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Chapter Eight Building The E- Business Backbone: Enterprise Resource Planning
© e-Business Strategies, Inc.www.ebstrategy.com ERP: The Technological Backbone of E- Business Typical corporate computing environment today of mainframe- based apps is antiquated –Cannot meet demands of new economy and must be replaced ERP integrated app suite –Framework to automate back-office functions: Financial, Manufacturing and Distribution, HR, Administrative –Unites major business processes within single family of modules: production, order processing, inventory mgmt and warehousing, A/P and A/R, general ledger, and payroll ERP phenomenon also catching fire among dot-coms –Managing customer relationships key for the newer online firms –ERP offers customers efficient, high-quality service Ability to order online; inquire about product pricing and order status –ERP prices dropping and rental ASP model becoming prevalent
© e-Business Strategies, Inc.www.ebstrategy.com ERP: The Technological Backbone of E- Business ERP is the technological backbone of e- business –Enterprise-wide transaction framework with links into sales order processing; inventory mgmt and control; production and distribution planning; finance –In early 1990s, only large manufacturers saw benefits of ERP –Today, medium-size and dot-com firms also recognize necessity of integrating back-office processes for front-office success in e-commerce world
© e-Business Strategies, Inc.www.ebstrategy.com Who Really Uses ERP Suites? Large corporations that want to gain control over disparate groups of core business apps –3Com, Chevron Products Company, GM 3 primary categories of ERP implementations –Single to few products in single industry: eToys –Single SBU firms, selling only few products in a single industry: Delta Airlines, Dell, Microsoft, Nike –Large corporate conglomerates or multiple-SBU firms, selling many products in multiple industries: GE, IBM, Colgate-Palmolive, and Nabisco
© e-Business Strategies, Inc.www.ebstrategy.com The Basics of ERP These apps are themselves built from smaller s/w modules that perform specific business processes within a given functional area Integrated Logistics Accounting & Financials Human Resources Sales Distributions (Order only) Production Planning Customer/ Employee Enterprise Architecture
© e-Business Strategies, Inc.www.ebstrategy.com ERP Wave 1 ERP material requirement planning (MRP) distribution resource planning (DRP),production master schedulingcentralized inventory planning 80,MRP II, MRP production process,, order processing,manufacturing, distribution. MRP,,,,. MRP II, ERP.
© e-Business Strategies, Inc.www.ebstrategy.com Evolution of ERP Manufacturing Integration (MRP) Enterprise Integration (ERP) Customer-Centric Integration (CRP) Interenterprise Integration (XRP) Wave 1 Wave 2 Wave 3 Wave 4
© e-Business Strategies, Inc.www.ebstrategy.com s Automation of all aspects of production master scheduling Showed technology could link disconnected business functions Evolution of ERP Manufacturing Integration (MRP) Enterprise Integration (ERP) Customer-Centric Integration (CRP) Interenterprise Integration (XRP) Wave 1 Wave 2 Wave 3 Wave 4
© e-Business Strategies, Inc.www.ebstrategy.com Manufacturing Integration (MRP) Enterprise Integration (ERP) Customer-Centric Integration (CRP) Interenterprise Integration (XRP) Wave 1 Wave 2 Wave 3 Wave 4 Evolution of ERP Began in 1980s as MRP II as execs sought for similar benefits as MRP by integrating other functions Business drivers of ERP: replacing legacy systems, greater control, globalization, regulatory change, integration of decisions across enterprise Y2K preparation in 1999 a significant factor
© e-Business Strategies, Inc.www.ebstrategy.com Manufacturing Integration (MRP) Enterprise Integration (ERP) Customer-Centric Integration (CRP) Interenterprise Integration (XRP) Wave 1 Wave 2 Wave 3 Wave 4 ERP evolving into CRP to integrate brick with click Using middleware has drawbacks Traditional ERP build for make- to-stock business models; but this is no longer the case; customer value, effectiveness, enhanced service delivery key today Continuous planning vs. long planning cycle of ERP Ericsson Evolution of ERP
© e-Business Strategies, Inc.www.ebstrategy.com Manufacturing Integration (MRP) Enterprise Integration (ERP) Customer-Centric Integration (CRP) Interenterprise Integration (XRP) Wave 1 Wave 2 Wave 3 Wave 4 A companys partners benefit from the same seamless integration as the company itself Extends beyond four walls of the enterprise to customer, suppliers and trading partners B2B marketplaces ERP does not support continuous-planning requirements of SCP Collaborate or perish Evolution of ERP
© e-Business Strategies, Inc.www.ebstrategy.com Benefits of ERP Critical business need: Enterprise-wide shared services –Replace old, autonomous departmental, or divisional services with single, streamlined, corporate-level process Shared-services standardize the processes for routine, non-core functions for all business units to use (Porters value chain next 3 pages) –Accounting With processes defined, an ERP-based IT infrastructure can be established to manage them efficiently
© e-Business Strategies, Inc.www.ebstrategy.com
© e-Business Strategies, Inc.www.ebstrategy.com Generic Value Chain -Primary Activities Inbound logistics: receiving, storing and disseminating inputs to the product. Operations: transforming inputs into the final product. Outbound logistics:collecting, storing and physically distributing the product to customers. Marketing and sales: identifying markets and how customers buy the companys products or services. Service: dealing with customer support and repair service.
© e-Business Strategies, Inc.www.ebstrategy.com Generic Value Chain -Support Activities Procurement of inputs used in the firms value chain. Technology development in every facet of the operation but not limited to information technology. Human resource management involving the recruiting, hiring, training, development and compensation of employees. Firm infrastructure includes planning, accounting and finance, legal, community affairs, government relations and quality management.
© e-Business Strategies, Inc.www.ebstrategy.com ERP Decision = Enterprise Architecture Planning Management must resolve enterprise architecture issues before selecting an ERP suite of products –What kind of company do we want to be? –Not, What are each applications features? Inability to find the right fit between ERP apps and their business causing corporate frustration –FoxMeyer Problem not with ERP concept but in managements demands for quick fixes and rapid cures to underlying structural problems
© e-Business Strategies, Inc.www.ebstrategy.com ERP Decision = Enterprise Architecture Planning Selecting and installing a new ERP solution one of the most important and most expensive endeavors –Also most likely to go wrong –Lack of alignment between ERP, business processes and e- commerce objectives can derail best of firms –Managers must understand core functionality, not abdicate responsibility to IT dept Successful organizational change is gradual –Enterprise apps require moving decades of corporate knowledge and information to a new technology platform –Technology is not the only challenge in managing transformation
© e-Business Strategies, Inc.www.ebstrategy.com ERP Decision = Enterprise Architecture Planning Cannot lose sight of customers –Is this something our customers will recognize as valuable? –Will it shorten order-to-delivery cycle? –Will this improve our product and performance? ERP impacts not just s/w –Corporate culture, business processes, staff, and day-to-day procedures are all affected Executive mgmt must understand technical basis for business change and e-commerce functionality, besides ROI of new technology –What business are we in? –What are the key issues facing us today? –What issues will be important tomorrow?
© e-Business Strategies, Inc.www.ebstrategy.com ERP Decision: Build Vs Buy Vs Rent Important decision: whether to build or buy or rent –ERP apps define overall corporate architecture –Enterprise-wide implementations Custom design app that meets specific requirements of an organization has several drawbacks –Highly complex –Lengthy design, development and implementation efforts –Limited flexibility to support diverse and changing operations or to respond effectively to evolving business demands and technologies
© e-Business Strategies, Inc.www.ebstrategy.com ERP Decision: Build Vs Buy Vs Rent COTS apps address limitations of custom built apps –Provide broad functionality, better integration with existing legacy systems, greater flexibility to change and upgrade, and a lower TCO Downside of COTS apps –Reengineer estbd. business practices –Customize apps –Hire consultants to make s/w work –No competitive edge Mgmt must view COTS apps within the context of overall business strategy –What business processes bring us our identity and our competitive advantage? –How can we ensure that we enhance these with COTS solution? –How can we support our ecommerce initiatives with COTS?
© e-Business Strategies, Inc.www.ebstrategy.com Capabilities of COTS ERP Solutions Consolidation of back office Creation of single back office that supports multiple distribution channels Facilitation of changes in business practices Facilitation of changes in technology
© e-Business Strategies, Inc.www.ebstrategy.com Microsoft Spent 10 months and $25 million installing SAP R/3 to replace a tangle of 33 financial-tracking systems in 26 subsidiaries $18 million annual savings Growth rate was straining companys systems –50 subsidiaries worldwide; continues to grow every day –More than 30 systems implemented in a piecemeal fashion over time supported financial, operations and HR groups alone –Batch processes to move information between systems Run time grew to more than 12 hours 90% of the more than 20,000 batch robs that ran each month retrieved and processes same information Mgmt realized it needed a global and integrated solution to support its core business
© e-Business Strategies, Inc.www.ebstrategy.com ERP Implementation: Catching the Bull by the Horns Installation of ERP packages unique –Each ERP app suite has own architecture, customization features, installation procedures, and level of complexity Implementation strategies for SAP –Step-by-step One module at a time –Big bang Replacing all old systems at once –Modified big bang Various modules at once, but pilot first Very common Even if implementation strategy is right, setting up the solution not easy –Brother Industries
© e-Business Strategies, Inc.www.ebstrategy.com Roadmap to Rapid Implementation: Accelerated ERP Approach Todays intense competitive pressures require fast response –ERP app suites cant keep up But successful companies understand business processes, simplify them, and then introduce automation –Automating complex or non-value-adding processes will not increase productivity or provide measurable improvements in performance –Automation without simplification immortalizes ineffective processes
© e-Business Strategies, Inc.www.ebstrategy.com Roadmap to New Leadership Skills Effective coordination mgmt encompasses a combination of four capabilities –Strategic thinking How well does your ERP selection, implementation, and evolution strategy align with your business strategy? –Process reengineering –Managing implementation complexity –Transition management
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