IS5600

1
IS5600

• Enterprise Resource Planning
• Supply Chain Management
• ERP Implementation is like Open Heart Surgery
  with very little anaesthetic!

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ERP

• ERP systems are
• potentially integrated systems that
• allow information to enter at a single point in
  the process (e.g., at the materials receiving
  stage of a manufacturing process), and
• update a single, shared database for all
  functions that directly or indirectly depend on
  this information.
• part of a larger systems environment

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Integration?

• This integration should take place in real-time,
  not through interfaces or programs that transfer
  information to one or more modules only after the
  information has already been processed and
  updated in the module through which it entered
  the system ...
• New-style ERP can be extended to support B2B EC
  CRM, SCM, but typically does not provide
  management reports or decision support
• ERP need external data warehouses, and data
  mining tools

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Why ERP?

• To improve control over data from distant
  locations
• To improve control over the organisation
• And reduce factionalism
• To reduce chaos and data redundancy

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ERP systems are only part of a complex systems
solution
Middleware
ERP Systems
Operational Data Stores
CRM SCM
Data Marts Warehouses
Legacy Systems
Reports Analyses
Analysis Programs
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ERP Process Flow
Re-order miscellaneous supplies
Issue Payment to Suppliers
Send Shipping date estimate to customer
Update A/R
Customer Order 2,000 PCs
Order 2,000 MBs, CPUs, RAMs,
Update Order Book
Track order completion
Ship Order
Bill Customer
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ERP Vendors

• SAP the market leader
• 26,150 customers, 120 countries, 88,000
  installations
• Oracle Strong in Financials, finally
  succeeded in buying out Peoplesoft in 2005.
• (Peoplesoft bought J.D. Edwards in 06/03)
• (JDE A smaller player with an old technology
  base.)
• Baan Smaller, European player.
• Siebel niche player in CRM (swallowed by Oracle
  in September 2005).

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SAP R/3

• A set of business applications designed for a
  client/server environment.
• Runs on many different hardware platforms.
• Consists of 80 highly integrated modules.
• Supports major business functions such as HR,
  F/A, Manufacturing, Logistics, Sales
  Distribution on a real-time basis.
• Can be configured to map the organisations
  processes onto software.
• Is written in SAPs proprietary language ABAP.

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Industry Overview

• Trends
• Software vendors sell a vision of an integrated
  package strong push.
• Systems integrators/consultants are big and have
  ample resources
• Development of SME market segment.
• Increasing compatibility of individual ERP
  systems. (e.g., through building of bridges
  between rival ERPs e.g., Baan - SAP R/3)

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Why ERP Systems are interesting (and potentially
useful)

• Many global businesses lack integrated systems
• Global businesses need language and currency
  support provided by ERP systems
• Global businesses are often decentralised
  unintegrated

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An SCM Example

• A skiwear designer and manufacturer produces its
  skiwear products mostly in Tsuen Wan and in
  Guangdong. The lead time is long The order of
  the design for Winter of 07-08 has to be placed
  by Jan 06. Thus the demand forecasting accuracy
  is very important since all unsold inventory has
  to be cleared at a loss. The demand forecast of a
  particular product is done by the Buying
  Committee in charge of the product line to which
  the product belongs. Historical data showed that
  the accuracy is highest for those products with
  the highest level of agreement among the members
  in the Committee. The Top Management thus
  recommended that the Buying Committees should
  reach some kind of consensus when they are
  forecasting the demand for each product. What is
  your recommendation for the process to achieve
  consensus on the design (not just technology)?

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The Bullwhip Effect
Time
Source Tom Mc Guffry, Electronic Commerce and
Value Chain Management, 1998
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Key SCM Problems
Raw Material Supplier

• Large inventories
• Efficiency losses (cost)
• Non-responsiveness
• Innovation lag
• Caused by
• Lack of automation
• Ad-hoc management
• Tier-to-tier management
• Communication breaks

Manufacturer
Distributor
Wholesaler
Retailer
Customer
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Reducing the Bullwhip Effect

• Information sharing about inventory
• Locate where the product is.
• Reduce demand uncertainty
• Use everyday low price (EDLP) strategy (lead to
  more stable demand patterns), share customer
  demand information with suppliers
• Reduce lead time
• Dell Computer, LiFung (Logistics arrangements)
• Better forecasting
• Within the Company
• Early market testing with the large customers

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Supply Chain Coordination

• Strategic partnership
• Vendor managed inventory (VMI) or continuous
  replenishment process (CRP) TAL, Wal-Mart PG
• Co-location or JIT Toyota, Dell Computer
• Co-design of products Dell Computer and its
  suppliers
• System integrations Dell Computer, Cisco Systems
• Retailer/supplier/manufacturer coordination
• Logistical coordination of manufacturers to
  consolidate and reduce lead time Li Fung

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Supply Chain Coordination

• Dells PC monitors (From Sony in Mexico) are no
  longer shipped to Austin, Texas for integration
  and testing. Once Dell receives an order, the
  information will be relayed to Sony, and to the
  logistics provider UPS, via the Internet. Sony,
  Dell, and the shipping company coordinate the
  delivery schedule so that the PC unit and the
  monitor arrive at the customer at the same time,
  ready for installation. Dell saves about US30 in
  shipping cost for each monitor. There is also no
  need for Dell to carry inventory for monitors.
• (J. Magretta, The Power of Virtual Integration
  An Interview with Dell Computers Michael Dell.
  Harvard Business Review, March-April 1998.)

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What Supply Chain Planning Does
Move
Objectives
Enhancement of customer services
Reduction of inventory and increasing sales
Effective acquisition of raw material
Effective management of product resources
Function
Demand Planning and Fulfillment
Distribution Planning
Manufacturing Planning
Material Planning

• Collaboration for cost reduction
• Reducing VMI (Vendor managed inventory)

• Production planning considering constraints
• Optimizing production
• scheduling

• Differentiated inventory management according to
  demands
• Prevention of missing the sales opp.

• Demand forecasting based on statistics
• Prediction of sales point on excess demand

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What did it look like pre-ERP/SCM?

• Redundant systems (e.g., 24 different general
  ledgers)
• Huge software maintenance expenses
• Lack of common data structures (e.g., 140
  different definitions of full-time equivalent
  employee or 225 different job titles)
• Difficulty consolidating information (e.g., how
  many business locations do we have - 175 or 250?
  Do we even know what we mean by a business
  location?)

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The Potential Solution?

• Common systems
• Decision-support capabilities
• Cheaper and faster than in-house development
• Lower maintenance costs
• Automatic currency conversions and consolidations
• Multiple language interfaces
• Built-in international best practices

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Potential Drawbacks

• Individual modules often not best of breed.
• Limited flexibility.
• Loss of internal strength and agility.
• Cultural clash 'open systems' ERP and 'closed
  systems' organisation.
• Risk of implementation failure.
• Software lock-in.
• Not cheap!

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Furthermore

• ERP packages may be cultural misfits
• Multiple sites make implementations challenges
  worse
• The extended enterprise must also be integrated

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Example of a Cultural Problem

• SAP in Singaporean hospitals,
• Types of misfits
• Company-specific misfits
• Systems patient management module does not allow
  for billing individual patients on installment
  plan
• Public sector-specific misfits
• System uses internally generated patient ID,
  instead of government issued ID number
• Country-specific misfits
• Package did not provide reports needed for
  government reporting
• System requires names entered in Western name
  format (first, middle, last) operators had
  trouble parsing Indian, Malay and Chinese names

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ERP Implementation is Always Challenging!

• Technical problems
• ERP software configuration
• ERP software modifications
• Integrating ERP software with hardware,
  telecommunications, and database software
• Need for periodic upgrades
• Human, social and political problems
• Inappropriate expectations for software
• Failure to specify strategic objectives
• Inadequate project championship or project
  management
• Lack of cross-functional approach to
  implementation
• Need to adopt built-in business processes
• Resistance to change
• Inadequate resources for training

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And Multi-Site Implementations Are Worse (open
heart surgery anyone?)

• Local autonomy
• Legitimate country differences?
• Or an obstacle to progress?
• Cultural values.

??
Consolidated Information One Face to the Customer
SAP
Baan
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Organizational Implications of ERP Implementations

• Individual departments begin to recognise they
  are all part of larger business processes
  (visibility)
• Dissolves boundaries between previously
  independent units.
• Blurs job definitions (job broadening)
• Changes power structures
• Standardises processes

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Organizational Implications of ERP Implementations

• Creates demand for
• team work,
• process expertise,
• business knowledge.
• Devolves authority/responsibility to front line
  employees.
• Hub, or multi-point?
• How much chaos would you like?

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Hub-and-Spoke External Integration Approaches
Source www.elemica.com
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Anatomy of ERP Projects

• Decisions to be made/issues to be resolved prior
  to implementation.
• Costs!
• Roles to play by the parties involved.
• How does a typical ERP project look?
• After going live - what remains to be done?

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Decisions to be Made Prior to Implementation

• Major ones
• What software package(s)?
• What consulting company?
• What hardware?
• What approach?
• Re-engineering before or during the ERP project?

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Decisions - Software Modules?

• Best-of-breed
• high level of detail/depth -gt better
  functionality
• -gt potentially higher competitive value
• integration and maintenance of many
  best-of-breed systems is highly complex very
  difficult to do well.

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Decisions - Software Modules?

• All-in-one? (e.g., SAP, Oracle, Baan)
• integration - information flows easily without
  interruption across modules.
• functionality compromised
• best practice assumed to be provided
• Hybrid Solution
• Use standard ERP system as backbone and link
  to best-of-breed software.
• Customisation?
• Expensive, troublesome, time-taking,
• Upgrades are very problematic

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What Software Package?

• Each ERP package has its history, business
  vision/strategy
• PeopleSoft started with HR strength
• Baan originally focused on mid-sized market
• SAP started out with a mainframe-centric,
  manufacturing focused system, reputation of being
  dictatorial
• Oracle strong in manufacturing, offers big
  picture rather than more granular, traceable
  data

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What Software Package?

• Important decision criteria
• package functionality meets needs of company?
• ample base installed?
• quality of documentation?
• cost of software acceptable?
• local support provided by vendor?
• quality of customization tools?
• reputation/size of vendor?
• one size fits all system?

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What Software Package?

• Comparing packages - actions
• Specify product requirements, request for
  proposal.
• Invite package vendors for presentations
  demos, score packages according to suitability,
  dont rush it!
• Conduct site visits to call companies having
  implemented a particular software.
• Maybe enlist help of consultants to select
  package.

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Which Consulting Company?

• ERP involvement/knowledge base Has the firm
  made ERP consulting its focal point for
  generating revenue and profit?
• Methodology
• Does the consulting firm have a sound
  methodology?
• Are the consultants trained in the methodology?
• Implementation/industry experience Have they
  worked on similar projects?

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Which Consulting Company?

• Product knowledge/potential to add value Do
  consultants understand the particular product to
  be implemented?
• Do they understand the way we do business?
• Who manages the consultants?
• Do they have any known communication
  deficiencies?
• Are they typically over-optimistic about what
  they can achieve?

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Decisions What Hardware?

• What kind of equipment is needed?
• Server/s, fiber optics communication
  infrastructure, satellite communication,
  desktops, etc.
• Integration of equipment possible? May become a
  complex undertaking!
• Scalability? Customer support? Costs?
• Compatibility with software?
• When is it needed?
• From the start (minimum for training, simulation
  and testing)

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Decisions What Approach?

• Big Bang implementing all modules at the same
  time, one cutover date for the entire new system.
• very risky
• cheaper (in total - if everything goes well)
• faster

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Decisions What Approach?

• Phased approach implement modules in different
  phases.
• more expensive (development of temporary
  interfaces)
• takes longer (danger of losing speed)
• Series of Small Bangs implement subgroups of
  modules in parallel. Best of both worlds?

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Decisions Re-engineering Prior to or During
the ERP Project?
Advantages of 'prior to'

• Opportunity to challenge extant business
  assumptions and streamline processes prior to
  automation.
• Avoids the risk of under-utilizing the potential
  of the package.

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Decisions Re-engineering Prior to or During
the ERP Project?
Advantages of during

• Take advantage of industry best practices built
  into package.
• No official announcement of re-engineering
  effort necessary (company morale!)
• Re-engineering projects require time the
  company may not have.

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Decisions Customisation?

• Dont!
• Expensive, messy and new releases need
  customisation afresh.
• Customisation can have a cascading effect
• You solve one problem, but create 10 more
• Dont!

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Costs!

• Difficult to estimate - size of investment can
  vary substantially depending on
• scope of project
• type of system chosen
• technology involved
• level of internal resources (staff!) available
• level of reuse of existing equipment
• outsourcing.

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Costs!

• In general ERP investments are significant!
• But there is no "correct" cost.
• Cost break-up (rule of thumb)
• Software 10
• Hardware 10
• Change management/training 15
• BPR 15
• Severance/re-educating/reskilling 20
• Consulting 30

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Cost problems

• Consulting fees run out of control
• Training costs usually underestimated
• Cost of live runs with live data to check system
  interfaces
• Cost of data conversion for 'dirty' data
• ERP may not cover all functionality e.g. data
  warehousing

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Roles to Play

• Vendor delivery of software, initial training
  for key users, project support, quality control,
  conduct modifications.
• Consultants bring/transfer know-how about
  package (beyond vendor training), development of
  detailed work-plans, optimize fit between
  processes and software, analysis of customization
  issues.
• Company learn/assimilate information about
  software (independence!), make people
  sufficiently available (reallocation of
  responsibilities), keep up motivation (monitoring
  progress), responsibility for conversion (data
  extraction, interfaces) programs.

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How Does a Typical ERP Project Look? 5 phases

• 1 Understand the problem
• Understand business and how package fits,
  determine characteristics of current system,
  arrange for training, delineate peculiarities of
  company, determine how stored data will be
  migrated.
• 2 Define the solutions (most critical!)
• Define all concepts associated with software
  implementation, run simulations of app.
  processing, make definitions for master files,
  tables, parameters, establish degree to which
  company needs to adapt package.

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How Does a Typical ERP Project Look? 5 phases

• 3 Put hands to the task (most difficult!)
• Load initial data, develop, test, place
  customization into operations develop, test
  interfaces put them into operation document new
  procedures, test new work environment.
• 4 Make it happen
• Run software in parallel w/ old system, support
  users, make final adjustments, release system for
  final use.
• 5 Keep on going live is just a milestone!

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After Going Live - What Remains to be Done?

• Post implementation review
• Clear diagnosis about use of system.
• To be performed regularly. (evaluation of
  software, helps maintain integrity of package)
• Remove remaining bugs.
• Establish maintenance organisation,
  responsibilities.
• Simplify structure and processes.
• Turn nice to have into the real thing.

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After Going Live - What Remains to be Done?

• Join the club
• Establish/maintain contact with other user
  companies, help out if necessary.
• Continue user training.
• Maintain knowledge networks and repositories.
• Upgrade when needed
• But not too frequently/not every version.
• Bring in a consultant to provide external
  evaluation of progress.

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How to Succeed in Implementation

• Position project as business, not IT, initiative.
• Put the companys best people on the project!
• Have a strong project leader (VP).
• Continued commitment of senior management.
• Get all affected parties to buy in.
• Communication within organization about expected
  change is essential prepare organization for
  change.
• Smart contracts with vendors, consultants.
• Provide the necessary resources.

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Common Pitfalls

• Key users, end users do not receive enough
  training.
• Lack of top management commitment.
• Selection of the wrong product.
• Project creep.
• High consultant turnover.
• Loss of qualified company staff. (e.g. Cisco,
  UAF)
• Prominent implementation failures Dell (SAP
  R/3), Aerogroup (SAP R/3), Boeing (Baan), Kellogg
  (Oracle).

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The Future of ERP

• Continuous growth of global market?
• Originally forecast to grow fast from late 90s
• But a 9 drop in 2002
• Actual figures very hard to obtain
• But likely to be USxxB
• ERPs are getting more comprehensive
• Supply chain management
• Sales-force automation
• Customer relationship management
• Data mining

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The Future of ERP

• ERPs are getting easier
• to use
• to implement
• to adapt to individual user needs.
• ERPs are moving away from being a product
  towards being a service
• ASP style

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ASP Application Service Provider

• The principle of an ASP is that the customer
  leases services rather than builds them.
• Services may include a variety of functions,
  including SCM, ERP, etc.
• Good for SMEs which don't have the resources
  (people, time, money) to build or buy their own
  systems

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ASPs

• Clients save money,
• But, the ASP may only offer a 5-year contract
  to tie in customers
• Also, ASPs tend to offer a "one size fits all"
  solution there may not be a good match between
  your needs and their service.

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ASPs

• Also, consider from the perspective of the ASP
• How to make money here, when ERP establishment
  costs are high?
• How to persuade people that ASPs are reliable,
  safe, low risk
• That their precious data will not be lost or
  stolen

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ERP in Hong Kong

• Are HK companies ready for ERP?
• Are they mature enough to plan medium-long term?
• Do they have the knowledge to obtain favourable
  contract terms with ASPs?
• What kind of barriers exist cultural, economic,
  social?
• Are there any drivers to push HK firms to ASPs?

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ERP in China

• China is a huge market for ERP
• 1000 installations at the end of 2001
• 30 with SAP R/3
• 8B installed base of systems by 2002
• Mix of local and foreign vendors
• UF Soft, Kingdee, SAP, Oracle
• WTO impact will be strong

This section is based on Martinsons, 2004.
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Common Characteristics I

• Seldom completed on time
• Seldom exceeded the planned budget
• Lots of information resource allocation even
  though this is inconsistent with the usual ERP
  mantra of a core team
• Projects seldom improved cycle times or customer
  satisfaction
• Most benefits are reduced labour costs and
  inventory levels

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Common Characteristics II

• Projects initiated by the CIO/CTO usually fail!
• Projects initiated by top management usually
  succeed!
• CIOs/CTOs seldom have the political clout and
  business knowledge to resolve disputes between
  functional managers

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Private Venture vs SOE?
Primary Project Aims Improving Competitiveness
through process streamlining integration in
PVs. Cutting costs and automating processes in
SOEs.
Role of Top Management Hands-on leadership to
demonstrate commitment in PVs. Tendency to
delegate ERP responsibilities in SOEs.
Role of Steering Committee More frequent meetings
and sharper focus on problem resolution in PVs
Role of Consultants Greater reliance on outside
help and more emphasis on ERP-specific expertise
by PVs.
Scope of Implementation Broader and more
cross-functional ERP application in PVs.
Pace of Implementation Faster implementation with
more simultaneous modules in PVs.
Implementation Problems Less frequent, less
serious problems in PVs, due to differences in
employee reward systems data maintenance. SOEs
characterised by Acc-Fin Pur-Mfg squabbles
Evaluation Outcomes PVs undertake more
systematic evaluation and control, achieving
more substantial quality and SC improvements
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Lenovos SAP R/3 Experience I

• ??????ERP?,??????????????,?ERP????IT????
• Is ERP just an IT project? Is ERP really a
  fashion?
• ?????????????ERP?????????ERP?????????????????????
  ????????????????,??ERP???ERP?????????,??????????ER
  P??,?????????????????,???????????,????????????????
  ???????????ERP?????????

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Lenovos SAP R/3 Experience II

• ??????????,???????ERP???????????,???????????????
  ?????????ERP????,?????,?????????????????????ERP
  ???,???????????77??????
• Yes, the ERP may conflict with our established
  procedures.
• Creative solutions may be needed.
• Generalise, then optimise.

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ERP Conclusions 1

• ERP is not just a software package!
• ERP represents a particular way of thinking, a
  mind-set. ERP implementation involves strategic
  decision making as well as major organizational
  changes
• International and business culture
• Corporate governance
• Extended enterprise issues

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ERP Conclusions 2

• ERPs have typically been developed based on US/EU
  industry practices and mind-sets
• There is a fundamental incompatibility between
  China-SOE business practices/mind-set and ERP
  systems.
• ERP is likely to involve high levels of pain and
  stress

68
ERP Questions and Discussion

• Can Chinese SOEs adopt Western business
  practices?
• Or
• Can an ERP be designed so as to be compatible
  with SOE practices?
• And would this be a good idea?
• In general, what do you see as the CSFs and CFFs
  for ERP implementation in China?