Enterprise Resource Planning Systems ERP

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Enterprise Resource Planning Systems (ERP)

• Petr Caslavka

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What is ERP System?

• ERP (Enterprise Resource Planning) System is a
  software solution that addresses the enterprise
  needs taking the process view of an organization
  to meet organizational goals (profit, return on
  investment) tightly integrating all business
  functions

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Evolution of ERP

• ERP systems evolved from Materials Requirement
  Planning (MRP) Systems and Manufacturing
  Resources Planning System (MRP II) Legacy
  System
• MRP MRPII systems serving one specific
  purpose such as inventory or manufacturing

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Downfall of MRPs and MRPII

• Legacy system proved to be insufficient and
  unable to handle complex tasks as companies were
  engaging more and more in international trade,
  built international sites, and dealt with
  different currencies and languages.
• Legacy systems are not designed to communicate
  among each other
• Legacy systems lack analytical capabilities.

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Integration function

• ERP systems were specifically designed to
  eliminate these issues and provide tools for
  integration of various business functions,
  including
• Marketing
• Finance
• Procurement
• Purchasing
• Production etc.

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Ultimate goal of ERPs

• Better and faster Order Fulfillment
• Traditional order handling
• Duplication of tasks
• Lack of information sharing and cooperation
• Great potential for error
• With ERP
• No duplication
• Constant sharing of information among
  departments, typically real-time
• Reduced potential errors

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Delta Airlines

• 1997 New CEO - Leo Mullin
• IT one of the main problems of company
• Frequent duplication of tasks
• 30 different platforms
• More than seventy different databases
• None of the platforms were interconnected.

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Deltas solution - ERP

• Cross-functional team and external consultants.
• 30 million budget to implement the ERP powered
  by SAP (R/3)
• Elimination of half of the code
• Seventy databases were reduced to eleven
• Creation of "central nervous system
• The system now manages a new flight every 40
  seconds
• The system automatically notifies all selected
  users of every gate change, time change etc.

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Deltas solution - Continued

• All information is deployed simultaneously to
  gate agents, crews, baggage handlers, caterers,
  and even passengers via monitors.
• All flight relevant information is deployed to
  pilots, flight attendants, and other relevant
  staff via handheld devices and phones.
• Screens at each Delta gate answer passengers
  most common questions about flight delays,
  standby and upgrade lists, and boarding status.
• Delta also fully integrated its reward system Sky
  Miles into its ERP system.

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Hersheys Example

• Decision to implement ERP
• In September 1999 announcement of problems with
  its new order-taking and distribution computer
  system ERP.
• Project in a total cost of 112 million
  (Combination of SAP and Siebel CRM.
• Problems resulted in loss of 100 million worth
  of sales of candy products for Halloween
• The stock has fallen more than 8 in one day and
  15 in the week following Halloween
• It took the company twelve month to restore
  investor confidence and return to the previous
  price level.

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Typical Setbacks of ERP Implementation

• Complicated process and buy-in problems
• Buy-in from all parties involved.
• Traditionally processes may not have been
  efficient, but they were fairly simple.
• ERPs are changing the way the employees are
  utilized.
• It is making people communicate and cooperate.
• People don't like to change
• Enterprise resource systems ultimately ask
  people to change the way they work.

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Typical project length

• The actual length of project depends on the size
  of company, its IT budget, scope of
  implementation etc.
• Small companies should be able to successfully
  complete the implementation within 12 months.
• Mid-size and large companies often need 2 3
  years to complete the project.

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Implementation time
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Benefits of ERP for business

• Integration of financial information
• Integration of customer order information
• Streamline and speed up manufacturing processes
• Reduction of inventory
• Standardization of HR Management

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Total cost of ownership

• Total cost of ownership (TCO) of ERP include
  hardware, software, professional services and
  internal staff costs.
• TCO are usually measured over a period of up to
  two years afterward, which are the real costs of
  maintaining, upgrading and optimizing the system.
• Survey of 172 companies the average TCO was
  approximately 15 million (the highest was 464
  million and lowest was 56,000).

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TCO Survey by MetaGroup
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Hidden costs of ERP

• Training
• Customization
• Data conversion
• Consulting fees for extended period of time
• Replacing best and brightest employees

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Major Vendors of ERP Software

• SAP, A. G.
• German firm, which is the Worlds Leading ERP
  Software Provider (market share of 59) and the
  Worlds Third-Largest Software Provider
• Flagship Product is Known as R/3
• Products are used in more than 17,500 Firms in
  120 countries.
• Company employs about 28,000 people in more than
  fifty countries

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Major Vendors

• Oracle
• Oracle is the Worlds Leading Supplier of
  Information Management Software, Worlds 2nd
  largest software company
• Over 13,000 Customers.
• Its share of ERP market is 19 .
• Oracles Strategy Focuses on Five Principles
  Globalization, Simplification, Standardization,
  Automation, and Innovation.

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Major ERP Vendors

• PeopleSoft
• PeopleSoft primarily targets corporation that
  have labor intensive products.
• Its market share has been increasing in last 5
  years and reached 15 in 2002.
• It has been recently a target of hostile bid by
  Oracle.
• Siebel
• Software Company, which primarily sells ERP
  system with Customer Relationship Management
  function built in. Market share is currently 13 .

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Comparison of Major Vendors
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ERP and E-commerce

• Opinions that are ERPs are outdated
• ERP assumes that the only users handling order
  information will be internal employees. In the
  e-commerce age, suppliers and customers often
  require access to shared information, such as
  order status and inventory levels.
• B2B and B2C channels need to access the
  information from the same database, but present
  them in two different formats.
• ERP systems are big and complex and require
  maintenance. These two factors make it difficult
  to integrate because websites cannot or should
  not be taken down. Taking the website down
  results in loss of sales and causes major
  aggravation for customers.

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ERP consulting industry

• ERPs created a brand new branch of consulting
  industry.
• This subject was the hottest of the consulting
  market in late 1990s.
• ERPs were considered a silver bullet and
  hastily utilized by all major companies.
• Because the implementation is very complicated,
  consulting became necessary. Majority of the
  early ERP implementations ended up costing more
  in consulting fees than any other part of the
  project.
• Consulting fees usually went to a very small
  group of companies and consultants making it one
  of the most lucrative branches of consulting.

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Pay in ERP Consulting

• The market for consultants was among the hottest
  markets in the late 1990s.
• Average salary of experienced ERP consultant
  reached 150,000/year with the top consultants
  making over 2 million/year.
• Companies usually engage in hiring race for the
  top employees of companies that just finished ERP
  implementation.
• Signing bonuses of 100,000 were not unheard of.
  
• The industry has cooled off significantly, but
  remains among the most attractive in consulting
  overall.

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