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Enterprise Resource Planning (ERP)

prof:-P K SAHU


The Agenda

1. The Context of ERP

2. What is ERP?

3. Managing ERP

4. Real World ERP

5. Critical views on ERP

Learning Objectives
1. To understand the context of ERP, how it emerged and how it has
become what it is today
2. To know what an ERP system is, what its components are and
appreciate its basic architecture
3. To understand how ERP can be managed as an implementation and
an operation.
4. To possess a more detailed understanding of SAP ERP offerings
5. To have a strong understanding of the costs, weaknesses and dangers
of ERP systems
6. To have an overview of the critical (political, social and ethical) views
of ERP systems
1. The Context of ERP
Problems of Organisation: Information
• Globalisation, M&A, take-overs

• Functional / Departmental divisions

– Disparate systems lead to time delays
– Redundant systems (e.g. 24 different general ledgers)
– Huge software maintenance expenses

• Lack of common data structures

– Inconsistent terminologies
– Field mismatches in data bases
– Weak Management Information
– No “Process” information (e.g. how long does it take to order X?)
– Data redundancy / overlap
1950 – 1970: Out of Fordism
Control, efficiency & scientific management

1950s: Inventory Control Systems

1960s: Materials Requirements Planning (MRP)

1970s: Manufacturing Resource Planning (MRPII)

But, failures due to:

Organisational & technical complexity

Long & difficult implementations

Manual rather than automated

1970 – 2000: The Power of Computing
• 1980s
– OO data-driven software & client / server models
– Automation of processes
– Data-mining & warehousing

• Rise of integrated SCM & BPR

– Global supply-chains
– Automated value-chains
– Re-engineering of e2e processes
– Interation with HR, warehousing, CRM & MIS

• Success of 1990’s
– Fuelled by Y2K
– Internet / Intranet roll-out
– Powerful processors
– Development by SAP & BAAN
ERP 2003
• Event Driven Processes

• Supported by BPR

• Consulting expertise

• Plug & Play Architectures

• Move towards Decision Making Software

3. What is ERP?
• Integrates disparate information from e.g. finance, accounting, distribution,
production, logistics, human resource, etc.,

• Into a single, enterprise-wide, shared database

• A software architecture that sits on a common database and is supported

by a single development environment

• It is customized to support an organization’ s business processes.”

• Interacts with an integrated set of applications, consolidating all business

operations in a single computing environment.”

• To provide useful real-time information to support managerial decision

Practical definition….
• ERP stands for Enterprise Resource Planning
– it does not do any planning
– forget about resource too…
– remember the “enterprise”. This is ERP’s ambition.

• Typically, ERP combines Finance and HR departments

• ERP systems automate and standardise business processes

• ERP should contain a “best practice” model of the business

Chaos v Hub & Spoke
ERP Components
• Core Applications
– Financials
– Human Resources (HR)
– Manufacturing
– Project Management
• Extended ERP
– Business Intelligence
– Customer Relationship Management (CRM)
– Sales Force Automation (SFA)
– Supply Chain Management (SCM)
– E-Logistics
– E-Procurement
– Product Life-cycle Management (PLM)
• Internet Transformation for ERP
– Portals
– Exchanges – B2B
– Mobile Access
Typical ERP Components

applications Financial
Sales and applications

Customers Central Manufacturing Suppliers

Database applications

applications Inventory and
HRM applications

ERP Client / Server Model
ERP Benefits

• Improved efficiency, lowered costs.

– Average expected administrative cost reduction = 30%

• Controlled operational disorder

– Streamlining of business processes

• Reduce size and cost of the company’s IT

– Maintenance of outdated legacy systems

• Managerial effectiveness
– Empowered users
– Informed management decisions
4. Managing ERP
• Vendor
– delivery of software
– initial training for key users
– project support
– quality control
– conduct modifications

• Consultants
– bring/transfer know-how about package
– development of detailed work-plans
– optimize fit between processes and software
– analysis of customization issues

• Company
– learn/assimilate information about software (independence!)
– make people sufficiently available (reallocation of responsibilities)
– keep up motivation (monitoring progress)
– responsibility for conversion (data extraction, interfaces) programs
ERP Options
- Expensive & cumbersome
- Few do this

- The customer leases services rather than builds them.
- Services may include SCM, ERP, etc
- Good for SMEs – lack resources to build or buy their own
- Clients save money,…
- But..… the ASP may only offer a 5-year contract to tie in customers
- But……ASPs tend to offer a "one size fits all" solution

• Integrated packages
- e.g. SAP R/3
ERP Design
• Process-oriented design: based on the operation process.

• Architecture
– One database for all data (minimal redundancy)
– Modular application (independent, but integrated modules)
– Software functionality configurable to customer’s requirements

• Master Data
– Information captured once
– Visibility though Business process
– Workflow management
– Event Triggered processes
Typical ERP Project
1. Understand the problem
– Understand business and how package fits,
– Determine characteristics of current system
– Arrange for training,
– Determine how stored data will be migrated.
1. Define the solutions (most critical!)
– Define all concepts associated with software implementation
– Run simulations of app. processing,
– Make definitions for master files, tables, parameters,
– Establish degree to which company needs to adapt package.
1. Put hands to the task (most difficult!)
– Load initial data
– Develop, test, place customization into operations;
– Develop, test interfaces put them into operation;
– Document new procedures, test new work environment.
1. Make it happen
– Run software in parallel w/ old system
– Support users
– Make final adjustments
– Release system for final use.
1. Keep on – going live is just a milestone!
Design & Implementation of ERP

Organization and Detailed Design Preparations for Productive

Conceptual Design and System Set-Up Going Live Operation
Interfaces and
Establish Enhancements
Set Up System
Environment Create
Settings Establish Train
Go - Live
Quality Establish Reporting Quality Users Quality Support
Train Project Plan
Company Productive
Team Con- Establish Appli- Create Establish Pro-
Project Structure Operation
ceptual Archiving cation User System duction
Preparation Define Establish Management Optimize
Design System DocumentationAdministration System
Functions and Master System
Processes Check Data Establish Check Set Up Transfer Data Check Use
Archiving Production to Production
Design Perform Management Environment System
Interfaces and Final
Enhancements Test Perform
Final Test

Project Management
System Maintenance and Release Upgrade
Copyright, SAP AG.
Implementing ERP
• Configuration
– Parameters (rules) for business processes
– Local requirements

• Understanding your own business processes

• Making a fit possible

–Reengineering processes - adopting a “best practice”
–Reengineering the system
Successful implementation….?

• Lead from Business Strategy

• Position project as business, not IT, initiative.
• Have a strong project leader: commitment of senior management.
• Get all affected parties to “buy in”.
• Communication within organization about expected change
• Re-engineer before the project: best practice processes
• Set customer’s expectations.
• The customer’s organization and culture.
• The risks presented by politics within the customer organization.
• What software package(s)?
• What consulting company?
• What hardware?
• What approach?
5. Real world ERP
ERP Market
• The global ERP market is about $30bn in 2002
– 4.84 billion in software licensing
– 25.36 billion in information service
– up 2.5% compare with 2001

• The estimated global ERP market annual growth rate

– 2003 - 5.7%

– 2004 - 7%

– 2005 - 8.5%

• 70% of Fortune 500 have implemented ERP

• In 2000-2005, the fast growing area will be:

– Japan - 9.74%
– Asia - 9.58%
– E. Europe - 5.51%
– S. America - 4.97%
Leading Vendors

• BAAN (Invensys)
• Oracle
• PeopleSoft
• SAP stands for Systems, Applications and Products in Data Processing

• SAP is 3rd largest vendor of standard business application software

•More than 17,000 companies in over 120 countries run more than 44,500
installations of SAP software (50% of ERP in top companies)

• 3rd largest software company after Microsoft and Oracle, with subsidiaries in
over 50 countries

• SAP R/3 is their 3rd Release

• SAP R/3 implements SAP solutions using three-tier client server computing

• ASAP is a methodology to implement SAP ERP solutions

• SAP R/3 uses a three-tier client server computing, that is, there are three
servers with different tasks, database software, application software, and user
interface (GUI)
6. Critical Views on ERP
Issues with ERP I
• Considerable rate of failure in ERP implementation (study by Buckhout)
– 49% of respondents say SAP implementations are never complete
– Average schedule overrun 230%
– Desired functionality 59% below expectations
– Only 10% on projects finished on time
– 35% of projects cancelled

• Maintainance
– In most companies, maintenance of existing systems is at least 70% of application development budget
– Typically 80% of maintainance requests for enhancements
– Maintenance programmers are difficult to find

• Lack of Flexibility
– Difficult to modify processes (electronic concrete)
– Over-reliance on consultants
– Upgrade issues
Issues with ERP II
• Technical problems
– ERP software configuration

– Integrating ERP software with hardware, telecommunications, and database software. Rare to have
total integration.

– Need for periodic upgrades

• Human, social and political problems

– Inappropriate expectations for software
– Failure to specify strategic objectives
– Inadequate project championship or project management
– Lack of cross-functional approach to implementation
– Need to adopt built-in business processes
– No sensitivity to culture, structure, end-users
– Inadequate resources for training
Cost of ERP
• Large company
– $50-500 Million
– $30 million in software
– $200 million in consulting
– $ millions for hardware
– Implementation: 4-6 years

• Medium sized companies

– $10-20 million
– 2 year implementation

• Cost break-up (rule of thumb)

– Software – 10%
– Hardware – 10%
– Change management/training – 15%
– BPR – 15%
– Severance / re-educating / re-skilling – 20%
– Consulting – 30%
ERP Market Share

ERP Providers Product Name 1997/10~1998/ 2001


SAP AG SAP R/3 37% 29%

PeopleSoft PeopleSoft 7.5 8% 6%

Oracle Oracle Applications 8% 10%

Baan Baan IV 6% 5%

JD Edwards One world 5% 7%

System Software Associates BPCS Client/Sever 5% 5%

Other 31% 38%