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INTRODUCTION TO ERP SYSTEMS

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INTRODUCTION TO ERP SYSTEMS PROF (Dr) SPS SAINI CONTENTS Historical Context of ERP What is ERP? Why all the fuss about ERP? What is ERP offering? – PowerPoint PPT presentation

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Title: INTRODUCTION TO ERP SYSTEMS


1
INTRODUCTION TO ERP SYSTEMS
PROF (Dr) SPS SAINI
2
CONTENTS
  • Historical Context of ERP
  • What is ERP?
  • Why all the fuss about ERP?
  • What is ERP offering?
  • What is driving the ERP Movement?
  • Phases of ERP Implementation
  • ERP Failure and Success

3
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. Sometimes they were loosely interfaced
    and sometimes they were more tightly interfaced.

4
Historical Context of ERP
  • 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.

5
Historical Context of ERP
  • Analysts have speculated that widespread adoption
    of the same ERP package by the firms in a single
    industry (an observed phenomenon for
    semi-conductor manufacturers) might lead to the
    elimination of process innovation-based
    competitive advantage (Davenport, 1998).

6
Historical Context of ERP
  • Most companies have failed to implement ERP
    packages successfully or to realize the hoped-for
    financial returns on their ERP investment.
  • Companies have had similar difficulties with each
    new wave of information technology since the
    first mainframe systems. It takes years to
    realize some envisioned IT-enabled changes in
    organizational processes and performance, and
    there are many ways to fail along the way.

7
ERP DEFINITION
  • Enterprise systems are commercial software
    packages that enable the integration of
    transactions-oriented data and business processes
    throughout an organization (and perhaps
    eventually throughout the entire
    inter-organizational supply chain).
  • Enterprise systems include ERP software and
    related packages as advanced planning and
    scheduling, sales force automation, customer
    relationship management, product configuration.

8
Characteristics of Enterprise Systems
  • Integration seamless integration of all the
    information flowing through a company financial
    and accounting, human resource information,
    supply chain information, and customer
    information.

9
Characteristics of Enterprise Systems
  • Packages Enterprise systems are not developed in
    house.
  • IS life cycle is different 1)mapping
    organizational requirements to the processes and
    terminology employed by the vendor and 2) making
    informed choices about the parameter setting.
  • Organizations that purchase enterprise systems
    enter into long-term relationships with vendors.
    Organizations no longer control their own
    destiny.

10
Characteristics of Enterprise Systems
  • Best Practices ERP vendors talk to many
    different businesses within a given industry as
    well as academics to determine the best and most
    efficient way of accounting for various
    transactions and managing different processes.
    The result is claimed to be industry best
    practices.
  • The general consensus is that business process
    change adds considerably to the expense and risk
    of an enterprise systems implementation. Some
    organizations rebel against the inflexibility of
    these imposed business practices.

11
Characteristics of Enterprise Systems
  • Some Assembly Required Only the software is
    integrated, not the computing platform on which
    it runs. Most companies have great difficulty
    integrating their enterprise software with a
    package of hardware, operating systems, database
    management systems software, and
    telecommunications suited to their specific
    needs.
  • Interfaces to legacy systems
  • Third-party bolt-on applications
  • Best of Breed Strategy (American Standard,
    Starbucks)

12
Characteristics of Enterprise Systems
  • Evolving Enterprise Systems are changing
    rapidly.
  • Architecturally Mainframe, Client/Server,
    Web-enabled, Object-oriented, Componentization
    (Baan).
  • Functionally front-office (ie. sales
    management), supply chain (advanced planning and
    scheduling), data warehousing, specialized
    vertical industry solutions, etc.

13
Why all the fuss about ERP?
  • Market statistics
  • US ERP sales grew from under 1 billion in 1993
    to 8 billion in 1998 (Dataquest, 14.5 billion
    worldwide).
  • In 1998 US companies spent 80 billion on ERP
    systems integration.
  • Industry analysts expect an average rate growth
    of 37 per year for the next 5 years.

14
Why all the fuss about ERP?
  • Market statistics
  • AMR estimates worldwide ERP software sales to
    grow to 52 billion by 2002.
  • If systems integration costs stay constant firms
    will be spending 552 billion by 2002.
  • Firms also spend about 15-20 annually to keep
    ERP systems up to date.

15
What is ERP offering?
  • ERP is business process infrastructure
  • ERP is a software mirror image of the major
    business processes of a firm, such as customer
    order fulfillment and manufacturing.
  • ERP software automates and integrates the basic
    processes of a firm, from finance to the shop
    floor, and eliminate complex, expensive links
    between computer systems that were never meant to
    talk to each other.

16
What is ERP offering?
  • ERP is business process infrastructure
  • ERP provides enterprise wide business process,
    information and data management
  • stream-line and standard business processes and
    operating procedures
  • provide interorganizational collaboration
  • intraorganizational information sharing

17
What is ERP offering?
  • ERP Business Technology architecture
  • Business Process Workflow Management
  • Functional Information Management
  • Marketing, Operations, HRM, etc.
  • Decision Support Models and Tools
  • Data Management

18
What is ERP Offering?
  • ERP Functional Architecture
  • Information Systems Modules
  • Human Resources Management
  • Manufacturing Management
  • Financial Management
  • Accounting
  • Marketing Management
  • Workflow Management

19
Examples of ERP Packages
  • ERP Packages
  • BAAN www.baan.com
  • JD Edwards www.jdedwards.com
  • Oracle www.oracle.com
  • PeopleSoft www.peoplesoft.com
  • SAP www.sap.com

20
Motivation for Implementing ERP
  • Achieving and maintaining competitive advantage
    requires better information management
  • Information Quality
  • Information Reliability
  • Information Access
  • Information Sharing

21
Motivation for Implementing ERP
  • Firms View ERP As A System
  • to provide better information management
  • to transform the competitive space
  • to transform relationships between
  • their customers
  • their suppliers
  • their competitors

22
Motivation for Implementing ERP - Competitive
Space
23
Motivation for Implementing ERP
  • FIRMS ACHIEVE COMPETITIVE ADVANTAGE BY
  • Locking in customer and suppliers
  • Locking out the competition
  • Attracting away competitors customers by
  • product functionality
  • cost performance
  • service, reliability and flexibility
  • quality and innovation
  • response time/ time-to-market

24
Motivation for Implementing ERP
25
Motivation for Implementing ERP-
(inter-organizational efficiency)
  • Better Supply Chain Management
  • Inbound Logistics
  • Operations
  • Outbound Logistics
  • Marketing And Sales
  • Service
  • Disintermediation and Market Reach
  • Online Store Front
  • Internet Banking
  • Allows an organization to Reengineer all their
    processes.

26
Reasons for Not Adopting Enterprise Systems
  • Lack of Feature-Function Fit between a companys
    needs and the packages available in the
    marketplace.
  • Company growth, strategic flexibility or
    decentralized decision-making style. Many ERP
    systems are not easy to change once they are
    configured and installed.
  • Availability of alternatives for increasing the
    level of systems integration Data Warehousing
    (Kraft, CapitalOne?), Middleware (Dell)

27
Phases of ERP Implementation
  • The Chartering Phase
  • Comprises the decisions leading up to the funding
    of an enterprise system.
  • Key Players Vendors, Consultants, Company
    Executives, IT specialists.
  • Key Activities Build a business case for ERP,
    Select a software package, Identify a project
    manager, Approve a budget and schedule.

28
Phases of ERP Implementation
  • The Project Phase
  • Comprises the activities performed to get the
    system up and running in one or more
    organizational units.
  • Key Players Project Manager, Project team
    members, Internal IT specialists, Vendors, and
    Consultants.
  • Key Activities Software configuration, system
    integration, testing, data conversion, training,
    and rollout.

29
Phases of ERP Implementation
  • The Shakedown Phase
  • The organizations coming to grips with the ERP
    System. Ends when normal operations have been
    achieved. (Or they give up and pull the plug on
    the system)
  • Key Players Project Manager, Project team
    members, Operational Managers, and End users.
  • Key Activities Bug fixing and rework, system
    performance tuning, retraining, staffing up to
    handle temporary inefficiencies. This is the
    phase in which the errors of prior phases are
    felt. New errors can arise in this phase also.

30
Phases of ERP Implementation
  • The Onward and Upward Phase
  • Continues from normal operation until the system
    is replaced with an upgrade or a different
    system. This is where the organization is able to
    ascertain the benefits (if any) of its
    investment.
  • Key Players Operational Managers, End-users, IT
    support personnel (Vendors and consultants may be
    involved upgrades)
  • Key Activities Continuous business improvement,
    additional user skill building, post
    implementation benefit assessment. Most of these
    activities are not performed.

31
Phases of ERP Implementation
  • There are several possible outcomes for each
    phase of the implementation.
  • Unresolved problems from one phase are inherited
    by the next phase.
  • Just like the SDLC, the longer problems go
    undetected and unresolved, the more expensive it
    is to fix them.

32
ERP Scope and Impacts
  • The ERP phenomenon is all encompassing for
    companies and their key business partners
  • Financial Costs and Risks
  • Technical Issues
  • Managerial Issues
  • IT Adoption, use and Impacts
  • Integration
  • ERP systems have strong conceptual links with
    every major information systems area.

33
ERP Failure
  • Standish Group Study of ERP Implementations
  • 35 are Cancelled
  • 55 overrun their budgets
  • Less than 10 are on time and under budget.

34
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.

35
Why Implementations Fail
  • People Dont want the systems to succeed
  • People are comfortable and dont see the need for
    the new system.
  • People have unrealistic expectations of the new
    system.
  • People dont understand the basic concepts of the
    system.
  • The basic data is inaccurate.
  • The system has technical difficulties.

36
What is ERP Success?
  • KPMG Management Consultings recent report
    Profit-Focused Software Package Implementation
    showed some worrying results. Eighty-nine
    percent of respondent companies claimed that
    their projects were successful, but only a
    quarter had actually obtained and quantified all
    the planned benefits. (KPMG, 1998)

37
What is ERP Success?
  • How do you measure success?
  • What are we trying to achieve? Scope, Vision.
  • Project Metrics.
  • Early Operational Metrics.
  • Longer Term Business Results.

38
What is ERP Success?
  • Success is multidimensional and relative to both
    time and objectives.
  • What is success today may not be success in two
    years. (Or 6 months)
  • An ERP system that gives competitive advantage
    today may not do so when competitors catch up and
    this large ERP system simply becomes a cost of
    doing business.
  • Success is often judged relative to the
    organizations unique goals for the system.

39
Factors in ERP Success
  • Factors External to an Organizations Control
  • Starting conditions Competitive position,
    industry, financial position, prior relevant
    experience, size, structure, management systems.
  • These conditions may change over the course of
    the implementation.
  • ERP Implementations are highly fluid and subject
    to radical and unforeseen changes.
  • An organizations goals and plans for the ERP
    system may not be realistic when viewed
    objectively in light of their starting
    conditions.

40
Organizations Motivated Behavior
  • An organizations goal-directed enterprise
    systems behavior can be defined in four
    categories
  • Goals Some goals are more conducive to success
    than others. Some are too limited, some are too
    unrealistic.
  • Plans The methodology is critical for success.
  • Execution A good methodology does not guarantee
    quality in execution of the plan.
  • Response to Unforeseen Problems Successfully
    resolve problems changing goals, plans and
    actions to ensure a favorable outcome.
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