INTRODUCTION TO ERP

1. INTRODUCTION TO ERP

2. Learning Objectives • 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

3. 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?

4. 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

5. Why Study ERP • It enforces best practices and aids reengineering • Best practices built in (lots of choice) • don’t 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

6. 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

7. 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 10’s of millions of dollars.

8. 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

9. 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.

10. “Hidden” Costs • Training • Critical, but effort and cost is often underestimated • Integration and Testing • Links between modules and between ERP software and external systems • Customization • Expensive, complex, dangerous • Data Conversion

11. “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 organization’s morale

12. Colgate Case

13. 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

14. 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

15. 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

16. Integration of Processes – Some benefits Activity Before After Source: Hammer

17. 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

18. Outcomes for Colgate Cont’d • SAP handles 95% of the company’s $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.

19. 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?

20. What’s 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

21. Process Oriented Application 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)

22. 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.

23. 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?

24. ERP Supported Functions All of these functions…. One software package…. One database

25. 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. • Increasingly complex business environment • Organizational complexity • Increasingly demanding customers • Globalization • Increased competition • Increasingly sophisticated software needs • ‘Legacy’ systems break under the strain of….all of the above

26. 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

27. 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 …