Outline Some ERP Vendors

n What is ERP n Baan (www.baan.com)

n ERP components n J.D. Edwards (www.jdedwards.com)
n Oracle (www.oracle.com)
n ERP Issues
n PeopleSoft (www.peoplesoft.com)
n ERP benchmarking studies n SAP (www.sap.com) - has approximately 60% of
local market share and 35% of international

Definition of ERP Partners

n “An outgrowth of MRP initiated in the 1970’s as a new n Many ERP vendors do not do all of the
computer-based approach to planning and scheduling implementation.
of material requirements and inventory, featuring time-
n Example: SAP
phased order point” -- Rockford Consulting Group.
n alliance partner - professional services firm (e.g.
Accenture)
n “Integrating the enterprise through the internet.
n platform partner - provides hardware
Extending the enterprise to the Internet” -- IBM.
n technology partner - provides operating systems and
database systems
n “Computer-based systems designed to process an
organization’s transactions and facilitate integrated and n complementary - tools that run with SAP product
real-time planning, production, and customer response”
-- O’Leary 2000.

Some ERP Characteristics Functions represented in ERP

n Packaged software n Example SAP R/3:

n Integrate the majority of a business’s processes n SD: Sales and Distribution
MM: Materials Management
Process the majority of an organizations n
n
PP: Production Planning
transactions
n

n QM: Quality Management

n Use a data warehouse n PM: Plant Maintenance
HR: Human Resources
Allow access to data in “real time” n
n
n FI: Financial Accounting
n Integrate transaction processing and planning n CO: Controlling
activities n AM: Asset Management
n PS: Project System
n WF: Workflows
n IS: Industry Solutions

1
 Sample ERP Modules Enterprise Process Flow

n mySAP example: SUPPLIERS ENTERPRISE CUSTOMERS

n customer relationship management
Production mtrls Delivered orders
n e-procurement Mfg processes Order fullfillment

n enterprise portals
n financials Forecast reqmts Planning Processes Customer forecast
n human resources
n mobile business Purchase reqmts Procurement Order capture
Returns/repairs

n marketplace Customer orders

n supply chain management

Design reqmts Design reqmts
Support Processes
settlements settlements

ERP MAPs How Do ERP Systems Work?

n Three important components of ERP configuration
n Models - represent the “world” encompassed by the
system such as organizational structure.
n Consider the U.S. Company - International Sneaker Company
(ISC) with worldwide sales using SAP R/3:
Ordering - a sales representative from ISC takes and order from a
n

retailer in Brazil. Entering the data on her personal computer, the

n Artifacts - an interface between an “inner” environment
and an “outer” environment such as an invoice
document, vendor list, product list, etc.
n Processes - the activity and information flows
necessary to accomplish a particular task (or set of
tasks)
sales representative accesses R/3’s sales module. The system ch ecks
the price as well as the discounts that the retailer is eligible for. The
system also checks the retailer’s credit history to make sure that the
firm wants to make the sale
n Availability - R/3 software next checks the inventory. It finds that
half the order is available from a warehouse in Brazil and so that
portion of the order can be filled immediately. R/3 finds that the other
half of the order will need to be delivered from ISC’s factory.

From Edmondson et al., 1998

SAP R/3 Order Management Process Example Continued

n Production - R/3 alerts the warehouse to ship the portion of the order
Process

Commit- Configur- Credit Collec- that is in stock to the retailer. In addition, R/3’s manufacturing
Proposal Delivery Billing
ment ation Check tion software schedules the production of the remainder of the order. An
invoice is printed up in Portuguese.
n Labor - When scheduling production, R/3 notes that there is a
Process maps into multiple integrated SAP modules (in function-based legacy shortage of workers to handle the order. It alerts the personnel
systems, these would not have been integrated and information exchanged manually): manager of the requirement to hire temporary workers
n Purchasing - R/3’s materials planning module notifies the purchasing
Sales & Sales &
Sales & Distrb. manager that it is time to order new raw materials and also of the
Distrb. Distrb. amounts that need to be ordered.
SAP Module

Product. n Order Tracking and More Ordering - The Brazilian retailer logs onto
Mtrls
Planning ISC’s R/3 system through the Internet and sees that a portion of the
Mgmt
order has been completed. In addition, the retailer uses this a n an
opportunity to place yet another order.
Financials Financials

2
 Integration of ERP systems ERP Manufacturing Components

n Horizontal integration: integration of ERP to systems n Advanced Planning and Scheduling

on the shop floor often via a manufacturing execution
system (MES)
n Functional integration: integration with other
functions like engineering, marketing, human resources
n Customer Relationship Management
n Portals
n Enterprise Application Integration
n Business Intelligence

n External integration: integration within an inter-

organizational system, e.g. relationships to customers
and suppliers

ERP technologies Advanced Planning and Scheduling (APS)

n Existing ERP systems of the client server era n APS tools offer fast, feasible and optimal solutions for
planning and scheduling problems.
comprise 3 areas: n With APS cycle times, throughput times and inventory
can be reduced. Forecasts are more accurate and
n Database Systems transportation is optimized.
n Communication Protocols n APS is often build on finite capacity scheduling. While
n User Interface Framework ERP systems based on MRP methods do not consider
actual availability of production resources (e.g. it is
assumed that material can be obtained in the
specified lead-time), with finite capacity scheduling
many constraints from the recources, processes and
materials can be included.

Internet Technology Advanced Planning and Scheduling (APS)

n Internet computing: n Many ERP vendors (e.g. Oracle Corp., J. D. Edwards,

n Web server
n Accessible via Internet with a browser; no code
resists on the client
n Accessible form any web-enabled device (includes
handhelds and cell phones)
n Advantage: Maintenance is less expensive for
internet architectures than for common client/server
architectures.
Peoplesoft) are buying APS software companies and
integrate APS engines in their ERP solutions.
n APS technology replaces former MRP methods.
n The integration of APS and ERP is important: APS relies
on data from ERP (bill of materials, inventory accuracy,
routing data).

3
 ERP/APS Integration Customer Relationship Management (CRM)

Customer order Sales/Customer service (history, forecast, orders) Example: IBM [26]

ERP IBM reorganized its customer service with CRM software from
Siebel Systems. Every salesperson can now access a centralized
Safety Customer customer history database. IBM is also about to connect its CRM
Stock Forecasted Routings orders with its SAP R/3 ERP, so that customers can access data, such as
level orders (end item) order history or shipment status, via an internet portal. In 2000 the
Planned portal, the IBM.com site received 99 million visits for self-service
orders and support. With that IBM could avoid approximately 2 billion in
costs.
ASAP
Capacity APS Promise
Date

“What if” Schedules Capacity

analysis Reports
Source: Symix Systems

Customer Relationship Management (CRM) Portals / Enterprise Information Portals (EIP)

n CRM manages the customer relationship from the first n Portals are personalized user interfaces, which enable
contact to servicing after the purchase, thus improving employees, customers and suppliers to access the information
the quality of customer services. they need for decision-making.

n Sometimes it is called enterprise information portal (EIP) to

n CRM connects the different systems for sales,
emphasize the use of a portal for an enterprise in contrast to
marketing, customer service, warranty departments and consumer-side portals, such as Yahoo.com.
provides employee with a complete view of customer
data.
n Portals are web-based and are accessed with a browser. This
makes it easy to deploy portals to a large number of users.
n Integrating CRM with ERP allows additional benefits,
such as providing real-time information on order status.

Customer Relationship Management (CRM) Portals / Enterprise Information Portals (EIP)

n CRM applications can be divided into: n While graphical user interfaces (GUI) were organized by
product functions, portals are organized by the role of their
n Front office applications , such as
user, i.e. a CFO accessing a portal is shown different
n Sales force automation
n Prospect information information than an employee working in quality assurance.
n Customer profiles
n Campaign management for direct mailing and special
promotions
n Outward-facing portals offer information access to a
company´s trading partners. These portals can contain
n Back office applications , such as storefront components as well as service information.
n Call center management
n Integration with manufacturing, warehousing, transportation
n Service and repair
n Warranty management

4
 Portals / Enterprise Information Portals (EIP)
n The functions of a portal are complex. It shows its users data
from structured (databases, ERP) and unstructured
(webpages, e-mails) sources. It also includes a search engine
and might include groupware products as well as business
intelligence tools.
n Some companies allow customers to use portals to access
information, such as bills of material, performance data of
production processes and quality system data.
n ERP vendors are starting to implement portals into their ERP
systems.
Portals / Enterprise Information Portals (EIP)
n Pros and cons of portals
n Pros:
n Streamlines information access and dissemination
n Enables improved decision-making
n Saves time and money by improving resource
availability
n Cons:
n Expensive
n No portal standards
n Solutions often lack administration functions
Enterprise Application Integration (EAI)
n Enterprise application integration packages are used to tie
ERP systems to internal and external applications.
n They comprise applications and the underlying messaging
and data transformation tools to link the applications.
n EAI is used to connect:
n ERP and plantfloor
n ERP systems that are used at specific facilities to the
corporate ERP system
n ERP or applications of one company to those of another
company (B2B connectivity)
Enterprise Application Integration (EAI)
n Compared to internally developed middleware, EAI packages
provide more flexibilty in adding data sources or supporting
business process changes.
n EAI packages are often faster implemented, cheaper and
better functioning than point -to-point solutions.
n They also allow for real time data sharing, thus providing
good system integration.
n They often make use of XML (extensible markup language)
data exchange and messaging.
Enterprise Application Integration (EAI)
n EAI products can be divided into 3 categories:
n Application integration:
Integration at the data level; applications exchange
information using some type of data transport layer
n Business Process Integration:
Supports business processes with application
integration
n Business Community integration:
Links enterprises with suppliers and customers
Enterprise Application Integration (EAI)
n Connecting applications with those of suppliers and
customers is more complicated than those within the firm,
because of business issues like:
n Which internal systems have to be linked with which
supplier?
n How soon needs a company to respond to the partner´s
purchase order?
n What security is needed? How can it be guaranteed?
5
 Business Intelligence (BI) Data Warehouse

n Business intelligence (BI) is a decision support tool that n “A data warehouse ... collects, organizes and processes
enables the user to access and analyze information captured data from all sorts of transactional systems for reporting
by the company´s information systems. purposes.”

n BI allows a rearranging of the data and its analysis for n DW databases are running parallel to and separate from
correlations and patterns. operational databases.

n DW have a different structure than databases that are

It is based on data of the ERP system. Newer ERP system
used in transactional systems:
n

sometimes include BI solutions.

n Normalized data in transactional systems: good for transaction
processing, but slow for analysis and collecting management
information
n De-normalized data in DW: built around subject, good for
multidimensional analysis and reporting

Business Intelligence (BI) Application Service Provider (ASP)

n BI consists of 3 components: An application service provider offers enterprise

applications. The company that chooses to use an
ASP outsources its applications: The applications
n Data warehouse are run on the server of the ASP and accessed by
n BI reporting tools the company with a web browser via the internet
n Analytical tools

BI Systems Application Service Provider (ASP)

n Advantages of outsourcing applications:

n Less money needed than for in-house ERP implementation
ERP n Good if company itself has not expertise for ERP
implementation
Business
Call Intelligence
center
n Disadvantages of outsourcing:
Data Metadata Business
Warehousing Solutions n ASP often offers one-size-fits-all appraoch, which might
Legacy Analytical
Solutions not always fit the business scenario
n ASP might discontinue product features one relies on
Web
site n ASP might inadvertently disclose sensitive business
information of one´s company

Source: SAS

6
 Application Service Provider (ASP) ERP for SMEs

n Now ASP offer applications that can be integrated with an n With a saturated market for ERP in big companies, now
existing ERP system ERP vendors target small and medium-sized companies
(SME).
n This partially outsourced model n Important market:
n reduces the dependency on the ASP

n allows more flexibility in choosing a mix of applications n 96% of all manufacturers in the U.S. have less than
that fit the bussiness scenario 250 employees.
n keeps the control over sensitive data in-house
n Requires often less money than a pure in-house ERP n The European ERP mid-market was over $4 billion in
system 2000.

Application Service Provider (ASP) ERP for SMEs

n The integraion between ASP application and the in -house n Reasons for midsize companies to consider ERP technology include:
ERP is critical and might cause problems. n Pressure from suppliers or customers
n Business process reengineering
n Computer platform changes
n Software that analyzes the system, maps the applications and
discovers missing data links is available. n Midsize companies wish systems that match their business processes
(most important criterion for ERP selection), have a low price a nd are
flexible and easy to implement.
n Some vendors offer “accelerated” implementation methods that are
priced low, but often offer only a minimal fit with existing business
processes.
n Outsourcing ERP functions to an ASP might also be a solution for
SME.

Partially Outsourced ERP Model Main Issues of ERP

As long as integration issues are
Corporate Integrating custom and
outsourced applications
Resolved, you can use ASPs to
Host outsourced applications
ASP n Implementation
Headquarters requires Internet- Regardless of the vendor. n Selecting the right package
savvy middleware that
can work across n Customizing the package to fit the needs of the enterprise
firewalls
Legacy Legacy E-procurement
application n Training employees
Financial HR
application application n May take a long time to complete the implementation process
Internet n Integration between different aspects of the enterprise
Multiple
company ASP n The ERP system has to be able to integrate all areas including
suppliers, sales, marketing, customer service, etc.
locations
reduce the Corporate
risk of a
single data
center failure
Regional n Costs
Office
but also CRM
application
n Cost of software purchase and implementation
increase the
complexity
Legacy Legacy n 75% costs contributed by the implementation process
of the system
Inv Mgmt order entry
application application

Source: Barbante, Infoworld

7
 Internal Focus of ERP Extended Supply Chain

ERP Using third party portals:

Finances Manufacturing Third

Party

Human Knowledge E-Buy ERP E-Sell

Resourcesmanagement
Logistics

Sales & Mkgt

E-Buy ERP E-Sell

From Norris et. al, PWC 2000

Implementation Problems ERP Future

n 70% of ERP implementations fail to achieve their corporate n With the development of technology, some believe that
goals. demand for ERP services is decreasing and many ERP
specialists are more interested in CRM and e-commerce
projects.
n The ERP market is evolving rapidly, but the core ERP
functions are still in very high demand.
n The key is to learn about ERP outside of its core
functionalities, which means exploring new methods of
implementation, establishing skills in programming
languages and developing a strong business focus.
n AMR Research presentation!

External E-Business Focus AMR Research Report on SCM Suites

R&D
ERP n Survey was of 60 manufacturers (representing
Customers $100B in aggregated revenue)
Outsourcing
Finances Manufacturing Service n About 85% or respondents have implemented or are
Providers in the process of implementing only one or two
modules
Human Knowledge
Resourcesmanagement n Only 25% of users reported that they were
Suppliers Logistics operational with more than one module (also, little
Business correlation between number of modules
Partners
Sales & Mkgt implemented and overall satisfaction)
n Only 9% or participants have committed to
purchasing additional modules, while 28% definitely
Advisors
Distributors will not.
Internet Survey from August 2001

8
 Survey Continued ERP Issues

n Basic SCP modules are the most widely n Why do it?

implemented (demand planning 62%, supply n Depends on who you ask!
planning 56%, plant scheduling 31%) n What will it cost?
Depends on size
Collaboration is oversold (i.e. supply chain
n
n
n How long to implement?
applications remain within the four walls of the
What are the actual
enterprise) n

benefits realized?
n Only 12% of customers had over 5% of their
suppliers or customers feeding data into their
systems
n But, on average, 78% of a company’s products were
being planned using the software (i.e. pervasiveness The following slides are taken from three
different benchmarking studies and organized
within the four walls is impressive) by Dr. Stratman in the College of Management
at Georgia Tech

Other Findings Motivation for ERP Implementation

n No demand for an SCP suite Company Motivation

n Users will upgrade, but aren’t buying the suite Replace legacy system 4.06
Simplify and standardize systems 3.85
n 35% of respondents plan to add additional sites Improve communication with suppliers and customers 3.55

and 38% additional products Gain strategic advantage 3.46

Link to global activities 3.17
n 60% of users report that expectations were met SolveY2Kproblem 3.08

during installation Pressure to keep up with competitors 2.99

Ease of upgrading systems 2.91

Restructuring company organization 2.58

Scale where 1 is “not important” and 5 is “very important”

Mabert et al., 1999 study of 479 U.S. manufacturing firms

ERP Implementation Motivation for ERP Implementation

Technology Program Motivation

The company has installed a

44.1% Systems not Y2K compliant 43
packaged ERP system
Disparate systems 37
The company is installing a
18.8% Poor quality/visibility of information 26
packaged ERP system
Business processes or systems not integrated 21
The company plans to install Obsolete systems 15
10.3%
a packaged ERP system Difficult to integrate acquisitions 10

Unable to support growth 6

No packaged ERP system planned 26.8%

% respondents

Mabert et al., 1999 study of 479 U.S. manufacturing firms Mabert et al., 1999 study of 479 U.S. manufacturing firms

9
 Motivation for ERP Implementation Costs

Operational Program Motivation

Poor/uncompetitive performance 28
Complex, ineffective business practices 22

Cost structures too high 21

Not responsive enough to customers 18 Hardware (12%)
Business becoming global 14 Software (15%)
Unable to implement new business strategies 12 Training (15%)
Inconsistent processes 11 Data Conversions (15%)
Comply with regulatory requirements 1
Reengineering (43%)

% respondents

Mabert et al., 1999 study of 479 U.S. manufacturing firms AMR Research

Cost Example - SAP Implementation Timeline

1000
SAP Expenditures (US$ Millions)

6 months or less 9.1%

7 to 12 months 25.2%
100 13 to 18 months 24.1%

19 to 24 months 21.3%
25 to 36 months 11.3%
10 37 to 48 months 6%

More than 48 months 2.1

1
<1 1-10 10-25 >25
% respondents
Company Sales (US$ billions)

Conference Board study of 186 SAP implementations Mabert et al., 1999 study of 479 U.S. manufacturing firms

Costs Usefulness of Consultants

Training (8%)
Responsible for sizeable overrun 11%
Other (9%)
Responsible for moderate overrun 28%
Hardware (11%)
No effect 24%

Software (13%)
Responsible for moderate underrun 31%

Internal Resources Responsible for sizeable underrun 6%

(21%)
Consulting Services
(38%)

% respondents

Benchmarking Partners study of 500 executives from 300 firms Conference Board study of 186 SAP implementations

10
 Consultant Usefulness Importance of Aptitudes

n For those organizations that had positive n The relative importance of organizational aptitudes
experiences with consultants, reasons given on ERP competence:
included: n ERP training (.83)
n Higher acceptance of the system by line and n IT Skills (.82)
production workers n Business Process Skills (.82)
n Quality of their planning efforts was better n Executive Commitment (.76)
n Extent of support was greater n Project Management (.74)
n Better at resolving conflicts n Learning (.7)
n Strategic IT Planning (.66)

Stratman and Roth, 2000 study of 68 firms

Benefit Timeline by Provider ERP Benefits

Average Time to Benefit Upon Completion of ERP Implementation

n Inventory Levels reduced 33%
Peoplesoft 10
n Forecast error rate cut from 52% to 29%
Oracle 9
n Transportation costs reduced by 25%
Order fulfillment time reduced from 80 to 28 days
JD Edwards 9
n

Supply leadtime reduced from 42 to 14 days

SAP 7
n
Baan 5

Time in Months

Break even points occur on average 40 months after implementation completion

Benchmarking Partners study of 500 executives from 300 firms Benchmarking Partners study of 500 executives from 300 firms

Implementation Strategy and Duration ERP Benefits

9

Phased by module and site 2.3%

Phased by site 22.7%

Decrease time for credit authorization 92
Phased by module 17.3% 7 Reduction in financial close time 63

Mini Big Bang 16.6% Reduction in order full time 46

5
Headcount reduction 36
Big Bang 41.4%
9 IT cost reductions 34

% respondents Phased by module and site 24.8 Distribution cost reductions 31

30 Inventory reductions 27
Phased by site
Increase in on -time deliveries 20
Phased by module 22.1 7
Procurement acquisition cost reductions 17
Mini Big Bang 16.8 5 Increase in inventory turnover 15
Big Bang 14.9
Average % improvement
Time in Months

Mabert et al., 1999 study of 479 U.S. manufacturing firms AMR Research, Gartner Group

11