Enterprise Resource Planning Enterprise Resource Planning (ERP)(ERP)

What is Enterprise Resource Planning (ERP)?

What is Enterprise Resource Planning (ERP)?

Enterprise resource planning (ERP) software places its focus on integrating an organizations departments (i.e., finance, HR, warehousing, etc.) and functions onto a single integrated computer system that aims to serve all those different departmental needs.

Enterprise Resource Planning

Enterprise Resource Planning

Enterprise transactional backbone to ensure data Enterprise transactional backbone to ensure data integrity and best business processesintegrity and best business processes

Using a single database, streamlines the flow of Using a single database, streamlines the flow of information through a businessinformation through a business

Four main (M) functions: Four main (M) functions:

– Money (financial)Money (financial)

– Man (human resources)Man (human resources)

– Manufacturing (production and logistics)Manufacturing (production and logistics)

– Marketing (sales and distribution)Marketing (sales and distribution)

Primary business systems installed in tens of thousands of Primary business systems installed in tens of thousands of manufacturing companies manufacturing companies

The concept of ERP has been around since 1960’sThe concept of ERP has been around since 1960’s MRPMRP

– Introduced in the 1970’s Introduced in the 1970’s

– Computerized approach to planning and obtaining the Computerized approach to planning and obtaining the required materials for manufacturing / productionrequired materials for manufacturing / production

– Uses mainframes as the main source for input and Uses mainframes as the main source for input and processing.processing.

In the 1980’s In the 1980’s MRPMRP expanded to expanded to

– plant and personnel planning and distribution planning which plant and personnel planning and distribution planning which in turn became in turn became MRP-IIMRP-II

MRP & MRP II

Manufacturing Planning and Control (MPC) System

Manufacturing Planning and Control (MPC) System

MRP II or MPC systemMRP II or MPC system– DefinitionDefinition

– The MPC system provides information to efficiently manage the The MPC system provides information to efficiently manage the flow of materials, effectively utilise resources, coordinate flow of materials, effectively utilise resources, coordinate internal activities with those of suppliers and communicate with internal activities with those of suppliers and communicate with customers about market requirementscustomers about market requirements

– Support tasksSupport tasks– capacity requirements planningcapacity requirements planning– material requirements planningmaterial requirements planning– rough-cut capacity requirements planningrough-cut capacity requirements planning– inventory planning and controlinventory planning and control– production schedulingproduction scheduling– production activity controlproduction activity control

MRP IIMRP II

– Used Mainframes, but in conjunction with LAN Used Mainframes, but in conjunction with LAN (Local Area Networks) to input and access (Local Area Networks) to input and access information information

MRP II evolvesMRP II evolves

– COMMS, or Customer Oriented Manufacturing COMMS, or Customer Oriented Manufacturing Management SystemManagement System

– COMS, or Customer Oriented Management COMS, or Customer Oriented Management SystemSystem

– ERP, or Enterprise Resource Planning (Gartner ERP, or Enterprise Resource Planning (Gartner 1990) 1990)

Reasons which led to Standard Application Software (SAS) vs in-house Reasons which led to Standard Application Software (SAS) vs in-house developed Information System developed Information System

– Cost of permanent employees, programmers, & technical support Cost of permanent employees, programmers, & technical support to create and maintain the home-grown applicationsto create and maintain the home-grown applications

– IT department’s poor responsiveness to changes in business IT department’s poor responsiveness to changes in business tactics, mergers/acquisitions, and economic cycle.tactics, mergers/acquisitions, and economic cycle.

Idea behind SAS Several organizations can use the same softwareIdea behind SAS Several organizations can use the same software– With several users the costs of development, support and With several users the costs of development, support and

maintenance are sharedmaintenance are shared– Each client does not have to “reinvent the wheel”Each client does not have to “reinvent the wheel”

ERP is also a SAS where several systems are integrated.ERP is also a SAS where several systems are integrated.

Standard Application Software

Enterprise System Integration Trend

Enterprise System Integration Trend

ACC

BOM PUR

INV SLS

SLS

FIN SFC

CAD/CAM

MRP MRPⅡ

EISCIM

ERPEDI

SCM

Time

ExtranetECGL

Systemintegration

Island system

Partiallyintegrated

system

Individualenterpriseintegration

Supply chainintegration

Inter-Enterprise Integration vs. Intra-Enterprise Integration

Inter-Enterprise Integration vs. Intra-Enterprise Integration

Partnershipcontrol system

Bank

Retailers

In-houseinventory

control

PlantX

PlantA

PlantB

In-housemanufacturing

logisticscontrol

inter-enterpriseinteractions

MRPII

Enterprise 1 Enterprise 2

Inter-enterpriseintegration level

Intra-enterpriseintegration level

Local sitecontrol systems

Enterprise Integration: Definition

Enterprise Integration: Definition

Enterprise integration is concerned Enterprise integration is concerned with facilitating information, control, and with facilitating information, control, and material flows across organizational material flows across organizational boundaries by connecting all the boundaries by connecting all the necessary functions and heterogeneous necessary functions and heterogeneous functional entities in order to improve functional entities in order to improve communication, cooperation, and communication, cooperation, and coordination within this enterprise so that coordination within this enterprise so that the enterprise behaves as an integrated the enterprise behaves as an integrated whole, therefore enhancing its overall whole, therefore enhancing its overall productivity, flexibility, and capacity for productivity, flexibility, and capacity for management of change.management of change.

EASEAS

ERPERP

MRPMRP

MRP IIMRP II

Extended Extended ERPERP

ERP Declared ERP Declared “Dead”“Dead”

Industry XIndustry X

Industry Industry Class AClass A

Industry Industry Segment Segment

ZZ

Industry Industry Sector QSector Q

Technology Technology InfrastructureInfrastructure

Functionality Functionality WidensWidens

Functionality Functionality DeepensDeepens

Increasing External ConnectivityIncreasing External Connectivity

ERP IIERP II

Getting to ERP IIGetting to ERP II

ERP IIERP II is an application and deployment is an application and deployment strategy that expands out from ERP strategy that expands out from ERP functions to achieve integration of an:functions to achieve integration of an:

enterprise’s key domain-specific,enterprise’s key domain-specific, internal and external collaborative, internal and external collaborative, operational and financial processes. operational and financial processes.

(Gartner, 2002)(Gartner, 2002)

ERP II

WhatWhat an application and an application and deployment strategydeployment strategy

for collaborative,for collaborative,operational and operational and

financial processesfinancial processes

WhyWhy

to provide deep, vertical-to provide deep, vertical-specific functionality coupledspecific functionality coupled

with external connectivitywith external connectivity

WhereWhere

within the enterprise,within the enterprise,and between the enterpriseand between the enterprise

and key external and key external partners and marketspartners and markets

HowHow

migration from existing ERPmigration from existing ERPvendors and integration with vendors and integration with

other enterprise-centric other enterprise-centric business applicationsbusiness applications

WhenWhenin conjunctionin conjunctionwith collaborationwith collaboration

ERP II DefinedERP II Defined

WhoWhotraditional ERP vendorstraditional ERP vendors

with extensionswith extensions(integrated or BOB)(integrated or BOB)

How ERP II Evolves From ERPHow ERP II Evolves From ERP

ERPERP ERP IIERP IIValue chain participation/Value chain participation/c-commerce enablementc-commerce enablementEnterprise optimizationEnterprise optimization RoleRole

All sectors/segmentsAll sectors/segmentsManufacturing Manufacturing and distributionand distribution DomainDomain

Cross-industry, industry Cross-industry, industry sector and specific sector and specific industry processesindustry processes

Manufacturing, sales Manufacturing, sales and distribution, and and distribution, and finance processesfinance processes

FunctionFunction

Externally connectedExternally connectedInternal, hiddenInternal, hidden ProcessProcess

Web-based, open, Web-based, open, componentizedcomponentized

Web-aware, Web-aware, closed, monolithicclosed, monolithic ArchitectureArchitecture

Internally and externally Internally and externally published and subscribedpublished and subscribedInternally and externally Internally and externally published and subscribedpublished and subscribed

Internally generated Internally generated and consumedand consumedInternally generated Internally generated and consumedand consumed DataData

Functionality Evolution —The Cycle of Assimilation

Functionality Evolution —The Cycle of Assimilation

MRPMRP II FinancialsFinancials

CPCCPC

IPSIPS

PrivatePrivateMarketplaceMarketplace CRMCRM

PRMPRM

SCPSCP PurchasingPurchasing

HRHR

SalesSales DistributionDistribution

SCESCE

E-ProcurementE-Procurement

ERPERPPackagePackage

ComponentsComponents

ERP IIERP IIPackagePackage

ComponentsComponents

MRPMRP GLGL

ProductionProduction

Process Integration Blurs the Application Lines

Process Integration Blurs the Application Lines

CRMCRM

ERPERP

SCMSCM

Prospect to Cash ProcessProspect to Cash Process

1. Log Activity1. Log Activity1. Log Activity1. Log Activity

2. Log Opportunity2. Log Opportunity2. Log Opportunity2. Log Opportunity

3. Check for contract3. Check for contract3. Check for contract3. Check for contract

4. Check Inventory4. Check Inventory4. Check Inventory4. Check Inventory

5. Check ATP/CTP5. Check ATP/CTP5. Check ATP/CTP5. Check ATP/CTP

7. Quote Customer7. Quote Customer7. Quote Customer7. Quote Customer

8. Create Quote8. Create Quote8. Create Quote8. Create Quote 9. Generate Order9. Generate Order9. Generate Order9. Generate Order

12. Plan and 12. Plan and ProduceProduce12. Plan and 12. Plan and ProduceProduce

13. Send ASN13. Send ASN13. Send ASN13. Send ASN

14. Ship14. Ship14. Ship14. Ship

15. Invoice15. Invoice15. Invoice15. Invoice

16. Apply Payment16. Apply Payment16. Apply Payment16. Apply Payment

6. Determine Price6. Determine Price6. Determine Price6. Determine Price

EAIEAIEAIEAI

EAIEAIEAIEAI

10. Check Credit10. Check Credit10. Check Credit10. Check Credit

11. Confirm Order11. Confirm Order11. Confirm Order11. Confirm Order

Prospect to Cash ProcessProspect to Cash Process

Process Integration Blurs the Application Lines

Process Integration Blurs the Application Lines

CRMCRM

ERPERP

SCMSCM

1. Log Activity1. Log Activity1. Log Activity1. Log Activity

2. Log Opportunity2. Log Opportunity2. Log Opportunity2. Log Opportunity

3. Check for contract3. Check for contract3. Check for contract3. Check for contract

4. Check Inventory4. Check Inventory4. Check Inventory4. Check Inventory

5. Check ATP/CTP5. Check ATP/CTP5. Check ATP/CTP5. Check ATP/CTP

7. Quote Customer7. Quote Customer7. Quote Customer7. Quote Customer

8. Create Quote8. Create Quote8. Create Quote8. Create Quote 9. Generate Order9. Generate Order9. Generate Order9. Generate Order

12. Plan and 12. Plan and ProduceProduce12. Plan and 12. Plan and ProduceProduce

13. Send ASN13. Send ASN13. Send ASN13. Send ASN

14. Ship14. Ship14. Ship14. Ship

15. Invoice15. Invoice15. Invoice15. Invoice

16. Apply Payment16. Apply Payment16. Apply Payment16. Apply Payment

6. Determine Price6. Determine Price6. Determine Price6. Determine Price

10. Check Credit10. Check Credit10. Check Credit10. Check Credit

11. Confirm Order11. Confirm Order11. Confirm Order11. Confirm Order

ERP IIERP IIPackagePackage

Internal and External Processes Enablement

Internal and External Processes Enablement

Raw MaterialsRaw MaterialsSupplierSupplier CustomeCustome

rr

LogisticsLogisticsProvidersProviders

SubcontractorSubcontractor

RetailerRetailerComponentComponent

SupplierSupplier

Collaborative Private or

Public E-Market

Collaborative Private or

Public E-Market

ERP IIERP II

DCDC

ManufacturingManufacturing

LogisticsLogistics

SalesSalesMarketingMarketing

InternalInternal1:11:11:M, M:11:M, M:1

MfgMfg.

ERP/ERP II Hype CycleERP/ERP II Hype Cycle

YE2001YE2001

19901990 Client/ServerClient/Server

19981998 Year 2000 FeverYear 2000 Fever

20042004

ERP II: A C-Commerce

Enabler

Trough ofTrough ofDisillusionmentDisillusionment

Slope ofSlope ofEnlightenmentEnlightenment

Plateau ofPlateau ofProductivityProductivity

TechnologyTechnologyTriggerTrigger

Peak ofPeak ofInflatedInflated

ExpectationsExpectations

VisibilityVisibility

TimeTime

The Investment Balancing Act The Investment Balancing Act

• Consider ERP/ERP II strategies and deployments to be part of the e-business infrastructure•They provide the critical transaction systems that manage and control fulfillment.

•Goals like• Gaining position within a digital market• Integrating seamlessly with key partners and customers• Providing quality data to suppliers

Are critical goals that will be achieved only through sufficient investment in ERP and ERP II.

• Without adequate investment in these areas, enterprises will languish as vertically integrated islands rather than thriving within the c-commerce ecosystem.

*Source: Gartner Group

RecommendationsRecommendations

Don’t count on a single vendor to meet all of your Don’t count on a single vendor to meet all of your domain and collaborative requirements.domain and collaborative requirements.

Make the ERP II elements of “integration” and Make the ERP II elements of “integration” and “domain specificity” key components of your strategy.“domain specificity” key components of your strategy.

Strive for seamless process enablement rather than Strive for seamless process enablement rather than general point application solutions.general point application solutions.

Although there will be some degree of best-of-breed, Although there will be some degree of best-of-breed, evaluate TCO to determine how much.evaluate TCO to determine how much.

Evaluate past successes/failures, compare to other Evaluate past successes/failures, compare to other user experiences and don’t make the same user experiences and don’t make the same mistakes twice.mistakes twice.

FoxMeyer DrugFoxMeyer Drug

Large drug distributor, wanted to implement ERP

Large drug distributor, wanted to implement ERP

FoxMeyer CorpFoxMeyer Corp

Holding company in health care servicesHolding company in health care services wholesale distribution of drugs & beauty aidswholesale distribution of drugs & beauty aids

served drug stores, chains, hospitals, care facilitiesserved drug stores, chains, hospitals, care facilities US: 23 distribution centersUS: 23 distribution centers Sought market niches, such as home health careSought market niches, such as home health care

FoxMeyerFoxMeyer

Due to aging population & growth in health care, expected Due to aging population & growth in health care, expected high growthhigh growth

Market had extreme price competition, threatening marginsMarket had extreme price competition, threatening margins

Long-term strategies: Long-term strategies: – efficiently manage inventoryefficiently manage inventory

– lower operating expenseslower operating expenses

– strengthen sales & marketingstrengthen sales & marketing

– expand servicesexpand services

Prior FoxMeyer ISPrior FoxMeyer IS

3 data processing centers, linked3 data processing centers, linked included electronic order entry, invoice included electronic order entry, invoice

preparation, inventory trackingpreparation, inventory tracking 1992 began migration of core systems1992 began migration of core systems Benefits not realized until system fully integratedBenefits not realized until system fully integrated

FoxMeyer ProcessFoxMeyer Process

Customer fills out electronic orderCustomer fills out electronic order Order sent to 1 of the 3 Order sent to 1 of the 3 data processing centersdata processing centers Orders sent to the appropriate Orders sent to the appropriate distribution centerdistribution center (within 24 (within 24

hours)hours) Orders filled Orders filled manuallymanually and packaged and packaged Had just completed Had just completed national distribution centernational distribution center with multiple with multiple

carousels & automated pickingcarousels & automated picking Could track inventory to Could track inventory to secondary locationssecondary locations

New SystemNew System

Needed new distribution processes & IS to Needed new distribution processes & IS to capitalize on growthcapitalize on growth

Wanted to be able to undercut competitorsWanted to be able to undercut competitors Replacing aging IS keyReplacing aging IS key

PROJECTPROJECT: : 1994 - hoped to save $40 million annually 1994 - hoped to save $40 million annually (estimated cost $65 million)(estimated cost $65 million)

– complete complete ERPERP installation & installation & warehouse warehouse automation systemautomation system (another $18 million) (another $18 million)

FoxMeyer ProjectFoxMeyer Project

Select ERPSelect ERP

– hundreds of thousands of transactionshundreds of thousands of transactions

– meet DEA & FDA regulationsmeet DEA & FDA regulations

– benchmarked & tested for monthsbenchmarked & tested for months

– picked SAP R/3picked SAP R/3

– hired hired Andersen ConsultingAndersen Consulting to integrate to integrate

– hired hired Pinnacle AutomationPinnacle Automation for for warehouse warehouse automation systemautomation system

OperationsOperations

FoxMeyer expected the new systems to improve FoxMeyer expected the new systems to improve operational efficiencyoperational efficiency

Signed several giant contractsSigned several giant contracts

– counted on savings, counted on savings, underbid competitorsunderbid competitors Counted on being up and running in 18 monthsCounted on being up and running in 18 months

ProblemsProblems

SAP & warehouse automation system integrationSAP & warehouse automation system integration

– two sources, two installers - coordination two sources, two installers - coordination problemsproblems

New contracts forced change in system requirements after New contracts forced change in system requirements after testing & development underwaytesting & development underway

Late, Over budgetLate, Over budget

– SAP successfully implementedSAP successfully implemented

OutcomesOutcomes

Lost key customer - 15% of salesLost key customer - 15% of sales To recoup, signed new customer, expected $40 million benefit To recoup, signed new customer, expected $40 million benefit

from ERP immediately - pushed ERP project deadline ahead 90 from ERP immediately - pushed ERP project deadline ahead 90 days, no time to reengineerdays, no time to reengineer

Warehouse system consistently failedWarehouse system consistently failed– late orders, incorrect shipment, lost shipmentslate orders, incorrect shipment, lost shipments– losses of over $15 millionlosses of over $15 million

August 1996 filed for Chapter 11August 1996 filed for Chapter 11– McKesson boughtMcKesson bought

Challenges of ERP: in the beginningChallenges of ERP: in the beginning

Is ERP even a good fit?Is ERP even a good fit? Understanding the business goals is essentialUnderstanding the business goals is essential ERP: the marriage of business goals and IT strategyERP: the marriage of business goals and IT strategy Managers must ask:Managers must ask:

– What business are we in? Where do we want to go?What business are we in? Where do we want to go?

– What are the key issues facing us today?What are the key issues facing us today?

– What will be the key issues facing us tomorrow?What will be the key issues facing us tomorrow?

Challenges of ERP: FoxMeyer

Challenges of ERP: FoxMeyer

A bad case of ERP implementationA bad case of ERP implementation $5 billion pharmaceutical wholesaler filed for $5 billion pharmaceutical wholesaler filed for

bankruptcy in 1996bankruptcy in 1996 SAP and Andersen Consulting sued in 1998SAP and Andersen Consulting sued in 1998 Failure to find the right fit between ERP apps and Failure to find the right fit between ERP apps and

the needs of the businessthe needs of the business

The FoxMeyer Drug’s Bankruptcy :Was it a Failure of ERP?

The FoxMeyer Drug’s Bankruptcy :Was it a Failure of ERP?

What were the risks associated with What were the risks associated with ERP implementation project at ERP implementation project at FoxMeyer ?FoxMeyer ?

In case of FoxMeyer What factors In case of FoxMeyer What factors contributed to the escalation of the contributed to the escalation of the project despite negative information ?project despite negative information ?

Based on FoxMeyer’s experience what Based on FoxMeyer’s experience what steps any organization should take to steps any organization should take to avoid ERP implementation failure ?avoid ERP implementation failure ?