erp alternatives

Korea Telecom 2007 Olson: ERP 2

ERP Systems Overview

Introduction to ERP

System Options


ERP Claims

• Create value through integrating activities across organization

• Implementation of best practices

• Standardization of processes

• One-source data

• On-line access to information


Role in Business

• Accounting basis

• US products – some extension of MRP

• Combine business computing– Unified system sharing one set of data– Advantages in efficiency, accuracy

• Best Practices– Apply the best process for each function


Historical Growth

• 1970s & 1980s – more development than growth• 1990s – became widely adopted by large firms• Late 1990s – growth exploded with fears of Y2K

problems• Post-2000 – growth slowed

– Saturated market, economy dipped– Seeking to

• Fill in gaps with larger firms• Make products useful for smaller firms• Emphasize Internet


Benefits of ERP

• Davenport [1998]:– Increases speed of information flows

• O’Leary [2000]:– Create value through integration of activities– Best practices improve operations– Standardization increases efficiency– One-source data more accurate, easier to access


Benefits of ERP

• Better organizational planning• Better communication• More collaboration• Weil [1999]:

– Applied Robotics increased on-time deliveries 40% through ERP

– Delta Electronics reduced production control labor requirements 65%


Why ERP?

• Technical:– Integration of computer systems foster

consistency, efficiency

• Financial:– Integrating applications saves money

• Organizational:– All members of organization use same system


Conception vs. Reality

• Integrated System

• In fact, vendors usually sell modules– Would like to sell full system– Buyers reduce cost, risk, by starting smaller

scale• Risk of converting entire system

• Complex cost impact


SAP: Best Practices

• A key to original product

• Davenport [1998]: – Firm’s vary in what is best for them– Business world dynamic– Rigid approach has dangers– If a firm develops a competitive advantage,

they give it up by adopting “best practices”


ERP Supported Functions

Financial Hum Res Ops & Log Sales & MAccts receivable Time accounting Inventory Orders

Asset account Payroll MRP Pricing

Cash forecast Personnel plan Plant Mtce Sales Mgt

Cost accounting Travel expense Prod planning Sales plan

Exec Info Sys Project Mgmt

Financial consol Purchasing

General ledger Quality Mgmt

Profit analysis Shipping

Standard costing Vendor eval


CPU Support

• Originally mainframe– SAP R/2 – 1974

• Client/Server architecture early 1990s– More flexible– SAP R/3

• Something new?– Portal systems (MySAP.com)


Advantages & Disadvantages

• System Integration– Improved understanding across users– Less flexibility

• Data Integration– Greater accuracy– Harder to correct

• Better methods– More efficiency– Less freedom & creativity

• Expected lower costs– More efficient system planned– Dynamic needs, training typically underbudgeted, hidden implementation

costs


ERP System Options & Selection Methods

Alternative ERP project forms

Budgeting methods


IS/IT Projects

• Typically – Late– Over budget– Fail to satisfy design specifications

• ERP projects– Are larger than normal– Can be expedited (if you do it vendor’s way)– Cost range $5 million to over $100 million (+)


Alternative ERP OptionsForm Advantages Disadvantages

In-house Fit organization Most difficult, expensive, slowest

In-House + vendor supp.

Blend proven features with organizational fit

Difficult to develop

Expensive & slow

Best-of-breed Theoretically ideal Hard to link, slow, potentially inefficient

Customize vendor system

Proven features modified to fit organization

Slower, usually more expensive than pure vendor

Select vendor modules

Less risk, fast, inexpensive If expand, inefficient and higher total cost

Full vendor system

Fast, inexpensive, efficient Inflexible

ASP Least risk & cost, fastest At mercy of ASP


Changing Nature of IT

• Technology is highly dynamic

• ERP projects often take years to install– Vendors are responding by expediting

• As long as you do it their way

• Improved versions may be on market by the time you install your system– This is one advantage of an ASP


Financial techniques for Capital Budgeting

1. Payback2. Discounted cash flow3. Cost-benefit analysisThese are the more formal mechanisms implied by

Hinton & Kaye as capital budgetingAnything with as great an impact as ERP needs to

have some estimate of cost, benefits– Need to recognize that precise numbers not worth

obtaining


Survey of ManufacturersMabert et al. (2000); Olhager & Selldin (2003)

FORMAL METHOD

Use in US Use in Sweden

ROI 53% 30%

Payback 35% 67%

Expected NPV 15% 12%

Other 11% 20%


Expected Installation TimeMabert et al. (2000); Olhager & Selldin (2003)

Time to Install ERP US Sweden

12 months 34% 38%

13 to 24 months 45% 49%

25 to 36 months 11% 8%

37 to 48 months 6% 4%

> 48 months 2% 1%


Estimated Installation CostMabert et al. (2000); Olhager & Selldin (2003)

Installation Cost US Sweden

< $5 million 42% 40%

$5 million to $25 million 33% 35%



> $100 million 7% In prior


Cost ProportionsMabert et al. (2000); Olhager & Selldin (2003)

Where money spent US Sweden

Software 30% 24%

Consulting 24% 30%

Hardware 18% 19%

Implementation team 14% 12%

Training 11% 14%

Other 3% 1%


Mabert et al. [2000]Survey of 400+ manufacturers

Expected ROI Reported

< 5% 14%

5% to 15% 18%

16% to 25% 36%

26% to 50% 18%

> 50% 13%


Expected ROIMabert et al. (2000); Olhager & Selldin (2003)

Expected ROI US Sweden

< 5% 14% 17%

5% to 15% 18% 38%

16% to 25% 36% 30%

26% to 50% 18% 11%

> 50% 13% 4%


Mabert et al. [2000]Survey of 400+ manufacturers

• Even for ERP systems, only 53% used formal methods– For smaller IT projects, payback most popular

• Most systems expected to take years to install– Trend is to make much faster

• Cost varies widely– You have a choice as to where you spend– Training tends to be underbudgeted

• Not all expect big return


Taiwan ERPC.-T. Yeh, M. Miozzo, T. Vurdubakis, Journal of Enterprise Information

Management 19:1, 2006, 30-49

• International vendors (like SAP)– BPR based on Western practice– The rest of the world not necessarily the same– Has created many misfits

• Especially in small-to-medium sized enterprises

– Business opportunity for small domestic vendors


Taiwan’s industrial success

• Flexible, decentralized network of SMEs– Focus on export trade in consumer goods– Agility & adaptability important

• Vendor ERPs don’t support that– BPR forces clients of ERP to “do it their way”

• They (SAP) think they know better

– Problems• First, middle, last name doesn’t fit Indian, Chinese• Egypt – pricing determined after receipt of goods – Oracle

didn’t do it that way


ERP Revolution

• SAP claims organization can create its own solution– By selection of modules

• In reality, organizations required to re-engineer their business processes to conform to ERP– Standish Group – 90% of ERP implementations have

cost, schedule overruns

– Many failures – FoxMeyer, Hershey’s


Vendor Response to Market

• 1990s market (large organizations) saturated• Vendors built

– products for new end-users• Non-profit• SMEs

– New types of ERP• Web-enables• CRM, SCM products

– New markets• China, India

– Less system rigidity• Faster implementation• Industry-focused systems


Vendor efforts

• Make systems less rigid

• End-user organizations often modify– Between standardization & customization

• Complications– Implementation– Upgrades


Taiwan ERP market

Case studies – 14 organizations in Taiwan

• SAP – 38%

• Oracle – 16%

• Domestic get rest

• Prices– $600,000 to $1,400,000– Much lower than US


Implementation Options

• DIRECT– Vendor implements system for customers– Domestic vendors

• INDIRECT– Vendor trains consultants who implement ERP– International vendors

• In Taiwan, Direct option usually used– Few reliable consultants available– Consultants prefer large vendors (more experience with)– Competitive domestic market

• Lower prices


Taiwan ERP trends

• More Wide Enterprise Systems

• From hi-tech to traditional manufacturing

• From Large to SME

• From growth stage to maturity

• From internal information integration to external information communication


China ERP Market

• Growing rapidly– Government support– Accession to WTO– Need for competitiveness

• International vendors play the major role• Domestic vendors have software more akin to

accounting packages• Taiwan ERP vendor collaboration

– R&D, distribution, joint ventures, investment


Summary

• ERP software has had a major impact on organizational computing

• Technological, financial, organizational benefits

• Also expensive, massive, inflexible

• Many hidden costs

• Complex adoption decision

erp alternatives

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