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ERP Systems Overview

Introduction to ERP
System Options

Korea Teleco

Olson: ERP 2

ERP Claims
• Create value through integrating activities
across organization
• Implementation of best practices
• Standardization of processes
• One-source data
• On-line access to information
Korea Teleco

Olson: ERP 2

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
Korea Teleco

Olson: ERP 2

economy dipped – Seeking to • Fill in gaps with larger firms • Make products useful for smaller firms • Emphasize Internet Korea Teleco Olson: ERP 2 .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.

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 Korea Teleco Olson: ERP 2 .

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% Korea Teleco Olson: ERP 2 .

efficiency • Financial: – Integrating applications saves money • Organizational: – All members of organization use same system Korea Teleco Olson: ERP 2 .Why ERP? • Technical: – Integration of computer systems foster consistency.

risk. vendors usually sell modules – Would like to sell full system – Buyers reduce cost.Conception vs. by starting smaller scale • Risk of converting entire system • Complex cost impact Korea Teleco Olson: ERP 2 . Reality • Integrated System • In fact.

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” Korea Teleco Olson: ERP 2 .

ERP Supported Functions Financial Hum Res Ops & Log Sales & M Accts 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 Korea Teleco Olson: ERP 2 .

CPU Support • Originally mainframe – SAP R/2 – 1974 • Client/Server architecture early 1990s – More flexible – SAP R/3 • Something new? – Portal systems (MySAP.com) Korea Teleco Olson: ERP 2 .

hidden implementation costs Korea Teleco Olson: ERP 2 .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.

ERP System Options & Selection Methods Alternative ERP project forms Budgeting methods Korea Teleco Olson: ERP 2 .

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 (+) Korea Teleco Olson: ERP 2 .

potentially inefficient Customize vendor system Proven features modified to Slower. inexpensive If expand. slow. Blend proven features with organizational fit Difficult to develop Expensive & slow Best-of-breed Theoretically ideal Hard to link. inefficient and higher total cost Full vendor system Fast. efficient Inflexible ASP Least risk & cost. inexpensive. fast.Alternative ERP Options Form Advantages Disadvantages In-house Fit organization Most difficult. fastest At mercy of ASP Korea Teleco Olson: ERP 2 . expensive. usually more expensive fit organization than pure vendor Select vendor modules Less risk. slowest In-House + vendor supp.

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 Korea Teleco Olson: ERP 2 .

Discounted cash flow 3.Financial techniques for Capital Budgeting 1. benefits – Need to recognize that precise numbers not worth obtaining Korea Teleco Olson: ERP 2 . Payback 2. Cost-benefit analysis These are the more formal mechanisms implied by Hinton & Kaye as capital budgeting Anything with as great an impact as ERP needs to have some estimate of cost.

(2000).Survey of Manufacturers Mabert et al. Olhager & Selldin (2003) FORMAL METHOD Use in US Use in Sweden ROI 53% 30% Payback 35% 67% Expected NPV 15% 12% Other 11% 20% Korea Teleco Olson: ERP 2 .

(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% Korea Teleco Olson: ERP 2 .Expected Installation Time Mabert et al.

Olhager & Selldin (2003) Installation Cost US Sweden < $5 million 42% 40% $5 million to $25 million 33% 35% $26 million to $50 million 10% 18% $51 million to $100 million 7% 7% > $100 million 7% In prior Korea Teleco Olson: ERP 2 . (2000).Estimated Installation Cost Mabert et al.

Cost Proportions Mabert 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% Korea Teleco Olson: ERP 2 .

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% Korea Teleco Olson: ERP 2 .

(2000).Expected ROI Mabert et al. 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% Korea Teleco Olson: ERP 2 .

Mabert et al. 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 Korea Teleco Olson: ERP 2 . [2000] Survey of 400+ manufacturers • Even for ERP systems.

Miozzo. 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 Korea Teleco Olson: ERP 2 . M. Vurdubakis. 2006. Yeh. Journal of Enterprise Information Management 19:1.-T.Taiwan ERP C. T.

Taiwan’s industrial success • Flexible. last name doesn’t fit Indian. Chinese • Egypt – pricing determined after receipt of goods – Oracle didn’t do it that way Korea Teleco Olson: ERP 2 . 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.

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.ERP Revolution • SAP claims organization can create its own solution – By selection of modules • In reality. Hershey’s Korea Teleco Olson: ERP 2 .

India – Less system rigidity • Faster implementation • Industry-focused systems Korea Teleco Olson: ERP 2 .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.

Vendor efforts • Make systems less rigid • End-user organizations often modify – Between standardization & customization • Complications – Implementation – Upgrades Korea Teleco Olson: ERP 2 .

000 to $1.000 – Much lower than US Korea Teleco Olson: ERP 2 .400.Taiwan ERP market Case studies – 14 organizations in Taiwan • SAP – 38% • Oracle – 16% • Domestic get rest • Prices – $600.

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 Korea Teleco Olson: ERP 2 .

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 Korea Teleco Olson: ERP 2 .

distribution. joint ventures.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. investment Korea Teleco Olson: ERP 2 .

financial. organizational benefits • Also expensive. inflexible • Many hidden costs • Complex adoption decision Korea Teleco Olson: ERP 2 .Summary • ERP software has had a major impact on organizational computing • Technological. massive.