what is erp? enterprise resource planning (erp) system –set of core software modules that enables...

What is ERP?

• Enterprise resource planning (ERP) system – Set of core software modules that enables

organizations to share data across the entire enterprise

– Common database and management reporting tools– Enables people in various organizational units to

access and update the same information • Based on permission levels assigned within the

system

Information Technology for Managers 1

What is ERP? (continued)

• Best practices – Most efficient and effective way of accomplishing a

task– Based on procedures that have proven themselves

repeatedly over a long period of time

• Each industry has different business practices

• ERP vendors offer specially tailored software modules – Designed to meet the needs of specific industries– Companies can pick and choose which modules to

installInformation Technology for Managers 3

ERP and Customer Relationship Management (CRM)

• Customer relationship management (CRM) system – Supports the processes performed by entities

involved in creating or increasing the demand for an organization’s products and services

– Often part of the offering from an ERP software provider

• CRM system must effectively capture and present customer information – So that employees can successfully use that data


ERP and Supply Chain Management (SCM)

• Supply chain – Flow of materials, information, and dollars as they

move from supplier to manufacturer to wholesaler to retailer to supplier

• Major processes– Demand planning– Sourcing– Manufacturing– Logistics– Customer Service


ERP and Supply Chain Management (SCM) (continued)

• Supply chain management (SCM)– Planning, executing, monitoring, and controlling of

this set of processes

• Goal– Lower costs and inventory levels while still providing

timely delivery of high-quality products

• Major ERP software suppliers– Include software modules to handle many of these

tasks– No one supplier has a single, all encompassing

software package that meets all of the SCM needsInformation Technology for Managers 10

ERP and Supply Chain Management (SCM) (continued)

• Many companies elect to implement “best of breed” solutions for specific tasks

• SCM applications– Frequently draw on the data captured and stored in

an ERP system– Some sort of interface must be built to allow stand-

alone SCM applications to access data from the ERP system database


Benefits of Implementing ERP

• Standardized business processes

• Lowering cost of doing business

• Improving the overall customer experience

• Facilitating consolidation of financial data

• Supporting global expansion

• Providing a compliant system


Establish Standardized Business Processes

• Standardized streamlined business and workflow processes– Ensure that workers are performing their work in an

efficient manner – Provide a consistent interface between the

organization and its customers and suppliers


Lower Cost of Doing Business

• Reduced inventory costs – Resulting from better planning, tracking, and

forecasting of customer demand and inventory levels

• Faster collection of receivables – Based on better visibility into accounts and fewer

billing and delivery errors

• Lower vendor costs – By taking better advantage of quantity discounts– Tracking vendor performance to use as leverage in

negotiating prices


Improve Overall Customer Experience

• Improved inventory management

• Shorten the lead time from receipt of order to delivery of product

• Improve overall product quality


Facilitate Consolidation of Financial Data

• ERP system enables rapid consolidation of financial data across multiple organizational units and countries – Every business unit is using the same system and

same database– Designed to deal with differences in currencies and

fluctuating currency exchange rates


Support Global Expansion

• Nearly 80 percent of U.S. companies view expansion into global markets as a growth opportunity

• ERP systems – Support global expansion – Designed to monitor supply chains thousands of

miles long


Provide Fully Compliant Systems

• Side benefit of ERP implementations is increased compliance with many state and federal laws– Sarbanes-Oxley Act– Health Insurance Portability and Accountability Act,

or HIPAA– Public Health Security and Bioterrorism

Preparedness and Response Act (Bioterrorism Act)


ERP Issues

• Potential issues associated with the implementation of ERP systems– Post start-up problems– High costs– Lengthy implementation– Organizational resistance


Post Start-Up Problems

• Deloitte Consulting survey– One in four firms confessed to an actual drop in

performance for some period of time after their ERP system went live

• Early ERP efforts in the 1990s and early 2000s – Less than glowing successes


Post Start-Up Problems (continued)


High Costs

• Several hundred thousand dollars to hundreds of millions of dollars

• Cost depends on a number of factors

• Best to set a realistic budget rather than an optimistic one

• Recent surveys– 38 percent said organization’s ERP total project

costs were 10 to 30 percent above original budget– 17 percent say total costs exceeded the original

budget by 30 percent or more

Guide to Microsoft Virtual PC 2005 and Virtual Server 2007 23

High Costs (continued)



• Costs commonly overlooked or underestimated in setting the budget for an ERP project– Hardware upgrades– Training– Testing– Customization– Data conversion– Consultants


Lengthy Implementation

• Organizational changes of great magnitude do not come easily or quickly

• Time frame for full implementation – One to four years

• Faster ERP implementations are possible – When the scope of the effort is limited

• Small and medium businesses (SMBs) – Usually achieve less than the full potential of

business benefits possible from the implementation of ERP systems


Difficulty in Measuring a Return on an ERP Investment

• Simple return on investment

• Decision makers would like to have an accurate estimate of the return on investment for an ERP project– Before beginning

• Difficult to put an exact dollar figure on the benefits and costs associated with an ERP project

• Difficult to measure the return on investment – Because the project frequently takes years to

implement


Organizational Resistance

• Considerable changes to an organization’s business processes– Includes modification in the way employees do their

work and interact with others

• Organizational resistance manifests itself in many ways

• Many ERP projects take much longer than expected and/or fail to deliver hoped for enterprise improvements


ERP System Implementation Process

• Major ERP vendors – Developed a recommended implementation process– Process divides the effort into well-defined stages

with associated tasks

• Organizations typically will try to assign employees who have previous ERP implementation experience to the project

• Common factors associated with failed ERP implementation projects


Best Practices to Ensure Successful ERP Implementation

• Achieving ERP project success can be a very difficult challenge

• Set of best practices– Ensuring senior management commitment and

involvement– Choosing the right business partners to help– Assessing the level of ERP customization that may

be needed– Avoiding increases in project scope– Planning for effective knowledge transfer


Ensure Senior Management Commitment and Involvement

• Requires the commitment of senior management to achieve the necessary organizational buy-in

• Senior management must: – Define a vision for the ERP system with supporting

goals and visible, measurable success criteria– Provide leadership and take action to ensure that the

goals of the project are met


Choose the Right Business Partners

• Three key business partners – ERP system integrator– ERP software provider– ERP software support providers

• Chosen business partners should have a solid, verifiable track record of successful engagements – With other organizations in your industry

• First step – Develop a solid understanding of your business

needs and processes as they are now


Assess Level of Customization Needed

• Determine if your organization’s fundamental ways of doing business can be supported by an ERP solution

• If not, the options are:– Change the inconsistent business processes to

accommodate the software– Modify the software to fit the process– Select a different ERP solution


Avoid Increases in Project Scope

• As an organization implements an ERP system, it learns that there is much more that could be done than was included in the original project scope

• Strong temptation to expand the ERP project scope– Potential increases in scope should be rejected– When original project scope is complete, new ideas

can be further evaluated and implemented if justified


Plan for Effective Knowledge Transfer

• Employees need to understand the rationale of why ERP is being implemented– Should be given the big picture on the extent of

change

• Training should not be considered a one-time event


Test Thoroughly

• Thorough testing– Key to a smooth start-up

• Key business processes must be tested from start to finish

• Tests and test data must be set up carefully– Execute a wide range of possible scenarios

• Considerable time is required to plan and prepare the necessary test data


Plan for a High Level of Initial Support

• Anticipate a heavy need for support

• Contract for a heavy level of coverage during at least the first three months following implementation


A Manager Takes Charge: ERP – The Arizona State University Way

• William Lewis, Vice Provost and Chief Information Officer of Arizona State University (ASU)

• Oracle PeopleSoft Student Administration and HR/Payroll ERP system

• Estimated cost $23 million

• Targeted for completion in fall of 2006– HR/Payroll portion of the project to be delivered no

later than the end of 2007


A Manager Takes Charge: ERP – The Arizona State University Way

(continued)• Unconventional approach to installing its ERP

software– Problems would be fixed on the fly as they arose

• Final cost of the project was a total of $30 million– $7 million over the Feb 2006 budget request


ERP Trends

• ERP solutions targeted for SMBs– Growth is expected to come as SMBs begin using

ERP systems– Large, well-established ERP vendors are creating

software for this market

• ERP as a service– Software as a service (SaaS) model for the delivery

of ERP solutions– Considerable work to be done to reap the full

benefits of an ERP implementation– Security implications


Open Source ERP Software

• Open source ERP solution advantages– Lower initial acquisition cost– User has access to the source code– Wide range of resources that can make

modifications to the software

• Popular open source vendors

• Organizations will not get the same level of support that they would receive from commercial software providers


Summary

• Effective ERP system implementation can bring many benefits to an organization

• A number of potential issues are associated with the implementation of ERP systems

• Organizations should follow their ERP vendor’s recommended ERP implementation process

• Achieving ERP project success is a very difficult challenge

• Rapid growth is expected in the use of ERP systems within SMBs


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