Enterprise Resource Planning Systems ERP

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Enterprise Resource Planning Systems (ERP)
Prof. Dale L. Goodhue MIS _at_ Terry Terry College
of Business September 13, 2000
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What is ERP?

• A packaged business software system that lets a
  company automate and integrate the majority of
  its business processes share common data and
  practices across the enterprise and produce
  and access information in a real-time
  environment.
• Deloitte Consulting

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If the whole organization used a single
integrated database for all its data.
Production Scheduling
Cost Accounting
Accounts Payable
Materials Management
Order Entry
Sales Force Automation
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Supply Chain Management Application Systems and
Data
Production Scheduling
Cost Accounting
Sales Force Automation
Order Entry
Materials Management
Accounts Payable
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Answering Managerial Questions about Supply Chain
Operations
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How quickly will a new order show up in
production scheduling? How much trouble will
it be to answer a CEOs question Which
category of customer is most profitable to us?
when the data maintained in the different
divisions is not organized or defined the same
way.
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A data warehouse solves the data access problem
by copying all data to a single database. The
operational problems are not solved.
Data Access Tools
Data Warehouse
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ERP systems provide for operational coordination,
in addition to the potential query capability
of a Data Warehouse
Production Scheduling
Cost Accounting
Accounts Payable
Materials Management
Order Entry
Sales Force Automation
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Data standards data defined the same way across
all business functions / applications Process
standards Uniform best practice business
processes Process restrictions some legitimate
processes cannot be supported
Business Integration
What is ERP?
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ERP -- Why it is so attractive? Solves the Data
Integration Problem. The Silo Problem where
incompatible silos of data make it nearly
impossible to answer cross functional managerial
questions. Provides much tighter integration
between functions. Actions at one end of the
chain immediately visible at the other end.
Allows global coordination. Provides a selection
of carefully researched best practice business
processes at every level. A catalyst for
re-engineering. Provides a packaged solution so
each individual IT shop does not have to reinvent
a very complex wheel. Moves much of IT
application programming out of the firm, reduces
cost. Solves the Y2K problem.
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What is ERP?

• A technological solution to a technical problem
  of
• dis-integrated information systems.

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ERP Problems

• Survey of IT managers (1998) named ERP systems
  most difficult to install
• 90 of installations wind up over budget or late
  (Standish Group, 1996)
• Some companies have started implementations and
  stopped.
• As much as 70 Failure Rate cited. Few are
  managing through to success and major benefits.
  Some spectacular failures!

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ERP -- How Risky is it and why? Change in
business processes and technology Affects many
key business processes and employees profoundly.
Extremely difficult organizational
challenges Extremely complex system with
relatively few high qualified consultants high
cost consulting Large in scale, long in time,
high in cost (10 or 100 of millions)
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What is ERP?

• An information technology implementation that
  invariably requires significant consultant
  assistance, with the necessity of managing the
  consultants to get full value.

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What is ERP?

• A technological solution that must be combined
  with at least some level of organizational
  transformation to achieve business benefits

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ERP may be better in some organizations than in
others

• Standardization
• Best practice to the software vendor may not be
  best practice to you
• Tough to accommodate differences within the
  company
• Tough to get competitive advantage when your
  competitors can buy the same system
• Inhibiting change?
• Innovations must originate with the software
  vendor

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In the presence of these characteristics
ERP leads to
Which yields these outcomes
Global Effects Improved coordination. Better
corporate-wide mgmt. info. IS development
maintenance savings.
Fit between system and global information needs
Interdependence among sub-units
Local level effects Diminished data quality
relevance. Decreased ability to adapt to locally
changing conditions
Compromise costs Misfits between system and
local information needs of some units
Differentiation among sub-units
Either or
Higher Design costs More Resources dedicated to
ERP implementation
Global Effect More funds spend on implementation
Rapid Environmental Change For Some Sub-units
Model of ERP and Data Integration Costs and
Benefits
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What is ERP?

• A technological solution that works very well in
  some organizational situations, and not very well
  in other organizational situations.

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Major Players SAP 16 Peoplesoft 5 Oracle 5
Baan 3 J.D.Edwards 3 Consulting/System
Integration Revenues about twice that!
SAP Revenues in millions of
EURO
Q1, 2000 1999 1998 1997 (US
Only) Total Revenue 5,110.2 4,315.6 3,021.8 Reve
nue Growth neg. 18 43 50
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Amount of Software Development to Upgrade Old
Systems
Without Y2K
2000
2002
2004
2006
1998
1996
1994
Time
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Amount of Software Development to Upgrade Old
Systems
With Y2K, Some Software Development that would
have occurred in 2000 through 2004 was done early
to make the Y2K fix free
Without Y2K
2000
2002
2004
2006
1998
1996
1994
Time
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Amount of Software Development to Upgrade Old
Systems
The Y2K Bubble Extra Software Upgrade Sales
(primarily ERP) Due to Y2K
Y2K Bubble Pops Trough in Software Upgrade Sales
(including ERP) Due to Y2K
2000
2002
2004
2006
1998
1996
1994
Time
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ERP is (still) huge

• 10 Billion worldwide, net of consulting
• Moving into midsize and non-profit sectors
• Moving into E-Commerce and CRM

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ERPs Future?

• In the 90s, seriously over-hyped, a major FAD.
• In the very late 90s difficulties surfaced in
  trade press with a vengeance
• In 2000, the FAD is over
• Is there a need for integration across regions
  and functions in current competitive
  environment???
• Is there a need for packaged as opposed to in
  house development for very complex systems???
• Now ERP is under-hyped