INTRODUCTION

TO ERP SYSTEMS

PROF (Dr) SPS SAINI

CONTENTS

Historical Context of ERP

What is ERP?
Why all the fuss about ERP?
What is ERP offering?
What is driving the ERP Movement?
Phases of ERP Implementation
ERP Failure and Success

Historical Context of ERP

Historically, companies created islands of
automation. A hodge-podge of various
systems that operated or managed various
divergent business processes. Sometimes
these systems were integrated with each
other and sometimes they werent.
Sometimes they were loosely interfaced and
sometimes they were more tightly
interfaced.

Historical Context of ERP

The total organizational costs of maintaining a
patchwork of redundant and overlapping
systems has grown over the years to the
point where the cost of maintaining these
systems is greater than installing a new
system.

Historical Context of ERP

Analysts have speculated that widespread
adoption of the same ERP package by the
firms in a single industry (an observed
phenomenon for semi-conductor
manufacturers) might lead to the
elimination of process innovation-based
competitive advantage (Davenport, 1998).

Historical Context of ERP

Most companies have failed to implement ERP
packages successfully or to realize the hoped-for
financial returns on their ERP investment.
Companies have had similar difficulties with each
new wave of information technology since the
first mainframe systems. It takes years to realize
some envisioned IT-enabled changes in
organizational processes and performance, and
there are many ways to fail along the way.

ERP DEFINITION
Enterprise systems are commercial software
packages that enable the integration of
transactions-oriented data and business
processes throughout an organization (and
perhaps eventually throughout the entire interorganizational supply chain).
Enterprise systems include ERP software and
related packages as advanced planning and
scheduling, sales force automation, customer
relationship management, product configuration.

Characteristics of Enterprise Systems

Integration: seamless integration of all the
information flowing through a company
financial and accounting, human resource
information, supply chain information, and
customer information.

Characteristics of Enterprise Systems

Packages: Enterprise systems are not developed in
house.
IS life cycle is different: 1)mapping organizational
requirements to the processes and terminology
employed by the vendor and 2) making informed
choices about the parameter setting.
Organizations that purchase enterprise systems enter
into long-term relationships with vendors.
Organizations no longer control their own destiny.

Characteristics of Enterprise Systems

Best Practices: ERP vendors talk to many different
businesses within a given industry as well as
academics to determine the best and most efficient
way of accounting for various transactions and
managing different processes. The result is claimed
to be industry best practices.
The general consensus is that business process change
adds considerably to the expense and risk of an
enterprise systems implementation. Some
organizations rebel against the inflexibility of these
imposed business practices.

Characteristics of Enterprise Systems

Some Assembly Required: Only the software is
integrated, not the computing platform on which it
runs. Most companies have great difficulty
integrating their enterprise software with a package
of hardware, operating systems, database
management systems software, and
telecommunications suited to their specific needs.
Interfaces to legacy systems
Third-party bolt-on applications
Best of Breed Strategy (American Standard,
Starbucks)

Characteristics of Enterprise Systems

Evolving: Enterprise Systems are changing
rapidly.
Architecturally: Mainframe, Client/Server, Webenabled, Object-oriented, Componentization
(Baan).
Functionally: front-office (ie. sales management),
supply chain (advanced planning and
scheduling), data warehousing, specialized
vertical industry solutions, etc.

Why all the fuss about ERP?

Market statistics
US ERP sales grew from under $1 billion in
1993 to $8 billion in 1998 (Dataquest, $14.5
billion worldwide).
In 1998 US companies spent $80 billion on
ERP systems integration.
Industry analysts expect an average rate growth
of 37% per year for the next 5 years.

Why all the fuss about ERP?

Market statistics
AMR estimates worldwide ERP software sales
to grow to $52 billion by 2002.
If systems integration costs stay constant firms
will be spending $552 billion by 2002.
Firms also spend about 15-20% annually to
keep ERP systems up to date.

What is ERP offering?

ERP is business process infrastructure
ERP is a software mirror image of the major
business processes of a firm, such as customer
order fulfillment and manufacturing.
ERP software automates and integrates the
basic processes of a firm, from finance to the
shop floor, and eliminate complex, expensive
links between computer systems that were
never meant to talk to each other.

What is ERP offering?

ERP is business process infrastructure
ERP provides enterprise wide business process,
information and data management
stream-line and standard business processes and
operating procedures
provide interorganizational collaboration
intraorganizational information sharing

What is ERP offering?

ERP Business Technology architecture
Business Process Workflow Management
Functional Information Management
Marketing, Operations, HRM, etc.

Decision Support Models and Tools

Data Management

What is ERP Offering?

ERP Functional Architecture
Information Systems Modules

Human Resources Management

Manufacturing Management
Financial Management
Accounting
Marketing Management
Workflow Management

Examples of ERP Packages

ERP Packages

BAAN
www.baan.com
JD Edwards
www.jdedwards.com
Oracle
www.oracle.com
PeopleSoft www.peoplesoft.com
SAP
www.sap.com

Motivation for Implementing ERP

Achieving and maintaining competitive
advantage requires better information
management
Information Quality
Information Reliability
Information Access
Information Sharing

Motivation for Implementing ERP

Firms View ERP As A System:
to provide better information management
to transform the competitive space
to transform relationships between
their customers
their suppliers
their competitors

Motivation for Implementing ERP Competitive Space

Potential
entrants
Threat of new entrants

Suppliers

Bargaining power
of suppliers

Industry
competitors

Bargaining power
of buyers

Rivalry among
existing firms
Threat of substitute
products or services
Substitutes
Five forces driving industry competition (Porter 1980).

Buyers

Motivation for Implementing ERP

FIRMS ACHIEVE COMPETITIVE
ADVANTAGE BY
Locking in customer and suppliers
Locking out the competition
Attracting away competitors customers by

product functionality
cost performance
service, reliability and flexibility
quality and innovation
response time/ time-to-market

Motivation for Implementing ERP

Search-related
costs
Unique product
features

Bargaining
Power

Switching
costs

Competitive
advantage

Internal
efficiency
Interorganization
efficiency

Comparative
efficiency

Motivation for Implementing ERP(inter-organizational efficiency)

Better Supply Chain Management
Inbound Logistics
Operations
Outbound Logistics
Marketing And Sales
Service
Disintermediation and Market Reach
Online Store Front
Internet Banking
Allows an organization to Reengineer all their
processes.

Reasons for Not Adopting Enterprise Systems

Lack of Feature-Function Fit: between a companys
needs and the packages available in the marketplace.
Company growth, strategic flexibility or decentralized
decision-making style. Many ERP systems are not
easy to change once they are configured and installed.
Availability of alternatives for increasing the level of
systems integration: Data Warehousing (Kraft,
CapitalOne?), Middleware (Dell)

Phases of ERP Implementation

The Chartering Phase
Comprises the decisions leading up to the funding
of an enterprise system.
Key Players: Vendors, Consultants, Company
Executives, IT specialists.
Key Activities: Build a business case for ERP,
Select a software package, Identify a project
manager, Approve a budget and schedule.

Phases of ERP Implementation

The Project Phase
Comprises the activities performed to get the
system up and running in one or more
organizational units.
Key Players: Project Manager, Project team
members, Internal IT specialists, Vendors, and
Consultants.
Key Activities: Software configuration, system
integration, testing, data conversion, training,
and rollout.

Phases of ERP Implementation

The Shakedown Phase
The organizations coming to grips with the ERP System.
Ends when normal operations have been
achieved. (Or they give up and pull the plug on the
system)
Key Players: Project Manager, Project team
members, Operational Managers, and End users.
Key Activities: Bug fixing and rework, system
performance tuning, retraining, staffing up to handle
temporary inefficiencies. This is the phase in which
the errors of prior phases are felt. New errors can
arise in this phase also.

Phases of ERP Implementation

The Onward and Upward Phase
Continues from normal operation until the system is
replaced with an upgrade or a different system. This is
where the organization is able to ascertain the benefits
(if any) of its investment.
Key Players: Operational Managers, End-users, IT
support personnel (Vendors and consultants may be
involved upgrades)
Key Activities: Continuous business improvement,
additional user skill building, post implementation
benefit assessment. Most of these activities are not
performed.

Phases of ERP Implementation

There are several possible outcomes for
each phase of the implementation.
Unresolved problems from one phase are
inherited by the next phase.
Just like the SDLC, the longer problems
go undetected and unresolved, the
more expensive it is to fix them.

ERP Scope and Impacts

The ERP phenomenon is all encompassing for companies
and their key business partners:
1. Financial Costs and Risks
2. Technical Issues
3. Managerial Issues
4. IT Adoption, use and Impacts
5. Integration
ERP systems have strong conceptual links with every
major information systems area.

ERP Failure
Standish Group Study of ERP Implementations:

35% are Cancelled

55% overrun their budgets
Less than 10% are on time and under
budget.

ERP Failure
Standish Group Study of ERP Implementations:
Implementation Averages
Cost: 178% over budget
Schedule: 230% longer
Functionality: 59%
or: the system will only perform 41% of the
functions it was intended to perform.

Why Implementations Fail

1. People Dont want the systems to succeed
2. People are comfortable and dont see the
need for the new system.
3. People have unrealistic expectations of the
new system.
4. People dont understand the basic concepts of
the system.
5. The basic data is inaccurate.
6. The system has technical difficulties.

What is ERP Success?

KPMG Management Consultings recent
report Profit-Focused Software Package
Implementation showed some worrying
results. Eighty-nine percent of respondent
companies claimed that their projects were
successful, but only a quarter had actually
obtained and quantified all the planned
benefits. (KPMG, 1998)

What is ERP Success?

How do you measure success?
What are we trying to achieve? Scope,
Vision.
Project Metrics.
Early Operational Metrics.
Longer Term Business Results.

What is ERP Success?

Success is multidimensional and relative to both time
and objectives.
What is success today may not be success in two years.
(Or 6 months)
An ERP system that gives competitive advantage today
may not do so when competitors catch up and this large
ERP system simply becomes a cost of doing business.
Success is often judged relative to the organizations
unique goals for the system.

Factors in ERP Success

Factors External to an Organizations Control
Starting conditions: Competitive position, industry,
financial position, prior relevant experience, size,
structure, management systems.
These conditions may change over the course of the
implementation.
ERP Implementations are highly fluid and subject to
radical and unforeseen changes.
An organizations goals and plans for the ERP system
may not be realistic when viewed objectively in light
of their starting conditions.

Organizations Motivated Behavior

An organizations goal-directed enterprise systems
behavior can be defined in four categories:
1. Goals: Some goals are more conducive to success
than others. Some are too limited, some are too
unrealistic.
2. Plans: The methodology is critical for success.
3. Execution: A good methodology does not guarantee
quality in execution of the plan.
4. Response to Unforeseen Problems: Successfully
resolve problems changing goals, plans and
actions to ensure a favorable outcome.