Hour 5: ERP System Installation

1
Hour 5 ERP System Installation

• Special IS Project
• In-house massive IS project, heavy system design
  features

2
ERP Implementation Project

• If vendor system
• Much less system design than otherwise
• Vendor software already programmed
• Only need interfaces
• Have help from vendor, consultants
• Opportunities to outsource

3
ERP as an IS Project

• At least 7 optional ways to implement ERP
• Outsourcing (ASP) the easiest
• But risky
• Next easiest is single vendor source without
  modifications
• Not necessarily least expensive, nor greatest
  benefits
• All others involve significant IS project

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Relative Use of ERP Implementation
StrategiesMabert et al. 2000
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Implementation Strategy Use

• Dominant strategy in manufacturing
• Single vendor
• Over half added internal modifications
• Very few best-of-breed
• Almost none developed totally in-house

6
IS/IT Project Management Results

• Conventional IS/IT projects have trouble with
  time, budget, functionality
• ERP projects have slightly more structure, but
  still face problems
• Underestimation of required time common
• Vendors have made easier faster
• Enhancement of systems another trend
• Reintroduces time problem

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Systems Failure Method

• systematic method for analysis of failure
• successfully applied - wide variety of situations
• by reviewing past failures, avoid future failure
• as organizations rely more on computers, there is
  a corresponding increase in significant business
  interruptions
• yet of 300,000 large mid-sized computer system
  installations, lt3 had disaster recovery plans

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Failures in Planning

• negative disasters decision culminating in
  physical result, later substantially modified,
  reversed or abandoned after heavy resource
  commitment
• power generation facility on campus
• positive disasters decision culminating in
  physical results implemented despite heavy
  criticism, subsequently felt by many informed
  people to have been a mistake
• Anglo-French SST BART in San Francisco

9
Failures of Projects

• information technology
• 1992 - London Ambulance Service
• 1.5 million pound system on line 26 Oct 1992
• immediately lost ambulances
• lt20 of dispatched ambulances reached
  destinations within 15 minutes of summons
• (before system, 65 met 15 minute standard)

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Failures of Projects

• Some never work
• others over budget, very late, or both
• others perform less than design
• others meet design specifications, but
  maintenance enhancement nightmares

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System Failure Method

• failure is regarded as an output
• of transformation processed from system
• place trial system boundaries around situation
• experiment with various configurations
• reach conclusion about system
• need to model system in some detail
• at different levels
• be careful not to make too fine, lose important
  inter-relationships

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common results

• failure commonly a result of
• organizational structure deficiencies
• lack of performance-measuring, control
• no clear statements of purpose
• subsystem deficiencies
• lack of effective communication between
  subsystems
• inadequate design
• insufficient consideration of environment
  insufficient resources
• imbalance of resources production quantity test
  quality

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FoxMeyer Drug

• Large drug distributor
• Wanted to implement ERP

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FoxMeyer Corp

• Holding company in health care services
• wholesale distribution of drugs beauty aids
• served drug stores, chains, hospitals, care
  facilities
• US 23 distribution centers
• Sought market niches, such as home health care

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FoxMeyer

• Due to aging population growth in health care,
  expected high growth
• Market had extreme price competition, threatening
  margins
• Long-term strategies
• efficiently manage inventory
• lower operating expenses
• strengthen sales marketing
• expand services

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Prior FoxMeyer IS

• 3 data processing centers, linked
• included electronic order entry, invoice
  preparation, inventory tracking
• 1992 began migration of core systems
• Benefits not realized until system fully
  integrated

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FoxMeyer Process

• Customer fills out electronic order
• Order sent to 1 of the 3 data processing centers
• Orders sent to the appropriate distribution
  center (within 24 hours)
• Orders filled manually and packaged
• Had just completed national distribution center
  with multiple carousels automated picking
• Could track inventory to secondary locations

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New System

• Needed new distribution processes IS to
  capitalize on growth
• Wanted to be able to undercut competitors
• Replacing aging IS key
• PROJECT 1994 - hoped to save 40 million
  annually (estimated cost 65 million)
• complete ERP installation warehouse automation
  system (another 18 million)

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FoxMeyer Project

• Select ERP
• hundreds of thousands of transactions
• meet DEA FDA regulations
• benchmarked tested for months
• picked SAP R/3
• hired Andersen Consulting to integrate
• hired Pinnacle Automation for warehouse
  automation system

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Operations

• FoxMeyer expected the new systems to improve
  operational efficiency
• Signed several giant contracts
• counted on savings, underbid competitors
• Counted on being up and running in 18 months

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Problems

• SAP warehouse automation system integration
• two sources, two installers - coordination
  problems
• New contracts forced change in system
  requirements after testing development underway
• Late, Over budget
• SAP successfully implemented

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Outcomes

• Lost key customer - 15 of sales
• To recoup, signed new customer, expected 40
  million benefit from ERP immediately - pushed ERP
  project deadline ahead 90 days, no time to
  reengineer
• Warehouse system consistently failed
• late orders, incorrect shipment, lost shipments
• losses of over 15 million
• August 1996 filed for Chapter 11
• McKesson bought

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McKesson Followup

• Mid-1990s started implementation of SAP R/3
• Cancelled project in 1996 after spending 15
  million
• 1997 acquired FoxMeyer
• Carefully designed new R/3 implementation
• Dropped a number of modules
• Implemented modules one at a time
• Cautious rollout schedule, rigorously followed
• Separate testing group formed
• At last report 50 million system on time, in
  budget

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McKesson

• Massive changes in 3,000 end user jobs
• Careful analysis of changes
• Surveys
• Focus groups
• Demonstrations
• Computer-based training

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Lesson

• Implementing ERP a major undertaking
• Can easily bankrupt a company
• However, it can also be done
• Opportunity for great benefits

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System Architecture ERP

• System architecture displays computer systems
  used to support organization
• Open systems architecture allows greater
  integration possibilities
• Important in supply chains, e-business
• ERP systems initially quite closed

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Open Architecture

• Many external systems being added to ERP
• CRM
• Supply chain
• Internet for e-business
• Need to integrate independent ERPs across
  organizations
• Messaging services used

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Analysis Design Control Frameworks

• Traditional standards for application development
• ERP implementation usually involves installation
  of vendor software
• Still need for treatment as installation project
• Early in project, extensive customization needed
• The more system flexibility, the more
  difficulties in implementation
• Object-oriented framework benefits extension,
  tailorability, customizability

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Application Service Providers

• Outsource ERP
• Popular
• Unocal pared IT staff 40 in two years
• Focus on core competencies, shed cost centers
• Many specific functions can be outsourced
• Outsourcing benefits
• Speed
• Organization lacks IT skills
• ASP the most popular way to outsource

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ASP Risks

• Your applications and data are controlled by
  others
• Service failures out of your control
• Confidentiality failure a possibility
• Performance issues possible

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Relative Implementation Effort
32
Implementation Effort

• Implementing ERP places strain on in-house
  information systems groups
• Consultants are expensive
• Sometimes need special expertise
• Tradeoff control vs. time cost

33
Summary

• ERP driven by idea of quality software support
• Software quality has long been important
• Many ERP implementation strategies available
• Tradeoff in control vs. time cost