ERP and E-Business- An Overview

1. ERP and E-Business- An Overview Based on the book “Enterprise Resource Planning Solutions and Management”by Flona Fui-Hoon Nah, Idea Group Publishing 2001

2. Contents • What is ERP? • The Evolution of ERP Systems—A Historical Perspective • ERP System Architecture • Extended ERP • Towards an ERP Life-Cycle Costs Model • Advantages and Disadvantages of ERP Systems • ERP From E-BUSINESS Perspective • Are You Ready for ERP? • E-BUSINESS Pushes ERP To The Network Edge • Common ERP? E-Business Platform (Oracle & SAP) • Web Services and XML

3. Topic 1: What Is ERP? • ERP = Enterprise Resource Planning – A software solution that addresses enterprise needs taking the process view of an organization to meet the organization goals. -- It integrates all the departments and functions across a company into a single computer system that can serve all those different departments’ particular needs.

4. What Is ERP? An ERP system is analogous to the internal technological hub of a company. When fully implemented as an integrated suite, it can be thought of as a company's central repository. The five major processes in a typical ERP system are: finance, logistics, manufacturing, human resources and sales/marketing (refer to Figure next slide). The focus of ERP systems is on the efficiency and effectiveness of the internal process. It offers a way to streamline and align business processes, increase operational efficiencies and bring order out of chaos.

5. ERP Systems Concept

6. What Is ERP? • ERP Combines various department systems into a single, integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other. • The best part of ERP is the way in which it improves the order fulfillment process that is taking the customer order and process it into an invoice and revenue. • It doesn’t handle the front-end that is handled by CRM (Customer Relationship Management).

7. What Is ERP? • When a customer service representative enters a customer order into an ERP system, he has all the information necessary to complete the order such as customer’s credit rating and order history from the finance module, the company’s inventory levels from the warehouse module and the shipping dock’s trucking schedule from the logistics module. • How it’s being done: It integrates the financial information and customer order information . It does so by integrating the following: Database Application Interfaces Tools BPR

8. What Is ERP? • It standardizes and speeds up the manufacturing process. This saves time, increases productivity and reduces head count. • It reduces the inventory. Due to the information available about all the orders it helps to maintain the right level of stock and smoothes the manufacturing process.

9. Topic 2: The Evolution of ERP Systems—A Historical Perspective • The phenomenal growth of computing power and the Internet is bringing ever more challenges for the ERP vendors and the customers to redesign ERP products breaking the barrier of proprietorship and customization, and embracing the collaborative business over the Intranet, Extranet and the Internet in a seamless manner. The vendors already promise many "add-on" modules, some of which are already in the market as a sign of acceptance of these challenges by the ERP vendors. It is a never-ending process of reengineering and development bringing new products and solutions to the ERP market. ERP vendors and customers have recognized the need for packages that follow open architecture, provide interchangeable modules and allow easy customization and user interfacing.

10. ERP Applications Take Hold • The 1990s saw, for the first time, many companies embrace product offerings from companies such as SAP AG, Peoplesoft, and Oracle that provided (or at least intended to provide) a single integrated package framework upon which most or all of a company's core business processes could be implemented, deployed, and used throughout the enterprise.

11. ERP Applications Take Hold • For example, supply chain automation applications began appearing, and business-to-business (B2B) e-commerce applications such as electronic procurement (e-procurement) and buyer-to-seller electronic marketplaces are directly descended from these first-generation cross-enterprise supply chain applications, which in turn owe a large portion of their growth to the tenacity of ERP proponents who persevered throughout the decade and made successful large-scale, complex distributed computing systems a reality.

12. Topic 3: ERP Systems Architecture An ERP system is required to have the following characteristics: • Modular design comprising many distinct business modules such as financial, manufacturing, accounting, distribution etc. • Use centralized common database management system (DBMS) • The modules are integrated and provide seamless dataflow among the modules increasing operational transparency through standard interfaces. • They are generally complex systems involving high cost • They are flexible and offer best business practices • They require time-consuming tailoring and configuration setups for integrating with the company's business functions • The modules work in real-time with on-line and batch processing capabilities • They are or soon they will be Internet-enabled

13. ERP Systems Architecture • The modules of an ERP system can either work as stand-alone units or several modules can be combined together to form an integrated system. The systems are usually designed to operate under several operating platforms such as UNIX, MS Windows NT, Windows 2000, IBM AIX, HP UX systems. SAP AG, the largest ERP vendor provides a number of modules shown in the next slide with its famous R/3 ERP system. New modules are introduced by SAP and other vendors in response to the market and technological demand such as the Internet technology.

14. SAP's Platform for ERP/e-Business

15. Three-Tier ERP Systems Architecture

16. Topic 4: Extended ERP • The proliferation of the Internet has shown tremendous impact on every aspect of the IT sector including the ERP systems becoming more and more ‘Internet-enabled’ (Lawton, 2000). This environment of accessing systems resources from anywhere anytime has helped ERP vendors extend their legacy ERP systems to integrate with newer external business modules such as supply-chain management, customer-relationship management, sales force automation (SFA), advanced planning and scheduling (APS), business intelligence (BI), and e-business capabilities. In fact ERP is becoming E-business backbone for organizations doing on-line business transactions over the Internet. Internet-based solutions are destined to improve customer satisfaction, increase marketing and sales opportunities, expand distribution channels, provide more cost-effective billing and payment methods. The extension to SCM and CRM enables effective tri-party business relationships between the organization, suppliers and the customers. A supply chain management has sub-modules for procurement of materials, transformation of the materials into products and distribution of products to customers.

17. Extended ERP • E-commerce is the conduct of business transactions among organizations with the support of networked information and communication technologies, especially utilizing Internet applications such as the Web and e-mail effectively reaching the global customers. Adoption of e-commerce and e-business solutions, especially business-to-business (B2B) solutions, are seen by many as the wave of current and future extensions of traditional ERP systems of most small, medium and large vendors. The front-end web-based Internet-business applications are integrated with the back-office ERP-based applications enabling business transactions such as order placement, purchasing, inventory updates, employee benefits etc. to take place between the customers, suppliers and the enterprise based on reliable, relevant data and applications instantly in a border-less domain.

18. Extended ERP • The legacy ERP systems designed to integrate enterprise functions within the four walls of the enterprise have introduced software solutions with Web-interface essentially extending to Internet enabled CRM, SCM and other Internet-business models. Examples of such extended ERPs are available from most of the ERP vendors. Thus SAP's Internet-enabled integrated ERP system called http://mySAP.COM (SAP, 2001) is a suite of ERP, CRM and other products that can be linked together using Internet portals. The concept of the Internet-enabled extended ERP system is shown in Figure 1 and Figure 2(next two slides).

19. Extended ERP Figure 1: Web-enabled extended ERP system

20. Extended ERP Customer ERP Supplier CRM SCM Data Warehouse

21. Figure 2: Developments in e-ERP and Business Practice for Doing e-Business

22. Topic 5: Towards an ERP Life-Cycle Costs Model To define the life-cycle model we use a simplified version of the model proposed by Esteves and Pastor (1999a, 1999b). This model is structured in phases and dimensions. Here, we only make reference to the phases as the different stages of the life-cycle of an ERP system in an organization. Next, we describe each phase, i.e., adoption, acquisition, implementation, usage and maintenance, evolution and retirement. • Adoption decision phase • Acquisition phase • Implementation phase • Use and maintenance phase • Evolution phase • Retirement phase

23. Adoption Decision Phase • During this phase managers examine the need for a new ERP system while selecting the general information system approach that will best address the critical business challenges and improve the organizational strategy. This decision phase includes the definition of system requirements, its goals and benefits, and an analysis of the impact of adoption at a business and organizational level.

24. Acquisition Phase • This phase consists on the selection of a ERP product that best fits the requirements of the organization, thus minimizing the need for customization. A consulting company is also selected to help in the next phases of the ERP life-cycle especially in the implementation phase. Factors such as price, training and maintenance services are analyzed and, the contractual agreement is defined. In this phase, it is also important to make an analysis of the return on investment of the selected product.

25. Implementation Phase • This phase include the customization or parameterization and adaptation of the ERP package to the needs of the organization. Usually this task is made with the help of consultants who provide implementation methodologies, know-how and training.

26. Use and Maintenance Phase • This phase covers the personal of time where the ERP product is selected in a way that returns benefits and minimizes disruption. During this phase, one must be aware of the aspects related to functionality, usability and adequacy to the organizational and business processes. Once a system is implemented, it must be maintained, because malfunctions have to be corrected, special optimization requests have to be met, and general systems improvements have to be made.

27. Evolution Phase • This phase corresponds to the integration of more capabilities into the ERP system, providing new benefits, such as advanced planning and scheduling, supply-chain management, customer relationship management, workflow, and expanding the frontiers to external collaboration with other partners.

28. Retirement Phase • This phase corresponds to the stage when, with the appearance of new technologies or the inadequacy of the ERP system or approach to the business needs, managers decide if they will substitute the ERP software with other information system approach more adequate to the organizational needs of the moment.

29. What benefit Reliable information access Avoid data and operations redundancy Delivery and Cycle time reduction Cost reduction Easy adaptability How Common DBMS, Consistent and accurate data, improved reports. Modules access same data from the central database, avoids multiple data input and update operations. Minimizes retrieving and reporting delays Time savings, improved control by enterprise-wide analysis of organizational decisions. Changes in business processes easy to adapt and restructure. Topic 6: Advantage of ERP Systems

30. Improved scalability Improved maintenance Global Outreach E-Commerce, E-Business Structured and modular design with "add-ons" Vendor supported long term contract as part of the system procurement. Extended modules such as CRM and SCM Internet Commerce, Collaborative culture. Advantage of ERP Systems

31. Time consuming Expensive Conformity of the modules Vendor dependence Minimize sensitive issues, internal politics and raise general consensus. Cost may vary from thousands of dollars to millions. Business process re-engineering cost may be extremely high. The architecture and components of the selected system should conform to the business processes, culture and strategic goals of the organization. Single vendor vs multi-vendor consideration, options for "best of breeds", long term committed support. Disadvantages of ERP Systems How to overcome Disadvantages

32. Feature and complexity Scalability and global outreach Extended ERP capability ERP system may have too many features and modules that the user needs to consider carefully and implement the needful only. Look for vendor investment in R&D, long term commitment to product and services, consider Internet-enabled systems. Consider middle-ware "add-on" facilities and extended modules such as CRM and SCM. Disadvantages of ERP Systems How to overcome Disadvantages

33. ERP Benefits • IBM has used ERP to reduce the processing time for updating pricing data from 80 days to five minutes. • Chevron has used ERP to decrease its annual purchasing cost by 15%.

34. Topic 7: ERP From E-BUSINESS Perspective • E-business stands for "electronic business," which involves communications and doing business electronically through the Internet. E-business is defined as "the use of electronically enabled communication networks that allow business enterprises to transmit and receive information" (Fellenstein and Wood, 2000).

35. ERP and E-BUSINESS • It can significantly improve business performance by strengthening the linkages in the value chain between businesses (B2B) and consumers (B2C). Besides increasing efficiency in selling, marketing and purchasing, e-business achieves effectiveness through improved customer service, reduced costs and streamlined business processes. Furthermore, e-business creates a strategic, customer-focused business environment for shared business improvements, mutual benefits and joint rewards.

36. Complete E-Business Suite Marketing Sales Financials One Database Order Mgt Procurement Human Resources SUPPLY Chain Web Services MFG

37. ERP And E-BUSINESS Nantucket Nectars, a juice manufacturer with 40% growth and $70 million in annual sales revenue, sells its organic juices through 150 distributors nationwide as well as general stores and juice bars in Nantucket. By using Oracle's ERP system and e-business platform, the salespersons can track sales and promotions through the Internet, and are provided assistance and suggestions to enhance their performance. The salespersons and distributors have access to commission reports, and they can track and adjust sales orders. Through consolidating its financial, compensation, sales and depletion data into a single report, Nantucket prevents out-of-stock and partial shipments. The forecasted need for 50% more labor force to handle customer service issues in the past was eradicated by integrating ERP system with e-business (Oracle, 2000).

38. ERP And E-BUSINESS • By definitions and by their respective functions, traditional ERP systems take care of internal value chain (i.e., within a company) whereas e-businesses establish the value chain across the market and the industries. More and more companies construct their systems' architectures by integrating ERP systems with e-business. They use Web-based interface (corporate portals) with outside entities plus add-on modules such as CRM, SCM, etc. in the integration.

39. Topic 8: Are You Ready For ERP? • A good management • Enough financial funds • Core project team members from all functional areas in place • Get the approval from the management • Get feedback from employees for the plan

40. Metrics You Can Use to Gauge your ERP Readiness • Check the hardware configuration details • Analyze the existing process • Fine turn the process to be inline with those of ERD defined • Prototype it and present it • Refine the prototype and freeze the specifications

41. ERP Selection • Check whether all functional aspects of the business are duly covered. • Check whether all the business functions and procedures are fully integrated. • Check whether all latest IT tends are covered. • Check whether the vendor has customizing and implementing capabilities. • Calculate ROI.

42. Topic 9: E-BUSINESS Pushes ERP To The Network Edge • In a traditional business process, after a customer order is received, the order information flows from department to department through order entry, manufacturing, warehousing, distribution and finance until the product is delivered to the customer and the payment is received. The key elements of the value chain have been controlled by separate and disparate information systems that could not communicate with one another. Not only did the companies not take an integrated view of their own business processes, but they also had an equally vague understanding of how their systems relate to the systems of their suppliers, competitors, business partners, distributors and customers. Hence, these transactions are typically carried out with minimal or no shared business processes.

43. E-BUSINESS Pushes ERP To The Network Edge • In recent years, there has been a revolution in systems planning and design. Management takes an integrated company-wide view of its IT investments and choices, and implements an ERP system that integrates the core business processes of an entire company into a single software and hardware system. Customers, suppliers and business partners are consciously included in the business process, systems operation and systems development.

44. E-BUSINESS Pushes ERP To The Network Edge An ERP system is analogous to the internal technological hub of a company. When fully implemented as an integrated suite, it can be thought of as a company's central repository. The five major processes in a typical ERP system are: finance, logistics, manufacturing, human resources and sales/marketing (refer to Figure 1 next slide). The focus of ERP systems is on the efficiency and effectiveness of the internal process. It offers a way to streamline and align business processes, increase operational efficiencies and bring order out of chaos.

45. E-BUSINESS Pushes ERP To The Network Edge Figure 1

46. E-BUSINESS Pushes ERP To The Network Edge You can't improve what you don't measure. Performance measurement is vital for the long-term success of any endeavor. In our complex world, everyone has multiple goals and mechanisms for reaching them. For example, in addition to financial performance goals, many firms place great importance on employee satisfaction and community contribution. Good performance measures are: • Relevant-- Related to the strategic and tactical goals of the company • Balanced-- Balanced between short-term and long-term goals • Understandable-- Easily comprehended by those it affects • Objective-- Measurable without significant bias • Consistent-- Used on a regular basis • Actionable-- Affected by actions of employees

47. E-BUSINESS Pushes ERP To The Network Edge • E-business is focused on efficiency and effectiveness of external, cross-enterprise processes. While ERP technology supports business strategy, e-business opens the door to new strategic opportunities, which forces ERP to take one step further—to move from the single ERP system model to the extended ERP system model (refer to Figure 2). The Web technology provides the bridge between companies and their business partners to make e-business possible, while e-business makes the ERP system more transparent and outward. Instead of thinking about ERP within a company, we may view the ERP system along the value chain of companies in the same industry, or across industries.

48. E-BUSINESS Pushes ERP To The Network Edge Figure 2

49. E-BUSINESS Pushes ERP To The Network Edge • When e-business is integrated with ERP, the whole extended system provides a vision of business processes that span multiple businesses and enterprises. In the most ideal case, companies should be able to connect disparate platforms, applications and data formats across the value chain, including not only suppliers, but also customers as well. Furthermore, companies should retain the flexibility to change and add functions to applications as business needs evolve. Companies need to be able to adapt their ERP systems to the emerging world of e-business.

50. Developments in e-ERP and Business Practice for Doing e-Business