Enterprise Resource Planning

1
Enterprise Resource Planning

• Wisnu Cahyono
• Wenbin Li
• Erica Price
• Jurlian Sitanggang

April 25, 2007
2
Overview

• Introduction
• Suppliers of ERP
• Implementation of ERP
• Case Studies

3
ERP Evolution
The Evolution of ERP Systems A Historical
Perspective, 2002
4
What is ERP?

• ERP is a packaged business software system that
  enables a company to manage the efficient and
  effective use of resources (materials, human
  resources, finance, etc.) by providing a total,
  integrated solution for the organizations
  information-processing needs.

Fiona Fui-Hoon Nah et al, Critical factors for
successful implementation of enterprise systems
Business Process Management Journal, 2001
5
Before ERP Implementation
Customer Relationship Management (CRM)
Supply Chain Management (SCM)
Suppliers
Distributors
Customers
Individualized Business Systems with no Central
Database!!! Not Efficient!!
Witten Bentley Dittman, System Analysis and
Design Methods, 6th, McGraw-Hill, 2004
6
After ERP Implementation
The Evolution of ERP Systems A Historical
Perspective, 2002
7
Data Flow Before / After ERP Application
http//www.sei.cmu.edu/plp/EI_IRAD/ERP-Solutions.p
df
8
ERP Modules
mySAP ERP Demos
www.networkdictionary.com/software/erp.php and
http//projects.bus.lsu.edu/independent_study/vdhi
ng1/erp/
9
Typical Benefits of an ERP System

• Reductions
• Inventory 20
• Material Cost 5
• Labor Cost 10

• Improvements
• Customer Service and Sales 10
• Accounting Control (Reducing the days of
  outstanding receivables) 18
• Balance Sheet Inventory Reduction and Accounts
  Receivable
• Income Statement Inventory Reduction, Material
  Cost Reduction, Labor Cost Reduction and
  Increased Sales

Based on Studies that surveyed manufacturers
about the impact of ERP systems on firm
performance. For all industries and company size
Maximizing Your ERP System, Scott Hamilton, 2002
10
Advantages of an ERP System
These are the benefits that an industry standard
ERP system may bring to an organization
The Evolution of ERP Systems A Historical
Perspective, 2002
11
Potential Pitfalls of ERP Implementation

• No executive sponsor
• Becomes a centralized implementation in 1
  department when it is really needs to be adapted
  by all departments
• No full-time project manager
• Lack of training for employees
• Proper research of vendors before selection of
  ERP package
• Lack of Budget need to consider software,
  consultants, employee training and upgrade costs
• Lack of thorough documentation when implementing
  the system
• Concentrating more on re-engineering than Process
  Enhancement

Web Poll survey conducted by Panorama Consulting
Group, n50, conducted on 11/7/06
Weekly Poll Results, Eric Kimberling, Panorama
Consulting Group, 11/7/06 and The Top 8 Pitfalls
of ERP Implementation and How to Avoid Them,
Paul Nation, eSG enterprise Solution Group
12
Disadvantages of an ERP System
The Evolution of ERP Systems A Historical
Perspective, 2002
13
Market Share of Packaged Application
ERP Software Market grew to 25.4 Billion in
2005!!!
http//www.bptrends.com/publicationfiles/TB20Wolf
20Pack20Appl20Market20Size2042D52D0312Epdf

14
ERP Market Share Within the Industries
15
Overview

• Introduction
• Suppliers of ERP
• Implementation of ERP
• Case Studies

16
Top 5 Revenue Share
ERP Software Market grew to 25.4 Billion in
2005!!!
Source AMR Research, 2006
17
Pilot Software
Intention to buy Retek Inc.
SPL (Nov. 2006)
Hyperion Tangosol Lodestar
Siebel (June 2006)
Retek Inc (Apr.6, 2005 )
Peoplesoft (Jan 7, 2005)
http//new.quote.com/stocks/adv_chart.action?symO
RCL
18
http//www.sap-centric-eam.com/2007/cartoon_dec.ht
ml
19
Systems Applications and Products in Data
Processing

• Founded in 1972
• Based in Waldorf, Germany
• US Corporate Headquarters in Newtown Square, PA
• 39,300 employees in over 50 countries
• Supports more than 38,000 customers, with over
  121,000 installations in more than 120 countries
  and 31 languages (over 12 million daily users)
• From small business to global enterprise
  (To-date 65 of SAP customers are small
  midsize companies)
• Revenue 2006 9,402 million (10) 12.2
  Billion
• Net Income 2006 1,871 million (25) 2.4
  Billion

http//www.sap.com/germany/company/investor/report
s/gb2006/en/business/financial-summary.html http/
/www.sap.com/usa/company/index.epx ,
http//www.nasdaq.com/asp/
20
Products

• SAP Business Suite (CRM, ERP, SCM, PLM, SRM)
• SAP All-in-One (Mid-size company)
• SAP Business One (over 10,000 small businesses)
• Duet
• Provides access to SAP business processes and
  data via Microsoft Office
• SAP xApps Composite Applications
• Major business strategy of today
• SAP Acquires Pilot Software (OLAP) on Feb 2007
• To target mid-market companies to expand their
  market share
• All-in-One features integrated CRM, BI and
  analytics, and a redesigned user interface.
• IBM and SAP announce the expansion of their
  partnership to reach midsize companies in Europe
  and Asia-Pacific (Apr 23, 2007)

http//www.sap.com/solutions/index.epx ,
http//www.forbes.com/markets/feeds/afx/2007/04/23
/afx3640526.html http//www.computerworld.com/acti
on/article.do?commandviewArticleBasicarticleId9
011563
21

• Founded in 1977
• World Headquarters in Redwood Shores, CA
• 55,000 employees
• Used in 98 of the Fortune 100 companies
• First software company to develop and deploy 100
  percent internet-enabled enterprise software
  across its entire product line
• Revenue 2006 14.38 billion (21.87)
• Net Income 2006 3.38 billion (17.15)

http//www.oracle.com/corporate/story.html
http//www.infoworld.com/article/05/06/29/HNoracle
revenuejumps_1.html http//news.com.com/Oraclepro
fitrisesonnewsoftwarerevenue/2100-1014_3-6087
043.html http//www.nasdaq.com/asp/
22
Products

• Oracle e-Business Suite (business applications
  for the enterprise)
• JD Edwards World (IBM iSeries platform, small
  businesses)
• JD Edwards Enterprise One (medium-end)
• PeopleSoft Enterprise (high-end)
• Retek Inc. - SCM (Apr.6, 2005, controls 92.8
  percent of Retek shares)
• Siebel CRM Solution (4,000 customers)
• Major business strategy of today
• Project Fusion (merged suite, 2008)
• With strategic acquisitions, Oracle strengthens
  its product offerings, accelerates innovation,
  meets customer demand more rapidly, and expands
  partner opportunity.
• Hyperion - producer of business-intelligence
  software
• Tangosol Inc. - Memory Data Grid Leader perform
  real time data analytics, grid based in-memory
  computations and high performance transactions
• LODESTAR Corporation - a provider of meter data
  management and energy solutions for the utilities
  industry (Oracle's 29th buy in less than 3
  years).

http//www.oracle.com/products/index.htmlapplicat
ions , http//www.oracle.com/corporate/a
cquisition.html http//www.oracle.com/products/ind
ex.htmlapplications http//www.itnews.com.au/news
story.aspx?CIaNID50355srcsite-marq http//news.
com.com/OracletoswallowSiebelfor5.8billion/2
100-1014_3-5860113.html ,
http//money.cnn.com/2004/12/13/technology/oracle_
peoplesoft/ http//www.internetnews.com/bus-news
/article.php/3582106 (Siebel) ,
http//new.quote.com/stocks/story.action?idRTT704
240824001488 (Lodestar) http//www.eweek.com/artic
le2/0,1895,2099636,00.asp (Hyperion) ,
http//www.oracle.com/corporate/press/2007_apr/hyp
erion-clearances.html http//www.marketwatch.com/n
ews/story/oracle-buy-hyperion-52-share-33/story.as
px?guid7BDD070F86-54F7-4709-A26A-12199FEB68B37D

23
Other Vendors
- Microsoft Dynamics (mid-large company) -
Retail Management System (small and mid-sized
retailers)
Industry tailored application (small-mid co)
Distribution and Logistics (start up large
co)
Industry solution (mid market)
Industry, control and transportation (high-end)
Manufacturers (mid market)
http//www.microsoft.com/dynamics/default.mspx
, http//www.lawson.com/ ,
http//www.sage.com/ http//www.epicor.com/www/pr
oducts/enterprise/ , http//www.invensys.com
/ , http//www.ssaglobal.com/
http//go.infor.com/docs/FINAL_Infor_Acquires_Exte
nsity_and_Systems_Union.pdf
24
Overview

• Introduction
• Suppliers of ERP
• Implementation of ERP
• Case Studies

25
Cost and Time of ERP Implementation
Average Cost 9.1 million Average
Time at least 1 year Average Usage
27.6 of ERP available functionality
Cost Allocation
Survey of 107 separate ERP applications
http//www.standishgroup.com/chaos/beacon_243.php
26
Performance of ERP Implementation
http//www.standishgroup.com
27
FourPhase Model of ERP Implementation
Critical Success Factors for ERP Implementation
------- developed by Markus and Tanis in 1999
Chartering Decision define business case and
solution constraints Project Getting system and
end users up and running Shakedown Stabilizing,
eliminating bugs, getting to normal
operation. Onward and Upward System maintenance,
users support, system upgrading and extension.
Critical Success Factors for Enterprise Resource
Planning Implementation and Upgrade, Journal of
Computer Information Systems, 2006, Fiona
Fui-Hoon Nah and Santiago Delgado
28
Survey in utility industry and non-profit
organization
29
Survey of 500 Separate ERP Implementations
30
Business Drivers for ERP Implementation
31
Software Selection for ERP Implementation
32
Main Methods used in ERP Implementation
33
Challenges and Responses of ERP Implementation
34
Performance Improvement with ERP Implementation
Laggard(30) ERP implementations that are
significantly behind the average ---poor
performance Average(50) ERP implementations
that represent the average or normal---average
performance Best in Class(20) ERP
implementations that are superior to the industry
normal---top performance
35
Expected and Actual ROI with ERP Implementation
Laggard(30) ERP implementations that are
significantly behind the average ---poor
performance Average(50) ERP implementations
that represent the average or normal---average
performance Best in Class(20) ERP
implementations that are superior to the industry
normal---top performance
36
Overview

• Introduction
• Suppliers of ERP
• Implementation of ERP
• Case Studies

37
Case 1 FoxMeyer Drugs
FoxMeyer Drug Co.

• FoxMeyer Drugs was the nations fourth largest
  Wholesale Distributor of Drugs and Beauty aids,
  based in Dallas
• Has 23 distribution centers
• Major Product Wholesale distribution of drugs
  beauty aids
• Customers/serves Drugs stores, Chains,
  hospitals, care facilities
• Revenue (1995) 5 Billions gt 1996 Sold for
  just 80 Millions
• The VP of IT Department report to COO

Source Gray, Paul, Managers Guide to Making
Decisions about Information Systems, 1st, John
Wiley Sons, 2006
38
Case 1 FoxMeyer DrugsWhy they want to
implement ERP?
FoxMeyer Drug Co.

• FoxMeyer expected high growth in drug sales
• To increase efficiency
• Their Unisys computer systems were reaching the
  end of their life and the vendor was
  discontinuing support.
• FoxMeyer expected the project to save 40 M
  annually (Promised benefits).

Source Gray, Paul, Managers Guide to Making
Decisions about Information Systems, 1st, John
Wiley Sons, 2006
39
Case 1 FoxMeyer Drugs Project Scope, Time,
Cost
FoxMeyer Drug Co.

• Project The Delta III
• Project scope ERP R/III Edition Warehouse
  Automation System
• Time budget estimation
• - 18 Months
• - 15 Millions
• Actual project delivery date cost
• - 24 Months
• - Over 100 Millions

Source Gray, Paul, Managers Guide to Making
Decisions about Information Systems, 1st, John
Wiley Sons, 2006
40
Case 1 FoxMeyer Drugs Suppliers/Vendors
FoxMeyer Drug Co.

• SAP Provide ERP Version R/3 Project
• Pinnacle Provide Warehouse Automation System
• Anderson Consulting Perform Integration

Source Source Judy E. Scott, The University of
Texas at Austin
41
Case 1 FoxMeyer Drugs Which ERP Function
Module are Applied?
FoxMeyer Drug Co.

• SAP R/3 Edition
• Financials and Controlling (FICO)
• Human Resources (HR)
• Materials Management (MM)
• Sales and Distribution (SD)

Source Judy E. Scott, The University of Texas at
Austin
42
Case 1 FoxMeyer Drugs ERP Implementation
FoxMeyer Drug Co.
Source delivery.acm.org
43
Case 1 FoxMeyer Drugs Why this project is a
failure?
FoxMeyer Drug Co.

• The customers less commitment
• The scope of the project was risky
• FoxMeyer was over expectations
• The new system initially could only process
  100,000 orders/night compared to 420,000 orders
  with the previous system
• FoxMeyer management did not feel it knew enough
  to cope with the Consultant and the Vendors
• FoxMeyer did not have the necessary skill in
  house
• The project spin out of control

Source Gray, Paul, Managers Guide to Making
Decisions about Information Systems, 1st, John
Wiley Sons, 2006
44
Case 1 FoxMeyer Drugs Lessons Learned
FoxMeyer Drug Co.

• Respond to environmental and strategic changes at
  more tactical (project) levels
• Recognize the importance of organizational
  culture foster an open culture and encourage
  open communication
• Take a realistic view of the role technology can
  play in supporting your firms strategy engage
  in a strategy of small wins to leverage
  knowledge gained
• Manage the project employ a strong project
  leader and well defined methodology.

Source April 2002/vol. 45 No. 4 Communications
of the ACM
45
Case 2 Schnucks

• Founded in St. Louis in 1939
• Major Departments Groceries, Bakery Goods,
  Florist, and Pharmacy
• Has more than 100 stores in Missouri, Illinois,
  Indiana, Wisconsin, Tennessee, Mississippi and
  Iowa
• 2006 Revenues 2.4 Billion
• IT department has 90 people
• About 30 of the 90 are developers
• Mark Zimmerman is the VP of IT and he reports to
  the President of the company, Todd Schnuck .

46
Case 2 Schnucks Why they needed ERP

• Needed to upgrade their system to be Y2K ready
  and wanted to have a relational database (UNIX)
  to get off the mainframe system.
• Benefit Provided single point of data entry for
  all of their financial information.
• Business Drivers Standardization of processes
  and linking of operations
• Implemented PeopleSoft Financial (general ledger,
  fixed assets, AR, AP) Financial Module of ERP
• Selected between Oracle and PeopleSoft
• Decision factors ease of use and meeting IT
  needs
• PeopleSoft provided better ease of modification
  and had slightly better cost
• Project started in fall of 1998 and completed in
  October 1999 on time.
• Budget Estimate had 2 components Purchase price
  of the software and the consultants

47
Case 2 SchnucksImplementation of the Financial
Module

• Used a combination of PeopleSoft software,
  consultants and in-house personnel to implement
  the system
• Critical success factors used
• Top Management Support
• Minimum Customization
• Focused on Training for Employees
• Used a full-time Project Manager
• Critical success factors not used
• Sufficient prior ERP knowledge underestimated
  budget and staff needed
• Cross-functional team for implementation
• Accurate documentation of implementation need
  this for upgrades, especially if staff if lost

48
Case 2 Schnucks Improvements/Disappointments

• Biggest Improvements
• Provided more timely and accurate financial
  status and analysis with no wait for IT
• Provided a new technology for IT to learn and was
  easier to use
• Better access to data, query capacity and learned
  controls and provided Y2K compliance
• Biggest Disappointments
• On-going costs for software
• Underestimated the needs and costs for the
  infrastructure of the new software
• Not enough expertise at the time of
  implementation
• Need more training resources

49
Case 2 Schnucks Changes from Implementation

• Before ERP Implementation
• All financial data was running off a mainframe
  system (Legacy)
• Not Y2K Compliant
• Financial Status and Analysis was timely for
  executives to complete because of poor access to
  data
• IT had little knowledge of ERP systems

• After ERP Implementation
• All financial data came from a relational
  database (UNIX)
• System was Y2K Compliant
• Financial Status and Analysis was more efficient
  and accurate for executives because they had
  access to the data w/o ITs help
• IT gained experience in Oracle technology

50
Case 2 Schnucks Our Lessons Learned

• Be aware of the on-going costs of an ERP system
• Take the time to research vendors, analyze your
  needs and understand ERP systems before starting
  implementation
• Keep accurate documentation during implementation
  to be used for upgrades
• Have sufficient staff before implementation of
  the system

51
Case 3 PT. PLN (Persero)

• PT. PLN is the Indonesian state-owned electricity
  company.
• Has 25 regional units across all the 32 provinces
  in Indonesia
• 2005 Revenues Rp 76,5 Trillion ( US 8
  Billion )
• IT department in Head-office has 45 people
• The Deputy Director of IT Strategy reports to the
  Director of Marketing Customer Service
• Source of case information Poedji Wisaksono
• HR Information System Manager in the Head office
  and he reports to the Deputy Director of Human
  Resource Development System.
• One of the change agents for ERP Implementation
  in the company

52
( Why implement ERP? )
53
Case 3 PT. PLN Project Scope and Schedule

• Vendor selection in February 2004 - April 2005
• Project started in May 2005
• Go Live
• Finance Module April 06 July 06
• Material Module April 06 July 06
• Human Resource Module December 05, April 06
  July 06
• ERP Budget
• IT budget for the development of the ERP system
  is US 25 million.
• in which, 15.4 Million was allocated to 4 Pilot
  Project Units
• ----- Head Office
• ----- Bali Distribution Unit
• ----- Jakarta Distribution Unit
• ----- Load Control Center (P3B) Unit

54
Case 3 PT. PLN Software Selection

• Vendor selection
• February 2004 - April 2005
• Accenture (Consultant)
• SAP (Application)
• HP (Hardware)
• Oracle (Database)
• Reason of Software Selection
• Functionality
• Total Cost of Ownership
• Ease Speed of Implementation
• Best Practice

55
Case 3 PT. PLN - ERP Application
Management Functional / Operational All Employees
ERP Back Office
Finance Module
Material Module
HR Module
ESS (Employee Self-Service)
SEM / BW (Strategic Enterprise Management
/ Business Warehouse)
- Financial Management Report - Material
Management Report - HR Management Report
Direct information and services for employees
56
Case 3 PT. PLN Method Used

• Deploying through consultant agency
• After ERP Go-Live
• Has a Helpdesk of 7 persons in Head Office
• User Support
• Has a developer team of 30 persons preparing for
  the Onward and Upward phase
• System maintenance, system upgrading and
  extension

57
FourPhase Model of ERP Implementation
Case 3 PT. PLN Critical Success Factors
------- developed by Markus and Tanis in 1999

• Shakedown Stabilizing, eliminating bugs,
  getting to normal operation.
• Employees were not completely ready for the new
  system
• Not enough expertise at the time of
  implementation
• Need more training resources
• Still needs to implement both legacy and new
  system for Finance and Human Resources
• Change management

Critical Success Factors for Enterprise Resource
Planning Implementation and Upgrade, Journal of
Computer Information Systems, 2006, Fiona
Fui-Hoon Nah and Santiago Delgado
58
Case 3 PT. PLN Challenges

• Challenges
• Customization Related Challenges
• Training
• Little flexibility in adapting to business
  processes
• Lengthy or incomplete integrations
• Responses to challenges
• Aligning software capabilities to business
  processes
• Use external consultants
• Wrap existing applications with web services
• 360 degree assessment

59
Case 3 PT. PLN Changes from Implementation

• Before ERP Implementation
• Data are not standardized
• Data input redundancy
• Uses several applications for reporting

• After ERP Implementation (Still in the verge of
  implementing ERP)
• In the transition period Still uses both ERP and
  legacy applications
• Better access to data
• Acquiring new technology
• Reduced FTE (Full Time Equivalent)
• Increase ITO (Inventory Turn over)
• Reduced Inventory Level (more control on
  inventory)
• Cuts transactions and administration works

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ACCENTURE HUMAN CAPITAL DEVELOPMENT FRAMEWORK
63
Case 3 PT. PLN Lessons learned

• Replacing the legacy system cannot be done after
  the implementation of the pilot project
• Extensive training for employees
• Management Support is needed
• Changing application needed data cleansing
• Development of the Human Capital

64
Case Comparisons
Case 1 FoxMeyer Drugs (1993) Case 2 Schnucks (1999) Case 3 PLN (2006)
Revenue 5 Billion 2.4 Billion 8 Billion
Reason for ERP Increase the sales Increase the efficiency Replaced legacy system Increase profit To become Y2K compliant and replace legacy systems - Have a controlled and standardized environment - Implementing adopted Best Practices - Get a better operation and control mechanism
Time 24 months 1 year 18 months
Vendor SAP PeopleSoft SAP
Project Cost Over 100 million Unknown 15.4 million
Modules Warehouse Automation Financial Human Resources Material Financial
Methods used - ERP Vendor and consultant - ERP Vendor and consultant - ERP consultant
Class Failure Average Average
Outcomes COO Resign 34 M charge for inventory and order mix-ups Bankruptcy Sues Anderson Consultant Sues SAP Became Y2K compliant Financials became more timely and accurate faster analysis IT gained new technology knowledge Pilot project in 4 units Potential outcome - Reduced FTE (Full Time Equivalent) - Increase ITO (Inventory Turn over) - Reduced Inventory Level
FoxMeyer Drug Co.
65
Future of ERP Systems
                                                                                                                                                                                          

http//itmanagement.earthweb.com/erp/print.php/364
3966
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Future Goals of ERP

• There is a movement toward a global ERP system,
  which is a key factor shaping the future of ERP
• Companies want to have fewer and fewer ERP
  systems running meaning eventually they only
  want to open one application to get any
  information they need.
• There is a shift toward creativity around product
  strategies rather than the current products

http//itmanagement.earthweb.com/erp/print.php/364
3966
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Questions???