Erp

Introduction to Enterprise Resource Planning (ERP)
(System Analysis and Design - Lecture 7)
Institute of Information Systems

Dr. Sarah Spiekermann
Seite 1 © HU-IWI 2006 · Dr. Sarah Spiekermann

Agenda
• What is ERP?
• ERP evolution
• About the Impact of ERP Systems on Organizations
• ERP Implementation (I) – Project Phases, Tasks and Approaches to

Re-engineering
• After going live
• Risks associated with ERP introduction

What is ERP?

What is an ERP system?
1. ERP systems are packaged software …
2. ...designed for a client server environment.
3. ERP systems integrate the majority and/or major business processes of a company.
4. ERP systems process a large majority of a company‘s transactions.
5. ERP systems use an enterprise-wide relational database ...
6. ... that typically stores each piece of data once.
7. ERP systems ideally allow access to data in real-time.

Sources of Software
BUY
• Packaged software producers (Commercial off the shelf)
• Enterprise solution software (e.g. ERP modules)
• (Hardware manufacturers (only for system software))
BUILD
• In-house development
• Custom software producers

The Making vs. Buying Decision
Trend?

Criteria for Choosing Off-the-Shelf Software (COTS)
• Cost • Flexibility
• In-House versus purchased • Ease of customization
• Functionality • Documentation
• Mandatory, essential and • User documentation
desired features • Technical documentation
• Vendor Support*** • Response Time
• Installation • Ease of Installation
• Training
• Technical Support
• Viability of Vendor***

Indirect costs play a role when deciding for a software solution.
Direct Cost Indirect Cost
– Peer Support
– SW and HW – Casual learning
– Support Costs – Formal training
– Staffing Costs – Application development

ERP systems consist of modules for different business functions –
Example SAP R/3
• AM (Fixed asset management)
• CO (Controlling) : CCA (Cost Centre Accounting), PC (Product Cost Controlling), ABC (Activity
Based Costing)
• FI (Financial Accounting): GL (General Ledger), AR (Accounts receivable), AP (Accounts payable), LC

(Legal consolidation)
• HR (Human Resources): PA (Personnel Administration), PD (Planning and Development)
• MM (Materials Management): IM (Inventory Management), IV (Invoice Verification, WM (Warehouse

Management)
• PM (Plant Maintenance): EQM (Equipment and Technical Objects), SMA (Service Management), WOC
(Maintenance Order Management)
• PP (Production Planning): SOP(Sales and Operations Planning), MRP (Materials Requirements

Planning), CRP (Capacity Requirements Planning)
• QM (Quality Management): CA (Quality Certificates), IM (inspection processing), PT (planning tools),

QN (quality notifications)
• SD (Sales and Distribution)

Process Flows, Systems and Access before ERP.
Old Process Flow

and Models
Separate Data Storage

and Access

Process Flows, Systems and Access with ERP.
New Process Flow

and Models
Central Relational Database
Datawarehouse

ERP evolution

The Evolution of ERP (1)
1. MRP – Material Requirements Planning

• in the 1960s Closed-
• bill of material processing Loop MRP
2. Closed-Loop MRP
• Contains tools to plan priority and MRP
capacity
• Supports both planning and
execution
• Goes beyond material planning by
considering aggregate sales and
operations planning, build schedules
(master scheduling) and demand
management (e.g. forecasting)

Closed-Loop MRP
Production Planning
Master Scheduling
Demand Capacity
Management Planning
Material
Requirements
Planning
Plant & Supplier Scheduling
Execution

3. MRP II – Manufacturing Resource

Planning
• Direct outgrowth and extension of MRP II
closed-loop MRP
• Enhanced sales & operations Closed-
planning on a detailed level Loop MRP
• Financial interfaces that allow to
translate the operating plan (in
pieces, pounds, gallons, etc.) into MRP
financial terms (dollars)
• Simulations – the ability to ask
“what-if” questions

4. ERP – Enterprise Resource Planning

• Fundamentals are the same as with ERP
MRP II
• ERP is more powerful than MRP II, MRP II
because it is based on…
• …a single set of planning tools Closed-
across the entire enterprise Loop MRP
• …provides real-time integration of
sales, operating, and financial data
• …connects resource planning MRP
approaches to the extended supply
chain of customers and suppliers.

Enterprise Resource Planning (ERP)
Strategic Planning
Business Planning
VOLUME
Sales & Operations Planning
Sales Operations
Forecasting
Plan Plan
and Capacity
Demand Planning
Management
MIX - Master Scheduling
Detailed Planning: MRP, Plant

Scheduling, Supplier Scheduling, etc.
Execution

There are different notions of what an ERP system actually is.
• “[ERP is] an enterprise-wide set of management tools that balance demand and supply,
• …containing the ability to link customers and suppliers into a complete supply chain,
• employing proven business process for decision-making, and
• providing high degrees of cross-functional integration among sales, marketing, manufacturing, operations,
logistics, purchasing, finance, new product development, and human resources, thereby
• …enabling people to run their business with high levels of customer service and productivity, and
simultaneously lower costs and inventories; and providing the foundation for effective e-commerce.”
( “ ERP: Making it Happen”, Wallace and Kremzar, 2001)
• ERP systems are “packages of computer applications that support many, even most, aspects of a
company’s information needs.”
(T.Davenport, “Mission Critical – Realizing the Promise of Enterprise Systems”, 2000)
• „ERP is the electronic embodiment of re-engineering.“

ERP introduction drives the development of new MAPs.
What are MAPs? Why do firms need common MAPs?
• Models • Software requires it

...e.g. organizational model • Improved customer response
• Artefacts • Regaining control of processes
...e.g. lists, numbering • Need for a common view of the
• Processes organization
...e.g. manufacturing • Value creation and cost reduction

Multisite ERP implementations can take very different forms.
• Total local autonomy
• Headquarters control only at the financial level
• Headquarters coordination of operations
• Network coordination of operations
• Total centralization

Multisite ERP implementations can take very different forms (2).*
Total local autonomy
Subunits have nearly total decision-making autonomy (may lead to different

ERP systems for different plants of the same company in one country)
- fails to capture the potential of ERP systems to integrate data, systems, and
processes across locations and business units
+ avoids conflict associated with changes in headquarters-business nit

relationships
+ allows companies to pursue future acquisitions and divestitures free of

systems complications
+ reduces risk of implementation project failure
* source: CACM, April 2000

Headquarters control only at the financial level
Subunits have autonomy in all matters except for financial accounting.
- fails to capture the potential of ERP systems to integrate data, systems, and
processes across locations and business units
+ most effective when units do different things!
+ allows companies to pursue future acquisitions and divestitures free of

systems complications
+ reduces risk of implementation project failure

Headquarters coordination of operations
• A high degree of local autonomy in operations, but
• Headquarters retain the ability to manage the global supply chain through access to
local information about
• Purchasing
• Inventories
• Production schedules
• Strong headquarter involvement in chartering and managing ERP implementation

projects.
+ Most effective when there are benefits from common purchasing or
+ when there are global as well as regional customers.

Network coordination of operations
• Local operations have access to each other‘s information
• Not a high degree of centralization, but
• A great deal of cooperation.
+ Most effective when units sell to each as
+ as well as to the same customers.

Total centralization
• All decisions are made centrally and communicated top-down to local operations for
execution
+ Most effective when companies need to maintain a single global ‚face‘ to their
customers worldwide.

Is an „As-is“ Process Model of an organization needed?
Quality of Fit of Software to „As-is“ Processes

„As-is Requirements
Analysis is not
LOOSE FIT
necessary“
„As-is Requirements
Analysis is critical“
TIGHT FIT
MINIMAL EXTENSIVE
Extend of Change to Organizational Process Planned

Potential Problems of Using an „As-is“ Fitting Software
Quality of Fit of Software to „As-is“ Processes

„Lost Chance to
LOOSE FIT
Choose Software
that Meets Needs“
„Potential to Back-Slide
to Existing Processes“
TIGHT FIT
MINIMAL EXTENSIVE

ERP and Data Input Principles
Ratio of No of data input screens: ERP/Legacy

1. Gather data only once
LARGE
2. Gather more data
3. Gather data straight into the t
computer en
em
4. Gather data where it is pl
generated im
t to
5. Gather data with a process
c ul
focus ff
di
SMALL
e
or
Negatives / M
• Data input may take longer
(more screens)
SMALL LARGE
Number of Data Entry Transactions

ERP and Data Output
Data Access through: ERP Vendor Portals:
• Customized Reports
• Intranets Vendor Portal
• Data Warehouses
J.D. Edwards MyActiveEra
Trend to: Lawson Insight II Seaport

• Datawarehouses and Access
through Portals PeopleSoft MyWorld
SAP MySAP

Different options for Software Configuration
• Single financial / single operation
• Single financial / multiple operations
• Multiple financial / single operations
• Multiple financial / multiple operations

Technology Platform
Centralized Distributed
Architecutre Architecutre
Central site with Data and processing

remote access to the capabilities are distributed to
central site via telecommunication various locations.
lines and access devices.

How does ERP create value?
• ERP integrates firm activities
• ERPs employ use of „best practices“
• ERP enables organizational standardization
• ERP eliminates information asymmetries
• ERP provides on-line and real-time information
• ERP allows simultaneous access to the same data for planning and control
• ERP facilitates intra-organizational communication and collaboration
• ERP facilitates inter-organizational communication and collaboration

Why is ERP important?
• ERP affects most major corporations in the world
• ERP affects many SMEs
• ERP affects competitor‘s behaviour
• ERP affects business partner requirements
• ERP has changed the nature of many consulting firms
• ERP provides one of the primary tools for re-engineering
• ERP has diffused „best practices“
• ERP has changed the nature of the information systems function
• ERP has changed the nature of jobs in all functional areas
• ERP cost is high
• ERP has experience huge market growth

Rationale to Go ERP
• Technology Rationale
• Year 2000 issue
• Disparate and poor existing systems
• Difficult-to-integrate acquisitions
• Competitive Rationale
• Business Process Rationale
• Strategic Rationale; e.g. Electronic Commerce capability

Thank you for your attention!

Still there are many failures of ERP introduction, leading to an ERP
success categorization.
Class A Effectively used company-wide; generating significant improvements in

customer service, productivity, and costs.
Class B Supported by top management; used by middle management to achieve

measurable quality improvements.
Class C Operated primarily as better methods for ordering materials; contributing

to better inventory management.
Class D Information inaccurate and poorly understood by users; providing little

help in running the business

How to go about ERP: Technology driven re-engineering versus clean
slate re-engineering
Quality of Fit of Software to „To-be“ Processes
„To-be Analysis is
Clean Slate
LOOSE FIT
Re-engineering“
„To-be Analysis is
Technology-Enabled
TIGHT FIT
Portfolio Choice“
MINIMAL EXTENSIVE
Extend of Change to Software Planned

How to go about ERP: Technology driven re-engineering versus clean
slate re-engineering
B „Big R“
C
LOOSE FIT
„Small r“
TIGHT FIT
A D
MINIMAL EXTENSIVE
Extend of Change to Software Planned

Benefits of Technology Enabled Re-Engineering
• ERP provides an ideal goal for re-engineering

• Tools help structure complex re-engineering efforts (e.g. ERPs provide
a starting and a completion point)
• Technology helps rationalize and explain the re-engineering effort
• Tools help build better solutions than would otherwise be built (best
practices can be used)
• Technology enabled re-engineering puts „bounds“ on the design (e.g.
how many people should be involved)
• The design chosen is feasible for the software and readily available
(and thus cheaper to implement)
• There is evidence that the design will work in an organization

Drawbacks of Technology Enabled Re-Engineering
• Re-engineering is limited by the particular tool used for the

implementation
• Re-engineering is limited by knowledge about artefacts and processes
that are embedded in the tools
• Evolution of the system may be limited by the technology
• The design chosen is one that other firms have access to
• There may be some confusion as to whether it is a technology
implementation or a re-engineering activity
• There may be no best practices available for some settings, limiting its
use

Benefits of Clean Slate Re-Engineering
• Not constrained by the limitations of any particular tools

• Not constrained by knowledge about artefacts and processes available
in the tool
• Future versions are not necessarily limited by changes in a particular
technology (no „buy in“ into future software versions)
• Developing a design to which others do not have ready access
• Re-engineering is treated separately from technology implementation
(do not cement old processes!)
• Sometimes inevitable to do it „clean-slate“ – e.g. when new technology
becomes available (e.g. RFID)

Drawbacks of Clean Slate Re-Engineering
• There may be no structure to help with the design

• There is no rationale for re-engineering
• The designs may be suboptimal
• There are no bounds on the initial design
• A chosen design may not be feasible
• A design might not work with the chosen ERP software
• It may be costly and time-consuming to develop and implement the
chosen design
• There can be many waves of consultants and layers of reports
summarizing their work
• There may be no software available

ERP Introduction requires Business Process
Re-engineering (BPR)
Strategy Panel A: Original Panel B: After

implementation implementation, which
strategy implementation strategy
would be selected
BPR and SAP R/3 implementation 48% 51%

simultaneously
BPR before SAP R/3 16% 35%
BPR after SAP R/3 3% 3%
BPR before and after SAP R/3 1% 1%
No BPR 33% 10%
Source: Gemini Consulting, 1996

Still there are many failures of ERP
introduction, leading to an ERP success
categorization.
Class A Effectively used company-wide; generating significant

improvements in customer service, productivity, and costs.
Class B Supported by top management; used by middle management to

achieve measurable quality improvements.
Class C Operated primarily as better methods for ordering materials;

contributing to better inventory management.
Class D Information inaccurate and poorly understood by users; providing

little help in running the business

Process Flows, Systems and Access with ERP.
„Practitioners and researchers have agreed

that the real benefits of ERP are its ability to
standardize business processes, build
accurate, trouble-free databases, and
minimize data complexity.“
(CACM, Feb. 2003)
BUT…

…still EPR is not the final stage of IT evolution in companies
…because
• ERP is traditionally a centralized scheme which consequently
• drives an internalization of processes.
Hierarchical view on co-operation
• It is bottom-up in that it resides on business processes, which are
• pre-defined best practices
• pushed onto the organisation.

Leadership style

The centralized scheme was often accompanied by a traditional point-
to-point integration of systems.
For each connection it is possible to

determine:
– Base terminology/ Artefacts
– Syntax
– Process

New industry structures and dynamics call for more integration of more and
more applications. This can only be handled by an interapplication
middleware.
Selected industry dynamics
• Increased supply chain

coopertion that needs to be
flexible and adaptive
(„responsive“)
• Trend towards an outsourcing

of management functionality
• Myriad mergers & acquisitions
• Rapid innovation cycles
• …

EAI is therefore regarded as an important current trend in
information systems.
• EAI is a decentralized scheme which
• drives an externalization of processes.
Delegating view on co-operation
• It is top-down in that it focuses on business objectives

(existing applications)
• and is pulled as a support into units that continue to follow their business
practices.
Leadership style

Characteristics of ERP and EAI in technical and behavioral
perspectives

Erp

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Erp

Uploaded by

Copyright:

Available Formats

Introduction to Enterprise Resource Planning (ERP)

(System Analysis and Design - Lecture 7)

Institute of Information Systems

Seite 1 © HU-IWI 2006 · Dr. Sarah Spiekermann

• About the Impact of ERP Systems on Organizations

• ERP Implementation (I) – Project Phases, Tasks and Approaches to

• After going live

• Risks associated with ERP introduction

Seite 2 © HU-IWI 2006 · Dr. Sarah Spiekermann

Seite 3 © HU-IWI 2006 · Dr. Sarah Spiekermann

1. ERP systems are packaged software …

2. ...designed for a client server environment.

4. ERP systems process a large majority of a company‘s transactions.

5. ERP systems use an enterprise-wide relational database ...

6. ... that typically stores each piece of data once.

7. ERP systems ideally allow access to data in real-time.

Seite 4 © HU-IWI 2006 · Dr. Sarah Spiekermann

Seite 5 © HU-IWI 2006 · Dr. Sarah Spiekermann

Seite 6 © HU-IWI 2006 · Dr. Sarah Spiekermann

Seite 7 © HU-IWI 2006 · Dr. Sarah Spiekermann

Direct Cost Indirect Cost

Seite 8 © HU-IWI 2006 · Dr. Sarah Spiekermann

• AM (Fixed asset management)

• FI (Financial Accounting): GL (General Ledger), AR (Accounts receivable), AP (Accounts payable), LC

• HR (Human Resources): PA (Personnel Administration), PD (Planning and Development)

• MM (Materials Management): IM (Inventory Management), IV (Invoice Verification, WM (Warehouse

• PP (Production Planning): SOP(Sales and Operations Planning), MRP (Materials Requirements

• QM (Quality Management): CA (Quality Certificates), IM (inspection processing), PT (planning tools),

• SD (Sales and Distribution)

Seite 9 © HU-IWI 2006 · Dr. Sarah Spiekermann

Old Process Flow

Separate Data Storage

Seite 10 © HU-IWI 2006 · Dr. Sarah Spiekermann

New Process Flow

Central Relational Database

Seite 11 © HU-IWI 2006 · Dr. Sarah Spiekermann

Seite 12 © HU-IWI 2006 · Dr. Sarah Spiekermann

1. MRP – Material Requirements Planning

Seite 13 © HU-IWI 2006 · Dr. Sarah Spiekermann

Plant & Supplier Scheduling

Seite 14 © HU-IWI 2006 · Dr. Sarah Spiekermann

3. MRP II – Manufacturing Resource

Seite 15 © HU-IWI 2006 · Dr. Sarah Spiekermann

4. ERP – Enterprise Resource Planning

Seite 16 © HU-IWI 2006 · Dr. Sarah Spiekermann

Detailed Planning: MRP, Plant

Seite 17 © HU-IWI 2006 · Dr. Sarah Spiekermann

( “ ERP: Making it Happen”, Wallace and Kremzar, 2001)

(T.Davenport, “Mission Critical – Realizing the Promise of Enterprise Systems”, 2000)

• „ERP is the electronic embodiment of re-engineering.“

Seite 18 © HU-IWI 2006 · Dr. Sarah Spiekermann

What are MAPs? Why do firms need common MAPs?

• Models • Software requires it

Seite 19 © HU-IWI 2006 · Dr. Sarah Spiekermann

• Total local autonomy

• Headquarters control only at the financial level

• Headquarters coordination of operations

• Network coordination of operations

Seite 20 © HU-IWI 2006 · Dr. Sarah Spiekermann

Total local autonomy

Subunits have nearly total decision-making autonomy (may lead to different

+ avoids conflict associated with changes in headquarters-business nit

+ allows companies to pursue future acquisitions and divestitures free of

+ reduces risk of implementation project failure