accounting for variousbest and most efficient way of accounting for various

    transactions and managing different processestransactions and managing different processes. The result isclaimed to be industry best practices.

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    Characteristics of ERP Systems

    The general consensus is that business process change adds

    considerably to the expense and risk of an ERP systems

    implementation. Some organizations rebel against the inflexibility

    of these imposed business practices.

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    ERP Package Saturation in U.S.

    Manufacturing Firms Company has installed a package ERP

    system

    44.1%

    Company is currently installing a package

    ERP system

    18.8%

    Company plans to install a package ERP

    system within 18 months

    10.3%

    No ERP system is planned 26.8%

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    ERP Market Share

    SAP 25%

    Oracle 14.2%

    Multiple packages 9.8%

    Baan 8.8%

    J.D. Edwards 7.4%

    Peoplesoft 2.5%

    SSA/BPCS 2.5%

    QAD 2.5%

    Other packages 27.3%

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    ERP System Cost Components

    Software 30.2%

    Consulting 24.1%

    Hardware 17.8%

    Implementation Team 13.5%

    Training 10.9%

    Other 3.3%

    Source: Enterprise Resource Planning Survey of US Manufacturing Firms, Mabert, Soni

    and Venkatraman, Production and Inventory Management Journal, 2000

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    Hidden costs of ERP

    Integration and testing

    Data conversion

    Data analysis

    Replacing your best and brightest

    Implementation teams can never stop

    Waiting for ROI Post-ERP depression

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    Advantages

    design engineering (how to best make the

    product)

    Reduction of personnel Increased productivity

    Increased visibility of corporate data

    Improved on-time delivery performance Improved responsiveness to customer

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    Disadvantage )

    Customization of the ERP software is limited. Some customization may involve changing of

    the ERP software structure which is usually not allowed

    ERP systems can be very expensive to install often ranging from 30,000 to 500,000,000 for

    multinational companies.

    ERP vendors can charge sums of money for annual license renewal that is unrelated to the

    size of the company using the ERP or its profitability.

    Once a system is established, switching costs are very

    high for any one of the partners (reducing flexibility and

    strategic control at the corporate level). Once a system isestablished, switching costs are very high for any one of

    the partners (reducing flexibility and strategic control at the

    corporate level).

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    ERP Failure

    Standish Group Study of ERP Implementations:

    35% are Cancelled

    55% overrun their budgets Less than 10% are on time and under budget.

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    ERP Failure

    Standish Group Study of ERP Implementations:

    Implementation Averages

    Cost: 178% over budget

    Schedule: 230% longer

    Functionality: 59%

    or: the system will only perform 41% of the

    functions it was intended to perform.

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    Summary

    Companies that manufacture products to sell have these

    basic functional areas:

    Marketing and Sales

    Production and Materials Management

    Accounting and Finance

    Human Resources

    Functional areas are served by information systems

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    Summary Continued

    Employees in one functional area need information

    from another to do their job

    Today, business managers think in terms of business

    processes rather than functional areas. ERP

    software encourages this new thinking