chapter eight building the e- business backbone: enterprise resource planning

Chapter EightChapter EightBuilding The E-Business Backbone: Enterprise Resource Planning

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ERP: The Technological Backbone of E-ERP: The Technological Backbone of E-BusinessBusiness

Typical corporate computing environment today of mainframe-based apps is antiquated

– Cannot meet demands of new economy and must be replaced

ERP integrated app suite– Framework to automate back-office functions: Financial,

Manufacturing and Distribution, HR, Administrative– Unites major business processes within single family of

modules: production, order processing, inventory mgmt and warehousing, A/P and A/R, general ledger, and payroll

ERP phenomenon also catching fire among dot-coms– Managing customer relationships key for the newer online firms– ERP offers customers efficient, high-quality service

• Ability to order online; inquire about product pricing and order status

– ERP prices dropping and rental ASP model becoming prevalent



ERP: The Technological Backbone of E-ERP: The Technological Backbone of E-BusinessBusiness

ERP is the technological backbone of e-business

– Enterprise-wide transaction framework with links into

• sales order processing; inventory mgmt and control; production and distribution planning; finance

– In early 1990s, only large manufacturers saw benefits of ERP

– Today, medium-size and dot-com firms also recognize necessity of integrating back-office processes for front-office success in e-commerce world



Who Really Uses ERP Suites?Who Really Uses ERP Suites?

Large corporations that want to gain control over disparate groups of core business apps

– 3Com, Chevron Products Company, GM

3 primary categories of ERP implementations– Single to few products in single industry: eToys– Single SBU firms, selling only few products in a

single industry: Delta Airlines, Dell, Microsoft, Nike– Large corporate conglomerates or multiple-SBU

firms, selling many products in multiple industries: GE, IBM, Colgate-Palmolive, and Nabisco



The Basics of ERPThe Basics of ERP

These apps are themselves built from smaller s/w modules that perform specific business processes within a given functional area

Integrated Logistics

Accounting & Financials

Human Resources

Sales Distributions (Order only)

Production Planning

Customer/

Employee

Enterpris

e Archite

cture



ERPERP 之源起之源起 Wave 1Wave 1

ERP 之源起在於 1960 年代之庫存管理與控制的套裝軟體

70 年代即有 material requirement planning (MRP) 與distribution resource planning (DRP) 之出現 , 各自將“ production master scheduling” 與“ centralized inventory planning” 工作加以自動化

到了 80 年代 , 一個誤用的名稱“ MRP II” 出現 , 將傳統 MRP專注於 production process 之焦點 , 延伸到其他的營運功能 ,包括 order processing,manufacturing, 及 distribution.

由於 MRP 藉由技術連接不同營運功能對企業之貢獻日益明顯 ,經理人開始將公司其他的功能 , 如財務 , 人力資源 , 專案管理等漸次整合 . 由於 MRP II 之名稱並不適當 , 便改名為 ERP.



Evolution of ERPEvolution of ERP

Manufacturing Integration (MRP)

Enterprise Integration (ERP)

Customer-Centric Integration (CRP)

Interenterprise Integration (XRP)

Wave 1

Wave 2

Wave 3

Wave 4



• 1960s

• Automation of all aspects of production master scheduling

• Showed technology could link disconnected business functions






Wave 1

Wave 2

Wave 3

Wave 4







Wave 1

Wave 2

Wave 3

Wave 4

Evolution of ERPEvolution of ERP• Began in 1980s as MRP II as execs sought for similar benefits as MRP by integrating other functions

• Business drivers of ERP: replacing legacy systems, greater control, globalization, regulatory change, integration of decisions across enterprise

• Y2K preparation in 1999 a significant factor







Wave 1

Wave 2

Wave 3

Wave 4

• ERP evolving into CRP to integrate “brick” with “click”

• Using middleware has drawbacks

• Traditional ERP build for make-to-stock business models; but this is no longer the case; customer value, effectiveness, enhanced service delivery key today

• Continuous planning vs. long planning cycle of ERP

• Ericsson








Wave 1

Wave 2

Wave 3

Wave 4

• A company’s partners benefit from the same seamless integration as the company itself

• Extends beyond four walls of the enterprise to customer, suppliers and trading partners

• B2B marketplaces

• ERP does not support continuous-planning requirements of SCP

• Collaborate or perish




Benefits of ERPBenefits of ERP

Critical business need: Enterprise-wide shared services

– Replace old, autonomous departmental, or divisional services with single, streamlined, corporate-level process

Shared-services standardize the processes for routine, non-core functions for all business units to use (Porter’s value chain next 3 pages)

– Accounting

With processes defined, an ERP-based IT infrastructure can be established to manage them efficiently



Generic Value ChainGeneric Value Chain-Primary Activities-Primary Activities

Inbound logistics: receiving, storing and disseminating inputs to the product.

Operations: transforming inputs into the final product.

Outbound logistics:collecting, storing and physically distributing the product to customers.

Marketing and sales: identifying markets and how customers buy the company’s products or services.

Service: dealing with customer support and repair service.



Generic Value ChainGeneric Value Chain-Support Activities-Support Activities

Procurement of inputs used in the firm’s value chain.

Technology development in every facet of the operation but not limited to information technology.

Human resource management involving the recruiting, hiring, training, development and compensation of employees.

Firm infrastructure includes planning, accounting and finance, legal, community affairs, government relations and quality management.



ERP Decision = Enterprise Architecture ERP Decision = Enterprise Architecture PlanningPlanning

Management must resolve enterprise architecture issues before selecting an ERP suite of products

– “What kind of company do we want to be?”– Not, “What are each application’s features?”

Inability to find the right fit between ERP apps and their business causing corporate frustration

– FoxMeyer

Problem not with ERP concept but in management’s demands for quick fixes and rapid cures to underlying structural problems




Selecting and installing a new ERP solution one of the most important and most expensive endeavors

– Also most likely to go wrong– Lack of alignment between ERP, business processes and e-

commerce objectives can derail best of firms– Managers must understand core functionality, not abdicate

responsibility to IT dept

Successful organizational change is gradual– Enterprise apps require moving decades of corporate

knowledge and information to a new technology platform– Technology is not the only challenge in managing

transformation




Cannot lose sight of customers– “Is this something our customers will recognize as valuable?”– “Will it shorten order-to-delivery cycle?”– “Will this improve our product and performance?”

ERP impacts not just s/w– Corporate culture, business processes, staff, and day-to-day

procedures are all affected

Executive mgmt must understand technical basis for business change and e-commerce functionality, besides ROI of new technology

– “What business are we in?”– “What are the key issues facing us today?”– “What issues will be important tomorrow?”



ERP Decision: Build Vs Buy Vs RentERP Decision: Build Vs Buy Vs Rent

Important decision: whether to build or buy or rent

– ERP apps define overall corporate architecture– Enterprise-wide implementations

Custom design app that meets specific requirements of an organization has several drawbacks

– Highly complex– Lengthy design, development and implementation

efforts– Limited flexibility to support diverse and changing

operations or to respond effectively to evolving business demands and technologies



ERP Decision: Build Vs Buy Vs RentERP Decision: Build Vs Buy Vs Rent

COTS apps address limitations of custom built apps– Provide broad functionality, better integration with existing

legacy systems, greater flexibility to change and upgrade, and a lower TCO

Downside of COTS apps– Reengineer estbd. business practices– Customize apps– Hire consultants to make s/w work– No competitive edge

Mgmt must view COTS apps within the context of overall business strategy

– “What business processes bring us our identity and our competitive advantage?”

– “How can we ensure that we enhance these with COTS solution?”

– “How can we support our ecommerce initiatives with COTS?”



Capabilities of COTS ERP SolutionsCapabilities of COTS ERP Solutions

• Consolidation of back office

• Creation of single back office that supports multiple distribution channels

• Facilitation of changes in business practices

• Facilitation of changes in technology



MicrosoftMicrosoft

Spent 10 months and $25 million installing SAP R/3 to replace a tangle of 33 financial-tracking systems in 26 subsidiaries

$18 million annual savings

Growth rate was straining company’s systems– 50 subsidiaries worldwide; continues to grow every day– More than 30 systems implemented in a piecemeal fashion

over time supported financial, operations and HR groups alone

– Batch processes to move information between systems • Run time grew to more than 12 hours• 90% of the more than 20,000 batch robs that ran each

month retrieved and processes same information

Mgmt realized it needed a global and integrated solution to support its core business



ERP Implementation: Catching the Bull by ERP Implementation: Catching the Bull by the Hornsthe Horns

Installation of ERP packages unique– Each ERP app suite has own architecture, customization

features, installation procedures, and level of complexity

Implementation strategies for SAP– Step-by-step

• One module at a time– Big bang

• Replacing all old systems at once– Modified big bang

• Various modules at once, but pilot first• Very common

Even if implementation strategy is right, setting up the solution not easy

– Brother Industries



Roadmap to Rapid Implementation: Roadmap to Rapid Implementation: Accelerated ERP ApproachAccelerated ERP Approach

Today’s intense competitive pressures require fast response

– ERP app suites can’t keep up

But successful companies understand business processes, simplify them, and then introduce automation

– Automating complex or non-value-adding processes will not increase productivity or provide measurable improvements in performance

– Automation without simplification immortalizes ineffective processes



Roadmap to New Leadership SkillsRoadmap to New Leadership Skills

Effective coordination mgmt encompasses a combination of four capabilities

– Strategic thinking• How well does your ERP selection,

implementation, and evolution strategy align with your business strategy?

– Process reengineering– Managing implementation complexity– Transition management

E-Business E-Business Strategies, Inc.Strategies, Inc.

www.ebstrategy.comwww.ebstrategy.com

[email protected]@ebstrategy.com

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chapter eight building the e- business backbone: enterprise resource planning

Documents

business erp

erp wave

ebusiness strategies

e business backbone

benefits of erp

basics of erp

erp suites

payroll erp phenomenon