Hour 2: ERP Modules

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Hour 2 ERP Modules

• Historical development

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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

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MRP

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

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SAP Modules
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Comparative Modules
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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

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BAAN Industry-Specific Variants
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PeopleSoft Industry Solutions
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Microsoft Great Plains Business Solutions
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Relative ERP Module Use(Mabert et al. 2000
Olhager Selldin, 2003)
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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

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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

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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.)

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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

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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

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EXAMPLES

• Dell Computers
• Chose to not adopt
• Siemens Power Corporation
• Implementation of selected modules

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Dell Computers

• Evaluation of SAP R/3

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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

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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

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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

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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

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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

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Siemens ERP ImplementationHirt Swanson (2001)

• Nuclear fuel assembly manufacturer
• Engineering-oriented

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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

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Siemens Modules

• FI Finance
• CO Controlling
• AR Accounts receivable
• AP Accounts payable
• MM Materials management
• PP Production planning
• QC Quality control

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Implementation

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

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Project Progress

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

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Permanent Team

• Made project team a permanent group
• Project manager had been replaced
• 2nd PM retained
• SAP steering committee
• SAP project team formed

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SAP steering committee

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

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SAP project team formed

• 15 members from key user groups
• part-time
• Trainer
• User help
• Advisors to middle management

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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

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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

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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