ERP

1
ERP Enterprise Resource Planning

• Presented By
• David Giles
• Matthew Haack
• LeRue Holbrooke

2
Topics of our presentation

• Overview of ERP
• Best Practices of implementing ERP
• Summary of ERP Vendors
• Case studies of ERP Implementations

3
What is ERP?

• Enterprise Resource Planning is the
  implementation of software that allows companies
  the ability to integrate their software to work
  more efficiently and hopefully provide better
  customer service.
• Integrates several business functions Finance,
  Accounting, Logistics, HR, Sales Marketing,
  ETC

Davenport, Thomas. Putting The Enterprise Into
The Enterprise System Harvard Business Review.
July-August 1998. pp. 121-131
4
How does ERP work

• The simplest way to describe ERP is to think of
  it like a building block that you can add to on
  any side.
• These building blocks are known as modules that
  work together by sharing information.
• The information that the modules share can vary
  from finance to manufacturing and all points in
  between.

5
Before ERP
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Enterprise Resource Modules
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ERP Model
Managers and Stakeholders
Financial Applications
Reporting Applications
Human Resource Management Applications
Sales and Delivery Applications
Central Database
Manufacturing Applications
Sales Force And Customer Service Reps
Back-office Administrators And Workers
Customers
Suppliers
Service Applications
Employees
Human Resource Management Applications
Inventory And Supply Applications
Davenport, Thomas, Putting the Enterprise into
the Enterprise System, Harvard Business Review,
July-Aug. 1998.
8
History of ERP
9
Where is ERP headed

• Enterprise Resource Planning will become more and
  more prevalent in the business world as prices
  for technology reduce and software vendors try to
  find new customers.
• ERP will also be moved back onto a central
  computer such as a host so that more customers
  can use their ERP software anywhere.

10
Project Lifecycle
www.peoplesoft.com
11
ERP Implementation Best Practices

1. Business process review / re-engineering
2. Establish knowledgeable project team
3. Ensure software compatibility with industry
   practices and requirements
4. Prepare organization for change
5. Establish sufficient training methods
6. Perform gradual implementation
7. Keep short project lifecycles

12
Promised Benefits of ERP

• Improved Productivity
• What was the improved productivity at MEMC?
• Improved Customer Demand Management
• Cost Reductions
• Manufacturing Efficiencies

Seewald, N., Enterprise Resource Planning Tops
Manufacturers IT Budgets, Chemical Week, New
York, Sep 11, 2002, Vol. 164, Issue 35, p.34
13
Hidden Costs of ERP

• Organizational Culture Change
• Testing
• Data Conversion
• Data Analysis
• Transition From Outside Consultants

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Hidden Cost of Training

• Costs usually underestimated
• Owens-Corning
• Original Estimate 6 of Project Budget
• Actual Results 13 of Project Expense
• Train the Trainers

White, J.B., D. Clark and S. Ascarelli. The
German Software Is Complex, Expensive, and Wildly
Popular. Wall Street Journal, March 14, 1997,
A1, A12.
15
Hidden Costs of Integration

• Typically 30 of Project Cost
• Unplanned customizations raise cost
• Incremental integrations more successful

Vowler, J. You Cannot Afford to Ignore
Integration. Computer Weekly, June 3, 1999, 44.
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ERP Overview of Vendors

• PeopleSoft / JD Edwards
• SAP
• Oracle
• Baan, IFS, Great Plains, Lawson, et. al.

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ERP Vendor Revenues (2002)
Per each companies FY 2002 annual report
www.sap.com www.oracle.com www.peoplesoft.com
18
ERP Vendor Net Incomes (2002)
Per each companies FY 2002 annual report
www.sap.com www.oracle.com www.peoplesoft.com
19
ERP By Customer Size (2003 Data)
Peerstone Research Group via http//www.peerstone.
com/pdfs/Samples_of_Quantitative_Data_from20_ERP_
Studies.pdf 3-15-04
20
ERP By Company Type (2003 Data)
Peerstone Research Group via http//www.peerstone.
com/pdfs/Samples_of_Quantitative_Data_from20_ERP_
Studies.pdf 3-15-04
21
ERP Functions Utilized (2003 Data)
Peerstone Research Group via http//www.peerstone.
com/pdfs/Samples_of_Quantitative_Data_from20_ERP_
Studies.pdf 3-15-04
22
Costs of ERP By Vendor (2003 Data)
Peerstone Research Group via http//www.peerstone.
com/pdfs/Samples_of_Quantitative_Data_from20_ERP_
Studies.pdf 3-15-04
23
CASE STUDY

• FoxMeyer Drug

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Enterprise Resource Modules
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FoxMeyer Drug

• Formerly 5 billion in revenue (1995)
• 2400 employees in 21 states
• Pharmaceutical products
• Major customers hospitals universities
• 4th largest distributor of pharmaceuticals in
  U.S.

Scott, Judy E. The FoxMeyer Drugs Bankruptcy
Was it a failure of ERP? Assoc. IS 5th Americas
Conference Milwaukee WI Aug. 1999
26
FoxMeyer Why ERP?

• Align technology with business strategy
• Basic strategy of growing the business
• Unisys mainframe nearing capacity orders
  including more than 300,000 items each day
• Decided client/server was best option
• Project Delta III initiated in 1993

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
27
Delta III Project Plan

• 18 months
• 65 million cost
• Estimated 40 million in annual savings
• Outsourced to Andersen Consulting (now Accenture)
  and Pinnacle Automation
• CEO CIO were co-project champions

Scott, Judy E. The FoxMeyer Drugs Bankruptcy
Was it a failure of ERP? Assoc. IS 5th Americas
Conference Milwaukee WI Aug. 1999
28
FoxMeyer Drug Consultants

• Andersen Consulting (Accenture)
• Provided Implementation Support
• On-Site staff of 50 people at one point
• Pinnacle Automation
• Supplied conveyor equipment
• Supplied Warehouse Automation System
• SAP Provided ERP package

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
29
Why Pinnacle Warehousing?

• FoxMeyer required software capable of
• High volume of transactions
• Complex pricing models
• SAP not a leader in warehouse management at the
  time.
• SAP could have provided software, but at a high
  cost.

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
30
Recipe For Disaster?

• Two software systems (SAP Pinnacle)
• Two consulting firms (Andersen Pinnacle)
• Highly complex pricing models
• High frequency of daily transactions
• Short project timeline of 18 months

31
Delta III Project Results

• 6 months late finished late 1995
• Project Costs over 100 million (35 million
  greater than original plan)
• Bankruptcy in 1996
• 40 million in projected annual savings never
  realized

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
32
What Went Wrong?

• Management Failures
• University Healthcare Consortium
• Treatment of Warehouse Employees
• Lack of internal IT involvement

Scott, Judy E. The FoxMeyer Drugs Bankruptcy
Was it a failure of ERP? Assoc. IS 5th Americas
Conference Milwaukee WI Aug. 1999
33
University Healthcare Consortium (UHC)

• Nationwide network of teaching hospitals
• July 1994 agreement
• FoxMeyer given contract to sell to UHC
• Projected annual sales of more than 1 billion
• Agreement never led up to potential

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
34
UHC Changed Project Focus

• Original goal was to supplement mainframe
  capacity
• Sheer volume of UHC deal required immediate
  volume capacity increases
• Delta III project timeline accelerated

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
35
FoxMeyers Distribution Network Prior to ERP

• 23 Distribution Centers
• Customer completed electronic order
• Orders filled manually at each site

Olson, David Louis. Introduction to Information
Systems Project Management. Publisher
McGraw-Hill/Irwin Book and CD-ROM edition
(August 14, 2000) ISBN 0072424206
36
New Warehouse Plan

• 1 national distribution center (Ohio)
• Automated order fulfillment
• Cashflow savings from better inventory management

Olson, David Louis. Introduction to Information
Systems Project Management. Publisher
McGraw-Hill/Irwin Book and CD-ROM edition
(August 14, 2000) ISBN 0072424206
Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
37
Warehousing Transition

• Ohio warehouse opened 3 months late
• Automated system not 100 functional
• Workers not properly trained on new system
• Old mainframe system ran out of capacity before
  completion

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
38
Warehouse Workers

• Morale problems with closure of old warehouses
• Orders were half-filled or not filled at all
• Shipments to new warehouse damaged and unfit for
  sale
• Large inventory shrink - 34 million

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
39
Andersens View

• According to Andersen Spokesperson
• We delivered, the work we performed was
  successfully completed, and we were paid in full.

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
40
Pinnacles View

• According to Christopher Cole, COO of Pinnacle
  Automation
• the problem wasnt the automation equipment
  it was the way that they FoxMeyer were running
  orders through the system.
• the old mainframe system choked and died.

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
41
SAP Perspective

• Peter Dunning Executive VP of Global Accounts
  with SAP
• Its one of those stories where the operation
  was a success, and the patient died.

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
42
Outside Perspective

• According to Adam Feinstein, research associate
  at Salomon Brothers
• They spent a lot of money and tried to put
  together a progressive management information
  system, but they overspent and bit off more than
  they could chew.

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
43
Summary of viewpoints

• Andersen was happy to get paid and was not
  concerned enough about Pinnacle.
• Pinnacle blamed old systems and warehouse workers
  for their system failures.
• SAP software worked, but not fully integrated as
  a true ERP solution
• FoxMeyer absent from viewpoints because of a lack
  of internal involvement

Jesitus, J. Broken Promises? FoxMeyers Project
was a Disaster. Was the company too aggressive or
was it Misled?, Industry Week, November 3, 1997,
31-37
44
Lessons Learned

• Perform BPR prior to project
• Use realistic objectives
• Do not rush projects without testing
• Provide adequate training at all levels
• Prepare Organization For Change
• Gradual Implementation is beneficial
• Re-evaluate Sourcing Strategies
• De-Escalation cannot be ruled out

45
What Happened After Bankruptcy?

• After bankruptcy, a holding company called Avatex
  bought majority share of remaining value.
• McKesson (former 1 competitor) announced intent
  to purchase remaining assets in October 1996
• FoxMeyer is no more

46
The University of Missouri System
Source www.system.missouri.edu
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The University of Missouri Columbia
Predominantly a residential campus. Fall 2003
enrollment 26,805 20,441 undergraduate
6,354 graduate professional 5,107 teaching and
research staff 6,605 administrative and support
staff
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University of Missouri Kansas City

• Mixed residential/commuter campus. 36 of the
  students attend part-time
• Fall 2003 enrollment 14,244
• 6,850 undergraduate
• 5,038 graduate professional
• 2,368 teaching and research staff
• 1,763 administrative and support staff.

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University of Missouri Rolla
Institution of science and engineering The
enrollment Fall 2002 was 5,240 3,849
undergraduate 1,391 graduate
50
University of Missouri St Louis
Large non-traditional student population 59 of
students enrolled part-time The enrollment for
Fall 2003 was 15,605 (12,630 undergraduate, 2,975
graduate). 1,412 teaching and research staff
1,135 administrative and support staff.
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PeopleSoft and University of Missouri

• How many people here are familiar with the
  PeopleSoft implementation on campus?

52
University of Missouri

• Identify the Problem
• Select the problem to be analyzed
• Clearly define the problem and establish a
  precise problem statement
• Set a measurable goal for the problem solving
  effort
• Establish a process for coordinating with and
  gaining approval of leadership

53
University of Missouri
December 1996 Administrative Systems Project Committee (ASP) was established
January 1997 The Board of Curators approved implementation of the University wide Administrative Systems Project, an effort to improve the University's basic administrative and support services and processes. The goal of the project was to transform significantly the business procedures and administrative systems that support the University's core missions teaching, research and service -- resulting in cost savings and improved recruitment of students and staff.
54
University of Missouri

• They are too paper intensive, require numerous
  approvals, take an inordinate amount of time to
  complete and are supported by computer hardware
  and software that is as much as 20 years old
• James McGill, UM Executive Vice President
• The recommended strategies are to redesign
  processes to meet customer needs

James McGill, UM Executive Vice President
55
University of Missouri

• The Committee developed a vision statement
• The business processes and administrative
  systems project must focus first on policy,
  organization structure and process technology
  (I.e., new software and hardware) should be
  viewed as an enabler

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University of Missouri
December 1997 The Board of Curators authorized implementation of the recommendations of the Administrative Systems Project to improve the core administrative and support processes and replace the related information systems. The Administrative Systems Project will be phased in over a period of four to five years.
57
University of Missouri

• The project goals included
• Reducing paperwork
• Eliminating redundant or unnecessary procedures
• Replacing a patchwork of outdated, standalone
  data systems with a unified, compatible
  information network

58
University of Missouri

• In March 1998, the University purchases the
  following PeopleSoft modules

Human Resources Human Resources Payroll
Benefits
Student Administration Admissions Student
Records Financial Aid Student Financials
Finance
General Ledger Budgets
Accounts Payable Grants Accounts Receivable
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University of Missouri

July 1998 The Board of Curators approved a contract to hire KPMG as the Administrative Systems Project Implementation Partner for the implementation of PeopleSoft software.
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University of Missouri

• Analyze the Problem
• Identify the processes that impact the problem
  and select one
• List the steps in the process as it currently
  exists
• Collect and analyze data related to the problem
• Identify root causes of the problem
• Develop A Solution
• Generate potential solutions that will address
  the root causes of the problem

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University of Missouri
October 1998 Dozens of representatives from all four campuses, Health Services, Outreach Extension and Systems Administration examined ways to simplify and standardize processes through fit/gap workshops in each of the Human Resources, Financial Services, and Student Services areas Established Initial Project Plan
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University of Missouri

• Implement a Solution
• Implement the chosen solution on a trial or pilot
  basis
• Identify systemic changes and training needs for
  full implementation

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University of Missouri
Finance Modules
Proposed Date Module Actual
July 2000 General Ledger July 2001
November 2000 Budgets February 2001
April 2001 Purchasing July 2002
July 2001 Payables, Asset Management July 2002
July 2002 Receivables, Billing, Inventory,
64
University of Missouri
Human Resources Management
Proposed Date Module Actual Date
January 2001 Base HR, Base Benefits, Payroll, Pension January 2002
February 2001 Recruit Workforce Rolla
March 2001 Recruit Workforce - UMSL, UMKC, OE April 2002
April 2001 Recruit Workforce - UMC, Hospital
July 2001 Benefits Administration February 2002
65
University of Missouri
Student Administration
UMR started July 2001 UMSL, UMKC, UMC started
July 2002
Proposed Date Module Actual Date
July Recruiting
September Admissions, student financials (app fees) September 2002
January/February Financial aid (except loans)
February Records, student financials (fees, payment)
May Financial aid (loans) February 2003
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University of Missouri

• Best Practices
• Create knowledgeable project team
• Review business processes in granular detail
• Recognize management style of Senior Management
• Compare processes and function of software to
  corporate processes and function of corporation
• Interview current users of the software in your
  industry
• Request on-site demonstration
• Keep implementation lifecycles short. Preferably
  about 6 months

67
Combined Case Study Best Practice List
Best Practices FoxMeyer UMSL
Business Process Review / Re-engineering No Yes
Establish Knowledgeable Project Team Yes Yes
Perform Gradual Implementation No Yes
Prepare Organization (Change Management) No ?
Keep project lifecycles short Yes No
Ensure software is compatible with industry No Yes
Establish training methodologies No Yes
68
Relax and imagine yourself in an island paradise
far, far away.