Enterprise Resource Planning

Enterprise Systems

ES

Enterprise Resource Planning (ERP)

Enterprise Resource Management (ERM)

P.Pille, Ryerson Polytechnic University

School of Information Technology Management

P.Pille, Ryerson Polytechnic University

School of Information Technology Management

Enterprise Systems

• Early Automation

• What is ERP

• ERP Implementation

• Beyond ERP

• ERM

• SAP

• Electronic Marketplace

Early Automation• Automation of tasks within departments

• Therefore, each dept had its own system(s) – Functionality for tasks for that department only

– Systems weren’t powerful enough to attempt broader range of tasks

– Usually single vendor for all parts of system (e.g. IBM)

• All hardware and network components

• All operating system and application software

• Result: Generally communication between departments remained largely manual– IS/IT was often at the mercy of single vendors

Antony Upward,CGIAntony Upward,CGI

• Open Systems– Application vendors built applications to support the tasks in specific

departments (Finance, Billing, Workforce Management, HR etc.) -- “Best of breed”

– Better technology allowed automated interfaces between systems

• But… Interfaces – Have difficulty with different data definitions– Often don’t eliminate re-keying– Are expense to build and maintain– Are visible and get in the way of the end-users

• Result: Functional organizations systems landscape are usually a mess and can’t support end-to-end processes


Business Processes• Cross functional boundaries• simple example

– Customer orders a product– deals with salesperson– warehouse picking– out of stock?

• purchase order to vendor• manufacturing order

– shipping– accounts receivable– effect on demand forecasting (marketing, manuf.)

• In Classical / Functional / Hierarchical organizations business processes exist… but– No single point of accountability– No single source of consistent, timely, information

about a process• Multiple incompatible systems poorly connected via

multiple expensive interfaces

• Result: In a functional organization a process – is very hard to change– is very hard to e-enable

Business Processes


ERP - What is it?

• Process view of business vs. functional “silos”

• Integration of systems, one database

• Support most of co.’s info needs• Transaction oriented systems (OLTP)• Accounting, payroll, invoicing, supply

chain optimization, sales force automation, customer service,…

ERP - What is it?

• Leads to improved performance, better decision making, competitive advantage

• Lays foundation for electronic commerce

• Replaces a multiplicity of different systems and databases– one integrated system

Evolution to ERP• MRP - Material Requirements Planning

– what material needed?– when & how purchased?– how managed?– maximize efficiency of physical, financial assets

• MRP 1960's– master production schedule– material requirements planning– capacity requirements planning

• MRPII 1970's– sales & operations planning– simulation – forecasting

• ERP 1990's– sales and distribution – material management– plant maintenance– quality management– financial accounting– controlling– investment management– human resource management– ...

ERP Requires

• Strong executive support to implement

• Process approach rather than “silos”

• Change in business procedures (BPR)

• Change in organizational structure, culture, strategy

• Technology change

ERP

• Difficult to install

• Very large and complex software

• Provides info about all aspects of the business -- worldwide

• Reduces inventory, waste

• Easy communication with customers, suppliers

Before ERP

• Multiple systems, different interfaces, difficult to extract info about customers, sales,...

• Hard to maintain, many languages, databases, inconsistencies

• Can take weeks or months to obtain info about customers, or where systems changes are needed

After ERP

• Integrated systems

• Consistent interface

• One database

• Access to current data

• Improved planning capabilities

• Multinational capabilities

Example: Order Processing

• Salesperson generates a quote for computer equipment overseas

• System immediately creates product configuration, price, delivery date, shipping method,...

• Customer accepts quote over Internet

System automatically:

• Schedules shipping

• Reserves material

• Orders parts from suppliers

• Schedules assembly

• Checks customer credit limit

• Updates sales & production forecasts

• Creates MRP & bill-of-material lists

• Updates salesperson's payroll– commission– travel account

• Calculates product cost & profitability

• Updates accounting, financial records

System automatically:

ERP Implementation

• Need business exec in charge, not IT

• Make a business case– long term benefits

• inventory reduction, customer service,….

• Costs– software– hardware– people (by far the most expensive)

• Software – ERP, database licenses– maintenance– support fees– add-on packages

• Hardware– new client/server architecture– network capability– backup– multiple servers -operations, testing

ERP Implementation

ERP Implementation

• People - for system configuration – internal, consultants

• Managers– can require time commitment for several

years

• Continual support from senior execs• Change management

– almost all personnel will be affected

• ERP system configuration– thousands of parameters to set

• Need stability, but business constantly changes

• Difficult to implement, difficult to change– but is a non ERP collection of poorly integrated

systems & databases any easier?

• Change is never ending

ERP Implementation

ERP Implementation

• Training needed – technical staff– business staff

• 20-50% of project budget on educational and skills development

• Results in less people needed, but more skills, understanding of the organization

• 4 months to 5 + years to implement

ERP Implementation• Options:

– add-on systems where ERP is lacking?– keep good legacy systems, build interfaces to

good legacy systems?– more than one ERP instance?

• different divisions, subsidiaries

• but more than one increases complexity, reduces benefits

– interconnect consistent, distributed ERP systems (one logical system)

ES Implementation

• DOW Chemical– global SAP implementation– great transformation of DOW– common processes, info in finance, admin– substantial customer service improvements– info support - better management decisions– more integrated organizational structure– 15% ROI

CEO Survey - why ERP?• 67% Improve info accuracy, availability• 61% Improve management decision making• 51% Reduce cost/improve efficiency• 38% Upgrade technology• 31% Resolve tactical issue (e.g. Y2k)• 24% Grow revenue• 15% Haven’t done it yet• 4% Other

Davenport,T.H., Mission Critical

ERP Package Selection

• Major packages are similar

• Some packages suited to specific industries– e.g. JDA, Richter Systems for retail

• PeopleSoft - strong in HR

• SAP - financial, supply chain

• Baan - flexible manufacturing software

ERP Package Selection

• ERP appropriate for $25 US million and up

• Mid-tier $25 to $1 billion

• SAP - typically largest global firms– (but can be done for smaller co. also)

• J.D.Edwards - smaller firms

• Oracle, PeopleSoft, - middle

• Baan - mostly middle customers

ERP Market

• $15 US billion ERP hardware, software worldwide market

• Plus professional services $10 billion

• High growth rate

• Large co. e.g. Intel expect to spend $1 billion on ERP (can never finish)

Davenport,T.H., Mission Critical

SAP R/3 ERP• Market leading ERP product• Extensive functionality• Used by mid to large companies• International features• Can be run over internet/intranet• 10 million users, 30,000 installations• 13,000 companies, > 100 countries• SAP AG $5 billion, 5,000 developers, 15-20% on

research

SAP R/3

• SAP’s core transaction system– Logistics– Financials– Human Resources

Logistics

Accounting

Human Resources

R/3 Logistics

• Sales and Distribution

• Production Planning

• Materials Management

• Plant Maintenance

• Quality Management

• Procurement

R/3 Financials

• Financial Accounting– general ledger, accounts receivable,

payable,...

• Controlling– costing, profitability, planning,…

• Treasury– Cash, funds management,…

• Capital Investments

R/3 Human Resources

• Administration

• Payroll accounting

• Shift management

• Employee attendance

• Trip costs

• Training

• Recruitment

• Personal management

Industry Specific R/3 Solutions• Aerospace & Defense • Automotive • Banking • Chemicals • Consumer Products • Engineering &

Construction • Healthcare • High Tech & Electronics • Higher Education &

Research • Insurance

• Media • Mill Products • Mining • Oil & Gas • Pharmaceuticals • Project Oriented Manufacturing • Public Sector • Retail • Service Provider • Telecommunications • Utilities

SAP R/3 Architecture• Processes written in ABAP/4 language

• 1000’s of switches for package configuration

• Multiple platforms

• Client server - multi tier

– database server (multiple servers, distributed database )

– application server (multiple servers, distributed )

– Internet server

– presentation level (browsers)

• User exits - Java, C++,...

• Communication interfaces with other packages

Multi tier client / server architecture

Multiple database, application servers

Technology Infrastructure 4.0 at http://emedia.sap.com/usa/default.asp

•Presentation

•Internet / intranet

•Application

•Database

Layers:

SAP R/3 Platforms• OS

– NT– AS/400– UNIX– OS/390

• Database 20-30GB initially– Oracle– Informix– AS/400– DB2– MS/SQL

Ryerson Academic R/3 Configuration• SAP R/3 version 4.6B• IBM Netfinity 8500R server equipped with

– 4Gb RAM– P!!! Xeon 550Mhz processor– 20 - 9.1 Gb HDDs in a Raid 5 array– 40/80 DLT tape drive– CD-ROM– APC smart UPS 5000

• NT 4 • Oracle 8.0 database• 100 GB in use for NT, R/3, IDES-TS training database

Implementation Options• Hosted solutions

– hardware & software outsourced to an Application Service Provider (ASP)

– minor configuration, no license– major configuration, need license– user access through Web browser

• In house– hardware & software on site– optional maintenance by SAP partners– user access through Web browser

The Alpha NZ Case

• Larsen,M.A., Myers, M.D., 1999. When success turns into failure: a package-driven business process re-engineering project in the financial services industry. Strategic Information Systems, 8 (1999) 395-417.

The Alpha NZ Case• 9 New Zealand banks merged, same core financial services

• BPR project to centralize Accounting at head office– re-engineer recording & reporting– automate routine accounting– improve access to financial info– create new corporate accounting team - highly skilled, motivated

• Timeline– July 1993 - preliminary report - goal to integrate the banks– Dec 1993 - key areas identified for improvement– Aug 1994 - consultant appointed– Feb 1995 - contract with SAP, hardware, software installed, training– Jan 1996 - go live

The Alpha NZ Case• Accounting staff reduced from 75 to 24• Consultants consider system a great success• No original project team members remained• All in-house expertise disappeared, low skills remain• Management reporting deficiencies in the system

– no skills to enable implementation of needed reports– lack of expertise in the system– low moral, poor management

• Users consider the system a failure• Oct 1996 Alpha merges with Beta Ltd.• Alpha SAP system to be scrapped, Beta Oracle Financials

system to be implemented

OLTP e.g. SAP R/3• Highly normalized data• Many tables represent an object and are connected

with foreign key relationships to one another– Database tuned for writing records

• Problems– Reporting

• Difficult to combine data from different applications• Performance issues with reporting• SAP R/3 Includes Limited Operational Reporting,

updated in Real-time from the transactional data

– Integrating external data

ERP and beyond

• Supply Chain Management (SCM)

• Customer Relationship Management (CRM)

• Data Warehouse

• Electronic Marketplace

ES or ERMES or ERM

ERP and beyond• Supply Chain Management

– planning and optimization– supply planning, demand planning, plant scheduling,

transportation & warehouse management– more integration with trading partners

• Customer Relationship Management (CRM)– marketing, sales, service

• Data Warehouse– On line Analytical Processing (OLAP)

• Internet access– for employees, customers, suppliers

ERP and beyond

• Buy, sell products and services on-line• Collaborate with suppliers

– planning, forecasting, customer demand needs (collaborative forecasting)

• Collaborate with distributors and resellers

• Auction off excess inventory

• Publish or bid on requests for proposals

• ….

Electronic (Internet) Marketplace

mySAP.com

• R/3 ERP• Supply Chain Management (SCM)• Business to Business Procurement (BBP)• Strategic Enterprise Management (SEM)• Customer Relationship Management (CRM)• Business Information (Data) Warehouse (BW)• ….

E-business platform for inter-enterprise collaboration between a company, its suppliers and customers.

R/3 BasisDatabase

R/3 Applications

Logistics HR

Accounting

R/3

Industry Solutions

Internet / Intranet

Business to Business

Consumer

Employee

Business Information (Data) Warehouse

Logistics Advanced Planner & Optimizer

Strategic

Enterprise

Management

Knowledge

Warehouse

Automotive, ...Utilities,...

Customer

Relationship

Management

SAP AG

mySAP

Business to Business Procurement

Corporate Finance Management

Environment,

Health &

Safety

mySAP Workplace

• Single point of access to all applications– SAP– non SAP

• Customized for each employee

• Roles on left

• Applications on right

SAP Components Beyond R/3

• Supply Chain Management (SCM)– planning, optimizing, scheduling– suppliers, agents, production planners, purchasers,

customers

SCM -APO Solvers

• Demand Planning• Supply Network Planning• Production Planning & Scheduling• Heuristic Methods• Linear Programming /Mixed Integer Linear Programming• Genetic Algorithms• Constraint- based Programming• Exponential Smoothing• Holt Winters• Multiple Linear Regression

APO - Advanced Planning & Optimization

Business to Business Procurement

• Requisitions

• Purchase orders

• Approval, rejection

• Payments

• Status

• By end users from the desk top

• Internet, EDI, ALE

CRM Roles• Sales

– Sales Manager

– Global Account Manager

– Sales Representative

– Sales Assistant

– ...

• Service

– Service Manager

– Hotline Specialist

– External Service Engineer

– Contact Center Agent

• Marketing

– Marketing Manager

– Marketing Analyst

– Product/Brand Manager

– ...

SAP Business Warehouse (BW)• On-line Analytical Processing (OLAP)

– De-normalized data• Diverse data is combined into large aggregated data sets • Logistics Information System,...

– Used for decision support and investigation

• Future– SAP is using BW as the base for many analysis products– SAP will likely move from batch to on-line updates of BW in

future releases (small scale this is already in place with current release)

Antony Upward, CGI.Antony Upward, CGI.

Strategic Enterprise Management (SEM)

Integration of strategic, financial and operational information

Internal & external business information sourcing

Financial and non-financial Key Performance Indicators (KPI)

Business Planning and Simulation

Business simulation

Operational Planning

Knowledge Management

• SAP Knowledge Warehouse

• All standard SAP training courses

• 20 languages

• Glossary

• Can be modified by customer

Integration Also Means...Linking Transactions, Analysis and

Planning

Analyze

Analyze

PlanPlan

TransactionTransaction



ActAct

Operational

Operational

Process

Process

(OLTP)(OLTP)

Management Management ProcessProcess(OLAP)(OLAP)

ERM Systems• Trust the vendor to embed and continually

improve their support for best business practices into their product– Leverage vendors R&D spending via upgrades– …But only if no modifications to core code

• Actively work with vendor to identify opportunities for improvement– User Groups (ASUG, T-SIG)– SAP Industry Business Units (IBU’s)

• Joint development of industry specific functionality– SAP Account Executives


ERM Systems

• Assume vendor solutions embed best business practices and you will change business practices, not vendors core code

• Leverage package to gain lowest total cost of ownership advantages - maximize use of product before considering alternatives


ERM Systems• Within organizations -greatest strength - ability to

facilitate end-to-end business processes through integration– Shared Database for all Users

– On-line Real Time

– Shared, Integrated Functionality and Process Designs

– Web based Portal to allow access anywhere anytime

– Roles Based, to focus Functionality and Security for Users


ERM Systems

• Between organizations ERM’s greatest strength is their ability to facilitate end-to-end business processes using the Internet– Database Shared via Marketplaces– Shared, Integrated Functionality and Process Designs– Portal to allow access to Business Partners (Customers,

Vendors, etc.)– Roles Based to focus Functionality and Security for Users

• Gartner calls this Collaborative Commerce – or c-Commerce

Collaborative-Commerce• c-Commerce achieves the dynamic collaboration of people,

applications, and corporations in all aspects of business• Customers, employees, suppliers, and business partners

work together as if they were all one company• Examples

– Collaborative buying and selling– Public bidding– Collaborative forecasting– Collaborative planning– Collaborative engineering– Collaborative invoicing/billing– …

Customer

Partner

Employee

Supplier

Collabo-ration

SellerSellerBuyerBuyer

c- Commerce MarketplacesThe “Old World”

• Individual connection to each business partner

• Different technologies (EDI, Edifact, FAX, XML, cXML, …)

• Constant maintenance

• Need to buy the technologySellerSellerBuyerBuyer

The “New World”

• Only one connection to the marketplace to connect to all business partners

• The marketplace deals with issues like technology, security, search tools, catalog, etc.

• Enables ad-hoc buying from all participants in the marketplace.

Marketplace

Sell

Internet Selling Internet Selling

Buy

Internet BuyingInternet Buying Search

Select

Register

Offer

mySAP.com Marketplace

Receive Collect

!Operational Systems

(Financials & Logistics)Operational Systems

(Financials & Logistics)

Transact

Othersystems

Buyer Seller

c-Commerce Example: Buying and Selling

Kinds of Marketplaces

Content Community

Commerce

Collaboration

• Buying/selling goods and services

Infrastructure

• General content• Business-specific

content • Interaction• Communication• Discussion

Vertical(industry-specific)

Horizontal(Cross industry)

Regional(USA, France, ..)

• Business-oriented communities/forums

• Specialized inter-enterprise applications & services

Human Resources

US Home-building

Oil & Gas,

Chem/Pharma

Likely End-point – “Federations” of Marketplaces

Vertical Marketplace

Vertical Marketplace

HorizontalMarketplace

Horizontal Marketplace

Local/vertical Marketplace

Horizontal Marketplace

e.g. Chemical Marketplace

Buyer

Seller

Marketplace as a Product

www.mySAP.com Marketplace

Joint Venture Marketplaces

ERM Implementation• Very Little Analysis / Design / Programming

Required– Typically 10-20% of Total Effort– Interfaces– Conversions– Bolt-ons (via Published User Exits)

• Configuration Replaces Programming– Table Driven– Master Data– Enables substantially automated upgrades


ERM Implementation

• Business People Normally Configure (with some Training)– Largely removes non-value added activity of

translating business requirements to technology requirements

• Result:– Implementation focuses on realizing business

value not getting the technology to work

ERM Implementation• ERM makes technology less “visible” during

implementation – allowing project teams to focus simultaneously on all aspects of delivering business value– Business Process Design; Organization Design; Application

Configuration– This is a good thing!

• Typical ERM implementation project teams are cross functional:– End-users 50-75%, frequently including project leadership– ERM configurators (usually ex-business people) 15-30%, – ERM and legacy technicians / programmers 5-25%


ERM Implementation

• Typical ERM implementation projects have a different mix of tasks– Delivering business value requires significant focus on

Business Change Management, typically 10-30% of team tasks

– Technology is no longer the prime driver of ERM implementations (only 10-40% of team tasks)

• Less program specifications and programming• Little or no data design

• ERM Specific Implementation Methodologies Required– Still learning how to do ERM implementations well


ERM & Re-engineering• Re-engineering typically started with a “blank sheet of paper” for the process

designs– Equivalent to asking “What are the requirements?”

• Numerous re-engineering efforts failed – Analysis paralysis– Huge software projects– Customizing ERP systems

• Today ERM packages can support so much of so many processes can now ask:– Not what do you want, but:– Which process designs can the ERM system support

• Leverages the massive R&D spending of ERM vendors– SAP spends 15-20% of Revenues on R&D – Need to do regular upgrades to get benefit of this R&D


Implications of ERM for IT Strategy• Can no longer ask the question of the end-users

– What is your requirement?

• This question was fundamental to I.T. strategy from the 1970’s to the mid-1990’s

• I.T. practitioners made the following assumptions that– The business knew what they needed– Requirements would stay still long enough for I.T. to build systems to support them– I.T. could use open systems to make each department’s systems work together

without a lot of effort or expense

• Recent business trends, particularly the increasing pace of change, have made all these assumptions false

• Now we must ask what business process designs can a package support out of the box– Assumes ERM vendor has done their home work


ERM Job Opportunities• Account executive - SAP support

• Business consultant - system solutions

• Sales manager - ERP solutions

• Instructor - SAP products

• Software developer - ABAP/4, C++,...

• Systems analyst

• MIS manager

• SAP administration.

• SAP installation, support

– OS, database, SAP Basis knowledge

Sources• Antony Upward, Director, Business Architecture, CGI Group Inc.• Davenport ,T.H., 2000, Mission Critical - Realizing the Promise of Enterprise

Systems, Harvard Business School Press• Watson, E., Schneider, H., 1999, Using ERP Systems in Education, Communications

of AIS Volume 1, Article 9• The AMR Research SAP Advisory Alert for June 15, 2000:

http://wwwext03.sap.com/usa/press/2000/amrreport.asp#com1

• SAP info and links: http://www.ryerson.ca/~ppille/sap/• SAP: www.sap.com www.mySAP.com• SAP USA home site: http://wwwext03.sap.com/usa/• SAP emedia file Technology Infrastructure 4.0 at:

http://emedia.sap.com/usa/default.asp• SAP emedia file mySAP Frequently Asked Questions at:

http://emedia.sap.com/usa/default.asp

Sources• SAP R/3 Functionality Overview, Wednesday, September 15,

1999, Jim Kelly, Curriculum Development Manager - ERP, SAP America: http://wwwext03.sap.com/usa/education/alliance/whatsnew.asp

• Central Michigan University: http://sap.mis.cmich.edu/

• International Demo and Education System (IDES)– www.sap.com/ides

– Go to site and register for a user id and password

– Can trial pretty much the whole SAP product over the internet (HTML GUI)

• America’s SAP User Group (ASUG) - www.asug.com

• Other Web Sources - www.sapinfo.net

Enterprise Resource Planning

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