Hour 2: ERP Modules

Historical development

Historical
Initial Computer support to business
Easiest to automate payroll & accounting
Precise rules for every case

Early 1970s
centralized mainframe computer systems
MIS systematic reports of financial
performance
Variance analysis between budget and actual

MRP

Material requirements planning

Inventory reordering tool
Evolved to support planning
MRPII extended to shop floor control

SAP Modules

FINANCIAL

R/3 INTERNAL

SD

Sales & Distribution

MM

Materials Management MRP

PP

Production Planning

QM

Quality Management

PM

Plant Maintenance

HR

Human Resources

FI

Financial Accounting

CO

Controlling

AM

Asset Management

PS

Project System

WF

Workflow:

prompt actions

IS

Industry solutions:

best practices

MRPII (with others)

Comparative Modules
SAP

Oracle

PeopleSoft

JDEdwards

SD

Marketing, Sales

Supply chain

Order management

MM

Procurement

Supplier relationship

Inventory, procurement

PP

Manufacturing

QM

Manufacturing mgmt
Enterprise perform

Technical foundation

PM

Service

Enterprise service

HR

Human Resources

Human capital mgmt

Workforce management

FI

Financials

Financial mgmt sol.

Financial management

CO

Time & Expense mgmt

AM

Asset Management

Enterprise asset mgmt

PS

Projects

Project management

WF

Order Management
Contracts

Subcontract, real estate

Industry-Specific Focus
Each vendor has turned to customized ERP
products to serve industry-specific needs
Examples given from BAAN, PeopleSoft
Microsoft also has entered the fray

BAAN Industry-Specific Variants

Discrete Manufacturing
Aerospace & Defense
Automobile
Industrial Machinery
Electronics
Telecommunications
Construction
Logistics

Process Manufacturing
Chemicals
Food & Beverage
Pharmaceuticals
Cable & Wire
Pulp & Paper
Metals

PeopleSoft Industry Solutions

Communications

Consumer Products Federal

Government

Financial Services

Healthcare

High Technology

Industrial Products Public Sector

Professional
Services

Staffing

Utilities

Wholesale
Distribution

Higher Education

Microsoft Great Plains Business

Solutions
Accounting & Finance
Customer Relationship Management
E-Business
Human Resources & Payroll
Manufacturing
Project Accounting
Supply Chain Management

Relative ERP Module Use

(Mabert et al. 2000; Olhager & Selldin, 2003)
Module

Use reported - US

Use reported Sweden

Financial & Accounting

91.5%

87.3%

Materials Management

89.2%

91.8%

Production Planning

88.5%

90.5%

Order Entry

87.7%

92.4%

Purchasing

86.9%

93.0%

Financial Control

81.5%

82.3%

Distribution/Logistics

75.4%

84.8%

Asset Management

57.7%

63.3%

Quality Management

44.6%

47.5%

Personnel/HR

44.6%

57.6%

Maintenance

40.8%

44.3%

R&D Management

30.8%

34.2%

Relative Module Use

Mabert et al. (2000) surveyed Midwestern
US manufacturers
Some modules had low reported use (below
50% in red)
Financial & Accounting most popular
Universal need
Most structured, thus easiest to implement

Sales & Marketing more problematic

Why Module Use?

Cost:
Cheaper to implement part of system
Conflicts with concept of integration

Best-of-Breed concept:
Mabert et al. found only 40% installed system as
vendor designed
50% used single ERP package; 4% used best-of-breed

Different vendors do some things better

Conflicts with concept of integration

Middleware
Third-party software
Integrate software applications from several
vendors
Could be used for best-of-breed
Usually used to implement add-ons (specialty
software such as customer relationship
management, supply chain integration, etc.)

Customization
Davenport (2000) choices:
Rewrite code internally
Use existing system with interfaces

Both add time & cost to implementation

The more customization, the less ability to
seamlessly communication across systems

Federalization
Davenport (2000)
Roll out different ERP versions by region
Each tailored to local needs
Core modules shared
some specialty modules unique

Used by:
Hewlett-Packard
Monsanto
Nestle

EXAMPLES
Dell Computers
Chose to not adopt

Siemens Power Corporation

Implementation of selected modules

Dell Computers
Evaluation of SAP R/3

Need to continue project

evaluation
Initial project adoption
1994 Dell began implementation of SAP R/3
enterprise software suite
Spent over 1 year selecting from 3,000
configuration tables

After 2 year effort ($200 million), revised

plan
Dell business model shifted from global focus
to segmented, regional focus

Rethinking
In 1996 revised plan
Found SAP R/3 too inflexible for Dells
new make-to-order operation
Dell chose to develop a more flexible
system rather than rely on one integrated,
centralized system

Best-of-Breed
I2 Technologies software
Manage raw materials flow

Oracle software
Order management

Glovia software
Manufacturing control
Inventory control
Warehouse management
Materials management

SAP module
Human resources

Core Competencies
Glovia system interfaced with
Dells own shop floor system
I2 supply chain planning software

This retained a Dell core competency

Would have lost if adopted publicly available
system

Points
Demonstrates the need for speed
Prolonged installation projects become outdated
Need to continue to evaluate project need after
adoption
Tendency to stick with old decision
But sunk cost view needed

Demonstrates need to maintain core

competitive advantage
Adopting vendor ERP doesnt

Siemens ERP Implementation

Hirt & Swanson (2001)

Nuclear fuel assembly manufacturer

Engineering-oriented

Siemens Power Corporation

1994 Began major reengineering effort
Reduced employees by 30%

1996 Adopted SAP R/3 system

Replacement of IS budgeted at $4 million

Some legacy systems retained

Siemens Modules

FI Finance
COControlling
ARAccounts receivable
AP Accounts payable
MM
Materials management
PP Production planning
QCQuality control

Implementation
To be led by users
Project manager from User community
Consultant hired for IT support
IS group only marginally involved

Project Progress
Oct 1996
Installed FI module
Sep 1997
Installed other modules
On time, within budget

Permanent Team
Made project team a permanent group
Project manager had been replaced
2nd PM retained

SAP steering committee

SAP project team formed

SAP steering committee

7 major user stakeholders
Guided operating policy
major expenditures
major design changes

SAP project team formed

15 members from key user groups
part-time

Trainer
User help
Advisors to middle management

Training
End users became more proficient with time
Average of 3 months to learn what needed

Management training took longer

Management didnt understand system well
Often made unrealistic requests

Operations
During first year
Major errors in ERP configuration
Evident that users needed additional training
New opportunities to change system scope
suggested

Two years after installation

R/3 system upgrade

Summary
Core idea of ERP complete integration
In practice, modules used
More flexible, less risk
Can apply best-of-breed concept
Ideal, but costly

Related concepts
Middleware integrate external software
Customization tailor ERP to organization
Federalization different versions of ERP in different
organizational subelements