ERP

Session1 - ERP? Evolution,

Vendors, Industry growth and

analysis, Cost & ROI

Understanding ERP

What is an

Enterprise Resource Planning System

• An Enterprise Resource Planning (ERP) system is an integrated system consisting of integrated applications with a common database which coordinate business activities and support the flow of information across the enterprise.

• Includes financial, operational and strategic systems

• Often features e-commerce capabilities

ERP (Enterprise Resource Planning)

Tool to integrate enterprise across its

business functions as well as with

outside business partners to manage the

enterprise resources efficiently.

Vendors Enterprise

. Dept1

. Dept2….

Customers

ERP (Enterprise Resource Planning)

Mfg Sales Financial

Accounting Cap

plng

Demand

plng

Controlling

HR MM

Vendors

Customers

• Characteristics:

– Flexibility

– Modular

– Open architecture

– Comprehensive

– Beyond the organization

– best business practices

– Simulation

Provide:

• Best practice functionality within departments and

• High level of integration across all enterprise functions

Includes:

• Transaction processing system (TPS)

• Management information systems (MIS)

• Decision support systems (DSS)

ERP (Enterprise Resource Planning)

Evolution of ERP

• 1960s: MRP systems

- software packages with inventory control and production control

• 1970s: MRP II systems – Sales and Operations Planning with Production

schedule

• 1990s: ERP – Integrated system with various functional control

• Early 2000s: ERP II – ERP integrated with BI, SCM and CRM functions

CRM Early 00’s

Sales Force

Automation

Contract

Management

Customer Service

& Support

Marketing

Automation

Documentation

Management

SCM

Logistics

Electronic

Invoicing

Electronic

Marketplaces

Contract

Management

Late 90’s

Early 00’s

ERP II Product Data Management Engineering Change Orders

New Product Introduction Collaborative Product Design

A Complete Family Tree

Before and After ERP

Traditional “Silo”

View of

Information Systems

Within the business:

• There are functions/processes, each having

its uses of information systems

Outside the organization’s boundaries:

• There are customers and vendors

Functions tend to work in isolation

Traditional View of Systems

Business Before ERP

Customers

Customer

Demographic

Files Sales Dept.

Vendor

Orders

Parts

Accounting

Accounting

Files

Purchasing

Purchasing

Files

Order is placed

with Vendor

Invoices

accounting

Inventory

Files

Warehouse

Checks for Parts

Calls back “Not in stock”

“We ordered the parts”

“We Need parts #XX”

“We ordered the parts”

Sends report

Sends report

Sends report

Ships parts

What about

Cross-Functional Business Processes?

• Cross functional business processes Cut

across functional boundaries like Sales,

Marketing, Manufacturing, and Human

Resource, etc.

• Group employees from different functional

specialties to a complete piece of work

Example: Order Fulfillment Process

The Order Fulfillment Process

ERP systems are:

• Designed to support organization-wide

process coordination and integration

Enterprise Systems

Non-integrated IS and Integrated IS

Some other characteristics:

• Common set of applications

• Usually requires re-engineering of business processes – Better alignment

• Limited customization – Easier upgrades

• Overcomes inefficiencies of independent systems

• Integrated data supports multiple business functions

Business With ERP

Database

Customers Sales Dept.

Purchasing

Warehouse

Accounting

Vendor

Inventory Data

If no parts,

order is placed

through DB

Orders

Parts

Order is submitted

to Purchasing.

Purchasing record

order in DB

Order is placed

with Vendor

And invoices accounting

Financial Data exchange;

Books invoice against PO

Books inventory

against PO

Ships parts

ERP II consist of :

• Core Enterprise Resource Planning (ERP)

Modules

• Supply Chain management systems (SCM)

• Customer Relationship Management Systems

(CRM)

• Business Intelligence System (BI)

Inter Organization Integration with ERP II

Enterprise Application Architecture

ERP Benefits

• Reduces workforce in core transaction

processing systems by eliminating tasks and

duplication

• Supports global business operations

• Achieves economies of scale

• Improves communication and information

exchange among departments

ERP Benefits

• Reduces information systems development

staff

• Improves customer service through better

logistics

• Improves data integrity

• Improves decision support

Overall Business Benefits

• Information – Maximizes information throughput

– Provides timely information

– Integrates information throughout supply chain

• Minimizes response time

• Pushes decision making down to lowest levels

• Reduces costs

• Cuts inventory

• Improves operating performance

Department Benefits

• Sales – Increased efficiency

• Lower quotes, reduced lead time, improved responsiveness

• Manufacturing – Concurrent engineering

– Faster design and production

• Data Service – Accurate customer service history and warranty

information

• Accounts Payable – Suppliers paid accurately

Systems Benefits

• Eliminating legacy systems – Reduces incompatible data

– Can cause fragmentation

• Allows sharing and monitoring of information across organization

• Foundation of eBusiness – Back-office functions

• Standardization

• Helps obtain and maintain competitive advantage

• Improved interactions with customers and suppliers

Construct Technology Infrastructure Support Globalization

Support Supply/Demand Chain Processes Reduce Cost or Improve Productivity

Achieve Year 2000 Compliance Improve Customer Responsiveness Standardize Info Systems/Platform

Improve Business Processes Integrate Business Processes or Systems

Improve Quality/Visibility of Data

15%

17%

20%

24%

25%

29%

31%

37%

37%

70%

0% 10% 20% 30% 40% 50% 60% 70% 80%

% Respondents

Source: Deloitte Consulting and Benchmarking Partners

(Based on a study of 62 companies that have gone live with an ERP system)

Companies expect

that implementing

ERP will improve

the quality and

visibility of data

ERP Capabilities Expected

44%

42%

27%

23%

19%

16%

15%

12%

10%

8%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Personnel Reductions

Inventory Reductions

IT Cost Reduction

Productivity Improvements

Order Management/Cycle Time

Cash Management

Revenue/Profit

Procurement

Financial Close Cycle

Maintenance

% Respondents

The main

anticipated benefit

of ERP: cost

reduction

ERP Targeted Tangible Benefits

Source: Deloitte Consulting and Benchmarking Partners

(Based on a study of 62 companies that have gone live with an ERP system)

Typical architectural components

E-business Platform Tech Stack

Web Internet

Mobile Wireless

Dedicated Client

Call Center Telephony

Interaction

Channels

Common Data and Object Models, Security, Interface

Production Sales eCommerce Business

Applications

Marketing

Intelligence

Sales

Intelligence

Production

Intelligence

Call Center

Intelligence Analytical

Applications

Finance HR

Data Warehouse

On-Line Analytical Processing

(OLAP)

Bolt-On Applications

(Industry Specific Functions)

Sales

&

Distribution

Business

Planning

Shop Floor

Control Logistics

Customers Suppliers

Operational Database Customers, Production,

Vendor, Inventory, etc.

Legacy

Systems

Core Functions [On-Line Transaction Processing (OLTP)]

ERP System

Business Enterprise ERP System

ERP Vendors and Market

Trends in ERP Market

ERP application revenue estimate, 2006–2011 (Source: AMR Research)

The ERP market will see revitalized

growth (Source: Forester Research)

ERP vendors ranked by license revenue 2005-06 (Source: AMR Research)

Top 10 ERP vendors by total revenues

($ millions) (Source: Forester Research)

These revenues are for the vendors’ fiscal quarters that most closely correspond to calendar year 2005. Vendor

revenues calculated in currencies other than US dollars have been converted to US dollars using the average daily

exchange rates.

* Infor revenues based on vendor estimate following SSA Global acquisition announcement

$10,536

$4,651

$1,600

$1,414

$855

$747

$439

$319

$289

$289

SAP

Oracle

Infor*

Sage Group

Microsoft (MBS)

Lawson

Unit 4 Agresso

IBS

Epicor

IFS

ERP Vendor License Revenue Share, 2006

Top 10 Vendors by Total Revenue Share

Vendors focus on different verticals

Vendor

Public

sector

Finance/

insurance

Utilities/

telecom Healthcare

Business

services

Retail/

wholesale

Manu-

facturing

SAP

Oracle

Sage Group

MBS

Lawson-Intentia

SSA Global

Infor

Unit 4 Agresso

IBS

Epicor

IFS

Exact

Capability

Low High

Next-generation architecture strategies —

the road to SOA

Batch

On-line

midrange

Client/

server

Web

client

Service-

oriented

architectures

1970s 1980s 1990s 2000s 2010s

The final four: major middleware ecosystems

Vendor

IBM

WebSphere

“Blue Stack”

Microsoft

“.NET”

Oracle “Fusion

Middleware”

SAP

“NetWeaver”

SAP

Oracle

The Sage Group

MBS

Lawson-Intentia

SSA Global

Infor

Unit 4 Agresso

IBS

Epicor

IFS

Exact

(open source: JBoss)

ERP vendor competitive positioning

Large

enterprise SAP

mySAP

Business

Suite

Oracle

EBS and

Enterprise

NetSuite

Lawson/

Intentia

SAP

Business

One

MBS

AX

MBS

GP

MBS

NAV MBS

SL

Oracle

E1

Epicor

Sage

Group

SSA

Infor

QAD

IFS

Exact

Unit 4

Agresso

Midmarket

Small

business

Mergers and Acquisition in ERP Software Market

Analysis of Overall Market Share (Source: Panorama-Consulting.com)

The report is based on surveys of over 1,600

respondents that have

either selected or implemented ERP

solutions over the last five years, with a

heavier weighting on

projects completed in 2010.

(Source: Panorama-Consulting.com)

• The above analysis indicates that SAP and Oracle

compete both for small companies (less than $25 million

revenue) and large companies (more than $500 million

revenue), but SAP clearly is more popular with companies

with revenues between $25 million and $500 million.

Competition among all vendors intense for customers

within the revenue classification of less than $50 million,

although it is also fairly competitive in other segments as

well.

SAP and Oracle are active in all segments, while Microsoft

Dynamics has the most success with companies under

$50 million and between $100 and $500 million.

Major observations:

• Although SAP continues to lead with 24.0-percent

market share, its share is a decrease from 2010

when it had 31.0-percent of the market.

• Today, Oracle is at 18.0-percent whereas in 2010 it

was at 25.0-percent.

• Microsoft Dynamics’ share has decreased from 15.0-

percent to 11.0-percent.

• Tier II implementations on a whole command 11.0-

percent of the market

• whereas Tier III/others makes up 36.0 percent.

Total Market Shares by Industry (Source: Panorma-consulting.org)

Average vendor cost

ERP Modules

SAP R/3 Modules

Logistics SD Sales & Distribution

MM Materials Management MRP

PP Production Planning MRPII (with others)

QM Quality Management

PM Plant Maintenance

HR Human Resources

FINANCIAL FI Financial Accounting

CO Controlling

AM Asset Management

PS Project System

R/3 INTERNAL WF Workflow: prompt actions

ABAP 4GL Programmable interface

Comparative Modules

SAP Oracle PeopleSoft J.D. Edwards

SD Marketing, Sales Supply chain Order management

MM Procurement Supplier relationship Inventory, procurement

PP Manufacturing Manufacturing mgmt

QM Enterprise perform Technical foundation

PM Service Enterprise service

HR Human Resources Human capital mgmt Workforce

management

FI Financials Financial mgmt sol. Financial management

CO Time & Expense mgmt

AM Asset Management Enterprise asset mgmt

PS Projects Project management

WF Order Management

Contracts Subcontract, real

estate

Industry-Specific Focus

• Some vendor has turned to customized

ERP products to serve industry-specific

needs

– Examples given from BAAN, PeopleSoft

– Microsoft also has entered the fray

BAAN Industry-Specific Variants

Discrete Manufacturing Process Manufacturing

Aerospace & Defense Chemicals

Automobile Food & Beverage

Industrial Machinery Pharmaceuticals

Electronics Cable & Wire

Telecommunications Pulp & Paper

Construction Metals

Logistics

PeopleSoft Industry Solutions

Communications Consumer Products Federal

Government

Financial Services Healthcare Higher Education

High Technology Industrial Products Public Sector

Professional

Services

Staffing

Utilities Wholesale

Distribution

Microsoft Great Plains Business Solutions

Accounting & Finance

Customer Relationship Management

E-Business

Human Resources & Payroll

Manufacturing

Project Accounting

Supply Chain Management

Relative ERP Module Use (Mabert et al. 2000; Olhager & Selldin, 2003)

Module Use reported - US Use reported –

Non US

Financial & Accounting 91.5% 87.3%

Materials Management 89.2% 91.8%

Production Planning 88.5% 90.5%

Order Entry 87.7% 92.4%

Purchasing 86.9% 93.0%

Financial Control 81.5% 82.3%

Distribution/Logistics 75.4% 84.8%

Asset Management 57.7% 63.3%

Quality Management 44.6% 47.5%

Personnel/HR 44.6% 57.6%

Maintenance 40.8% 44.3%

R&D Management 30.8% 34.2%

Enterprise Wide ERP

Implementation Costs

Implementation Costs

• Software Licenses

• Computer Hardware

• Professional Services

• Data and System Migration

• Internal Staff Cost

$15Million

Hidden Costs

Training, testing, data

conversion…

Hidden Costs

• Training – Most elusive budget item

– Consistently underestimated

• Integration and Testing – Run real data through the system instead of dummy data

• Data Conversion – From old systems to ERP systems

• Data Analysis – Costs related to external data warehouse

• ERP Consultants – Hard to circumvent

– Good practice to include performance metrics and time schedules as part of the contracts.

Reasons of Budget Overrun

Duration

EXAMPLES

• ONGC

• Raytheon Aircraft

• Dell Computers

– Chose to not adopt

• Siemens Power Corporation

– Implementation of selected modules

SAP at ONGC

Project:

Enterprise wide Implementation of ERP in

ONGC

through Project

ICE

(Information Consolidation for Efficiency)

Project Highlights

• Annual turnover of ONGC is Rs. 32000 Cr

• Operating cost is Rs. 6000 Cr

• ONGC’s capital outlay including projects and schemes is around Rs. 10000 Cr

• ONGC monitors the activities on daily, monthly, quarterly & on annual basis at work center & at corporate level. It required multi-process based data integrity.

• Absence of integrated online databases, key executives always had to face time lags between activity period & data availability

• Non availability of timely information cause slippages in execution and thereby affects planned hydrocarbon production targets.

• A minimal improvement in information availability can accrue much more benefits than implementation cost of project

Additional objectives for ERP Implementation:

• Optimization & standardization of business processes

• Moving up the value chain

• Higher productivity & cost reduction

• Lowering inventories & increasing customer services

• Selection of ERP software was of utmost

importance

• Considering the requirement & performance,

ONGC used SAP R/3 platform.

• Most of the top petroleum companies in world

use SAP, is also considered as one of the

criteria.

• Implementation cost was Rs. 136 Cr

• 23 base modules of SAP R/3 were implemented to cover all activities of ONGC

• State of the art datacenter consisting of high end RISC servers, intel servers, storage area networks, multi layer firewalls, robotic tape library was established

• User base for project was 10000

• Work centers scattered geographically

around India

• ERP implementation completed in 30

months

• Project completed exactly as per schedule

• Implementation team size was 70% of the original planned size.

• Implementation strategy, scope as well as time lines were clearly specified in project charter document.

• The whole project was implemented in 6 stages.

• During implementation, various stake holders were kept informed with latest developments

• Top down approach was adopted for

Implementation, i.e. convincing first the

higher management and then people at

operational level

• Initially, 150 executives were trained over

SAP, then those people were divided into

different groups depending on the module

in which they were trained.

Team structure

Steering committee – Executive Committee

Project Manager (ONGC Project manager.. SAP)

Functional Project Managers Technical Project Managers

Business Analysts ABAP Leads

Training Managers Basis Teams

Integration Managers Lead Interfaces

Major implementation phases

• Project Preparation

• Business Blue Print

• Realization

• Final Preparation

• Go-Live and Support

Major Modules

• PP Business Information

• PM warehouse

• FI

• CO

• SD

• MM

• QM

• ABAP

Results achieved:

• Optimization and standardization of re-engineered

business processes

• Eliminated duplicate activities across various processes

• Availability of timely and accurate information

• Integration of various business application on single

platform

• Integrated supply chain management and optimization in

inventory holding

ERP & Raytheon Aircraft

• $2.7 billion subsidiary of Raytheon Co.

• Implemented SAP in just over 1 year.

• Total cost of about $55 million.

• Eliminated 30 legacy systems.

• Integrated four manufacturing sites and

fifteen airport service stations.

Raytheon’s Training

• $5.5 million went into training employees.

• 5,000 employees trained for 20

hours/week months before the go-live

date.

• 150 go-live managers worked full-time on

SAP before go live date.

Dell Computers

Evaluation of SAP R/3

Need to continue project

evaluation • Initial project adoption

– 1994 Dell began implementation of SAP R/3 enterprise software suite

– Spent over 1 year selecting from 3,000 configuration tables

• After 2 year effort ($20 million), revised plan

– Dell business model shifted from global focus to segmented, regional focus

Rethinking

• In 1996, revised the plan

• Found SAP R/3 too inflexible for Dell’s

new make-to-order operation

• Dell chose to develop a more flexible

system rather than rely on one integrated,

centralized system

Best-of-Breed

• I2 Technologies software – Manage raw materials flow

• Oracle software – Order management

• Glovia software – Manufacturing control

• Inventory control

• Warehouse management

• Materials management

• SAP module – Human resources

Core Competencies

• Glovia system interfaced with

– Dell’s own shop floor system

– I2 supply chain planning software

• This retained a Dell core competency

Siemens ERP Implementation Hirt & Swanson (2001)

Nuclear fuel assembly

manufacturer

Engineering-oriented

Siemens Power Corporation

• 1994 Began major reengineering effort

– Reduced employees by 30%

• 1996 Adopted SAP R/3 system

– Replacement of IS budgeted at $4 million

• Some legacy systems retained

Siemens Modules

• FI Finance

• CO Controlling

• AR Accounts receivable

• AP Accounts payable

• MM Materials management

• PP Production planning

• QC Quality control

Implementation

• To be led by users

• Project manager from User community

• Consultant hired for IT support

– IS group only marginally involved

Project Progress

• Oct 1996 Installed FI module

• Sep 1997 Installed other modules

• On time, within budget

Training

• End users became more proficient with

time

– Average of 3 months to learn what needed

• Management training took longer

– Management didn’t understand system well

– Often made unrealistic requests

Operations

• During first year

– Major errors in ERP configuration

– Evident that users needed additional training

– New opportunities to change system scope

suggested

• Two years after installation

– R/3 system upgrade