Enterprise Resource Planning (ERP) Models

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Enterprise Resource Planning (ERP) Models

• Dr. Merle Martin
• Dr. Yan Xiong
• College of Business
• CSU Sacramento
• 10/06/03

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Agenda

• What is ERP?
• ERP Advantages and Disadvantages
• Application Service Providers (ASP)
• FHC a Case Study

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What is an ERP System?

• Packaged software designed
  to process an organizations transactions and
  facilitate integrated and
  real-time planning, production and consumer
  response.
• Daniel OLeary

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ERP Definition

• It attempts to integrate all departments and
  functions across a company onto a single computer
  system that can serve all those different
  departments particular needs
• Koch, C 2002

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ERP Suppliers

• In order of sales
• SAP
• People Soft
• Oracle
• Baan
• J. D. Edwards

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ERP Market

• Info-Tech Consulting Group
• 70 of Fortune 500 firms
• 37 growth over next 5 years
• Global market projected
  to 15 billion in 5 years

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Functions

• Integrated suite of software application models
• Real-time database update
• Supports organizations with multiple companies in
  multiple locations
• Supports any number of currencies

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Functions (Cont.)

• Supports multiple languages
• Suitable to wide range of industries and
  organizations
• Industry specific templates

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SAP (R/3) Functions

• Financial
• AM Asset Management
• CO Controlling
• FI Financial Accounting
• WF Work Flow
• IS Industry Solutions

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SAP (R/3) Functions

• Manufacturing
• PM Plant Management
• PP Production Planning
• QM Quality Management
• MM Materials Management

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SAP (R/3) Functions

• Other
• HR Human Resources
• PS Project System
• SD Sales and Distribution

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SAP

• Targets very large companies
• Industry templates
• Best Practices
• most efficient methods for doing business
• Modular design can choose functions
• SAP not just software
• way of doing business

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People Soft

• Pure Internet environment
• Entire CSU system converting over next few years.
• Ease if use

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Oracle

• Has leveraged database dominance
• Emphasis on security
• Integration linking applications, data. Web
  services, users and partners

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BAAN

• Unique vertical market capabilities
• Chemicals
• Food Beverage
• Pharmaceuticals
• Cable Wire
• Pulp Paper
• Primary Metals

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JD Edwards

• Focus on mid-sized companies
• Easy integration with current systems
• Open, scalable, and flexible

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Agenda

• What is ERP?
• ERP Disadvantage and Disadvantage
• Application Service Providers (ASP)
• FHC a Case Study

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Why ERP?

• Highly competitive markets
• Continually changing business environment
• Need for integration
• Within company
• Between dispersed operations
• Between alliance partners

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Why ERP?

• Reduce operating costs
• Integrate operations
  (more control)
• Increase organizations time efficiency
• Encompass different types of software

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ERP Advantages

• Integrates firms activities
• Uses Best Practices
• Enables organizational standardization
• Eliminates information asymmetries
• Provides on-line/real-time information

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ERP Advantages

• Allows simultaneous access to information for
  planning and control
• Facilities intra-organization collaboration

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ERP Advantages

• Eliminates redundant efforts and
  duplicated data
• 33 of companies had sales order cost
  savings
• 34 significantly reduced personnel needs
• Faster movement of goods, services
• more sales generated per month

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ERP Intangible Advantages

• Keeping up with competitors
• Save vendor, customer frustration
• Savings occur over several years
• Implementation takes years
• Some companies dont make ROI calculations
• too many intangibles
• cultural change (e.g., FHC)

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ERP Disadvantages

• High cost (particularly for
  small business)
• Privacy and security
• Long implementation time
• Displaces clerical employees
• May have to change business to fit software

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ERP Costs

• Total Costs
• License
• Training
• Implementation
• Maintenance
• Customization
• Hardware required

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ERP Cost Percentages

• Norris et al. 2000
• Software 15
• Hardware 12
• Training 15
• Data Conversion 15
• Reengineering 43
• tailor to fit software

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ERP Critical Success Factors

• Top management commitment
• Management of change
• Resistance to over-customization
• Heavy infrastructure difficult to change
• Similar to battleship changing course

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Evaluating ERP Software

• Functional fit into companys business
• Flexibility and scalability
• Complexity (Usability)
• Shortened ROI periods
• Ability to support multi-site planning and control

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Evaluating ERP Software

• Technology
• Client / server capabilities
• Database independence
• Availability of regular upgrades
• Local support infrastructure
• Availability of reference site

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Agenda

• What is ERP?
• ERP Advantages and Disadvantages
• Application Service Providers (ASP)
• FHC a Case Study

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Outsourcing ERP

• High costs ERP maintenance
• ERP outsourcing?
• install upgrades
• maintain modules
• trouble-shoot problems
• police platforms

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Why Outsource ERP?

• Lack of specialized ERP staff
  skills
• ERP specialists expensive
• cheaper to use ERP outsourcer if dont use skills
  on full-time basis
• ERP upgrade releases very frequent
• Firms want IT to focus on activities that add
  value to core processes

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Application Service Providers

• ASP
• Lease expensive software packages such as SAP
• Allow multiple users over internet
• Charge users by the transaction
• Provide startup services
• tailoring and training

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Applications

• Deloitte Touche
• SAP
• Hyper Deploy over Web
• One change rather than many
• Prospective customers can play with
  application

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ASP Problem

• Confusing array of emerging
  ASPs
• Pure Play founded explicitly for new ASP
  market
• Application Vendor (e.g., SAP)
• Telecommunications Carriers and ISPs
• add ASPs to existing networks
• e.g., ATT, US West

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ASP Problem

• Info-Tech Research predicts that, by
  year-end 2001, 60 of todays ASPs will fail due
  to
• poor business models
• choice of partners
• failure to execute / consolidate their offerings
• KEY DECISION Gamble early or wait for market to
  shake out?

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Agenda

• What is ERP?
• ERP Downsides
• Application Service Providers
• FHC a Case Study

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FHS

• Foundation Health Systems
• Fortune 500 firm
• Was FHC (Corporation) before merger with Health
  Net
• Created by merger of diverse heath provider
  companies throughout country

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FHS

• Needed to standardize
  language, culture, and
  business rules
• IT Department proposed complete centralization of
  IT operations
• IT centralization attempted, but met
  with severe resistance from local units
• Abandoned shortly after merger

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FHC ERP Goals

• Main objective to standardize back office
  business rules
• Wanted to change organization culture by means of
  software
• Back-end centralized using SAP
• Front-end decentralized by business unit
• e.g., Dental Care in Texas

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Sales Offices
FHC ERP Model
Warehouse
Accounting
HQ
Factory
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Foundation Network Organization
Decentralized

Front-line Specialists
Field sales and service
Front-line Support
Local Offices
Back-line Specialists
Management
Centralized (SAP)
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FHC SAP Implementation

• Implementation took 4 years 1996-2000
• Hired specialized expensive, full-time SAP
  analysts and programmers
• Ran into problems and had to reimplement portions
  of systems

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FHC ERP Problems

• Problems integrating with existing legacy
  applications
• Extensive upgrades

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FHC ERP Issues

• Why did they choose best practice approach?
• When didnt they outsource ERP or ASP?
• Why did they hire expensive SAP specialists who
  would not be needed in future?
• Should ERP be used for organizational redesign?

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Issue

• Compare what is happening in
  the E-Business arena and the features of ERP. Is
  ERP compatible with the future of business?
• Why or why not?

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Topics Discussed

• What is ERP?
• ERP Advantages and Disadvantages
• Application Service Providers
• FHC a Case Study