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
SD Sales & Distribution
MM Materials Management MRP
PP Production Planning MRPII (with others)
QM Quality Management
PM Plant Maintenance
HR Human Resources
FINANCIAL FI Financial Accounting
CO Controlling
AM Asset Management
PS Project System
R/3 INTERNAL WF Workflow: prompt actions
IS Industry solutions: best practices
 Comparative Modules
SAP Oracle PeopleSoft JDEdwards
SD Marketing, Sales Supply chain Order management
MM Procurement Supplier relationship Inventory, procurement
PP Manufacturing Manufacturing mgmt
QM 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 Process Manufacturing
Aerospace & Defense Chemicals
Automobile Food & Beverage
Industrial Machinery Pharmaceuticals
Electronics Cable & Wire
Telecommunications Pulp & Paper
Construction Metals
Logistics
 PeopleSoft Industry Solutions
Communications Consumer Products Federal
Government
Financial Services Healthcare Higher Education

High Technology Industrial Products Public Sector

Professional Staffing
Services
Utilities Wholesale
Distribution
 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 Dell’s
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
– Dell’s 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 doesn’t
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
• CO Controlling
• AR Accounts receivable
• AP Accounts payable
• MM Materials management
• PP Production planning
• QC Quality 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 didn’t 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