INFORMATION SYSTEMS @ X

INTRODUCTION TO ERP

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Learning Objectives
1. 2. 3. 4. 5. Provide an overview of how ERP systems help address issues caused by functional systems. Understand why business and IS students should learn about ERP systems Discuss the value ERP systems can provide Review issues associated with implementing ERP systems. Describe the key characteristics of ERP systems

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

ERP Video
Questions: How does an ERP system change the way people work? Why do you think its important for top business managers to have a sound understanding of ERP systems? What are some of the issues associated with implementing an ERP system?

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Why Study ERP

It affects most major business enterprises and many small and medium businesses

60% + of very large corporations use SAP (an ERP vendor) Increasingly, smaller organizations are adopting Its out there, and its very likely you will work with one in some capacity

It changes behavior of competitors and partners

Competitors: adopt to survive? Partners/Suppliers: adopt to keep business

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Why Study ERP

It enforces best practices and aids reengineering

Best practices built in (lots of choice) dont iterate, obliterate

It changes the nature of consulting firms and IS

HUGE portion of revenue from ERP consulting

It is challenging to implement and cost is high Its growth has made it the predominant software

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

How does ERP create value?

It integrates a broad range of business functions It allows diverse enterprises to standardize It stops data redundancy and synchronization

Data stored in one place

One version of the truth

It provides simultaneous access to real-time data It facilitates communication inside and outside the enterprise It provides a foundation for eBusiness

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Disadvantages of ERP
ERP implementation is very difficult. There is a change in the way business is done. From a business function approach to a process approach. ERP systems are very expensive to implement. Can take years and cost 10s of millions of dollars.

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Disadvantages of ERP It takes time to realize the benefits of an ERP system. Forces people to change and change = resistance:

Share information that was once closely guarded (i.e., their information). Make decisions they were never required to make. Do things they were never required to do before

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Disadvantages of ERP
ERP systems are strategic solutions. In essence some companies are betting their future on a successful ERP implementation. If the implementation fails, the consequences to the company can be disastrous. Companies have gone out of business as a result of a failed ERP implementation effort.

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Hidden Costs
Training

Critical, but effort and cost is often underestimated

Links between modules and between ERP software and external systems Expensive, complex, dangerous

Integration and Testing

Customization

Data Conversion

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Hidden Costs
Consultants Staffing

Need best and brightest from business how to replace them?

Implementation team needs to stay in place Delayed ROI Post-ERP Depression

All change and upheaval impact on organizations morale

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Colgate Case

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Colgate Brief History

William Colgate established Colgate in 1806 Mainly a starch, soap and candle business Merger with Palmolive in 1928; Colgate-Palmolive-Peet

Corporate name changed to Colgate-Palmolive in 1956

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Colgate Brief History (cont)

Continuous growth Today $9.9 Billion company (2003) Operations in more than 200 countries and territories

Colgate is now recognized as one of the leading manufacturers of oral care, dental care, household surface care, fabric care and pet nutrition products

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Colgate
Divergence of operating platform

Dozens of platforms

Low IT skills/knowledge

No one understood all of the legacy systems

Each CIO for each country very decentralized IS organization no standards or best practices in place No centralized operation e.g. 80 CIO Decided to implement ERP software in 1999

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Integration of Processes Some benefits

Activity Before After

Enter pricing data

5-80 days

5 min.

Customer credit check Enter customer order

Customer billing inquiry Ship evaluation unit Ship replacement part

15-20 min. 30 min.

15-20 min. 3-30 days 3-44 days

automatic 5 min.
real-time 2 days 2 days

Credit returned item

Commit date for delivery

1-5 months
2 hrs.-3 wks.

5 days
real-time
Source: Hammer

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Outcomes for Colgate

Availability of information in real time
Decision making made easy because of availability of accurate and up-to-date data Business process re-engineered and in some cases different departments consolidated into one Improved efficiency: about 30% for the database applications and about 50% reduction in processing time

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Outcomes for Colgate Contd

SAP handles 95% of the companys $9.9 billion annual sales. Colgate saved $225 million where as target was $125 million. Datacenters shrinks to 1 (and one backup) from 75 Inventory reduce by 10%

Facilitated move to eCommerce.

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

ERP in . the Army?

Why do you think the US army would want to implement an ERP system? What kinds of challenges would the US army face in implementing an ERP system?

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Whats the difference between a function and a process?

Business Function: Related sets of specialized activities carried out by an organization

For efficiency keep people who do the same thing together Often = department Examples?

Business Process: the way that work is organized and coordinated in an organization to add value

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Process Oriented Application

Process-oriented Application: Order Processing

Marketing/Sales

Accounting
ERP module
Integrated Database

Manufacturing

ERP systems are composed of a series of modules that support end-to end business processes (which is how value is added in an organization)

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Enterprise Resource Planning (ERP) Systems

Enterprise Resource Planning Systems are enterprise systems meant to integrate data and support many of the major functions of organizations.

Traditional focus: back office mostly isolated from customers (except sales)

The goal of an ERP system is integrate data and to make the information flow dynamic and immediate, therefore, increasing its usefulness and value.

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Enterprise Resource Planning (ERP) Systems (cont)

Clients, employees and vendors all use the same system

Major functions are integrated in a single software system Replace an assortment of systems and numerous databases that typically existed in organizations. Integrate departments and functions across an organization sharing a common database Integrated information available in real-time. Data flows seamlessly no manual intervention and no paper
Do you see any issues with sharing data with customers and vendors?
INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

ERP Supported Functions

Financial
Accts Receivable Asset Account Cash Forecast Cost Accounting General Ledger Profit Analysis Standard Costing

Human Resources
Time Accounting Payroll Personnel Plan Travel Expense Benefits Mgmt

Operations & Logistics

Inventory MRP Plant Maintenance Production Planning Manufacturing Purchasing Quality Mgmt. Shipping

Sales & Marketing

Order Processing Pricing Sales Reporting Sales Planning Catalogue Mgmt

All of these functions. One software package. One database

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

Factors in development of ERP

Speed and power of computing

Hardware (servers and disk) now cheap and fast makes ERP feasible Happened in the 90s. Organizational complexity Increasingly demanding customers Globalization Increased competition

Increasingly complex business environment

Increasingly sophisticated software needs

Legacy systems break under the strain of.all of the above

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

ERP Vendors
Oracle - www.oracle.com

Peoplesoft - www.peoplesoft.com
> J.D. Edwards - www.jdedwards.com

SAP - www.sap.com SSA Global - www.baan.com Microsoft Others niche/specialty

SYSPRO: Small manufacturers Banner: Universities Meditech: Hospitals

INFO102: Management Information Systems

INFORMATION SYSTEMS @ X

ERP Vendors
Consolidation is currently taking place in the ERP software business

PeopleSoft purchased ERP vendor J.D. Edwards in 2003 Oracle, after a long battle, acquired PeopleSoft in 2005 SAP and Oracle are now the two largest ERP vendors Microsoft is challenging SAP and Oracle to sell ERP systems to small- and medium-sized businesses Other vendors

INFO102: Management Information Systems