1. Enterprise Resource Planning (ERP)
Sherif Kamel
The American University in Cairo

2. Outline Define enterprise resource planning Evolution of ERP
Usefulness of ERP
Advantages of ERP
ERP feasibility

3. Definition Enterprise resource planning (ERP)
System purpose is to collect and disseminate data to all processes of the organization
Enables management of all the firm’s resources on an organization wide basis
Known as back office systems, traditionally focused on internal entities
Copyright © 2001 McLeod and Schell
Copyright © 2001 Prentice-Hall Inc 2

4. Executive Information System
ERP combines all business area
information systems
Executive Information System
Planning
and control
Aggregation
of data
Marketing Information
Systems
Financial Information Systems
Information Resources Information Systems
Human Resource Information Systems
Manufacturing Information Systems
Transaction
recording
Data details
Enterprise Resource Planning
Copyright © 2001 McLeod and Schell
Copyright © 2001 Prentice-Hall Inc

5. What can ERP do? Forget about planning it does not do planning
Forget about resource – it does not create any
Focus is on the enterprise
ERPs attempt to integrate all departments and functions across a firm to create a single software program that runs off one database
Each of those departments (finance or human resources), has its own computer system, each optimized for the particular department. Typically, when a customer places an order, the order begins a mostly paper-based journey (delays and lost orders)
Copyright © 2001 Koch

6. What can ERP do?
ERP automates the tasks necessary to perform a business process—such as order fulfillment, which involves taking an order from a customer, shipping it and billing for it
With ERP, everyone in the organization can view the same information and has access to the single database that holds the order. When one department finishes with the order, it is automatically routed via the ERP system to the next department
ERP requires changing the way companies do business
Software applications
Changing processes
Teaching users
Data warehouse integration

7. Facts of the past
In 1943, Thomas Watson (founder of IBM) thought that the worldwide market for computers would be about five
In 1977, Ken Olson (founder of DEC) believed that there was no reason for anyone to want a computer in their home

8. Evolution of ERP
First information systems in 1960’s were transaction processing systems (TPS)
Recording and accounting of the paperwork in the organization
Management information systems (MIS)
Control the operation and plan for the future
Accounting data to generate the required information
Management reporting
Mathematical models
Manufacturing requirements planning (MRP)
Developed to deal with complex issues of inventory control
Scheduling
Locating materials in a warehouse (easy in small operations)
Copyright © 2001 McLeod and Schell
Copyright © 2001 Prentice-Hall Inc 5

9. Evolution of ERP
MRP II
Information systems that encompass the flow of material from vendors, through manufacturing, and to the firm’s customers
It was tied to business functions, not necessarily more sophisticated computer applications
Need to tie all processes and integrate them into one system
Then came ERP (the next logical step where all information processes within the boundaries of the firm are consolidated)
Copyright © 2001 McLeod and Schell
Copyright © 2001 Prentice-Hall Inc

10. Evolution of ERP Enterprise resource planning
Requiring a number of important elements
Large computer hardware resources
Sophisticated software
Database management systems
Well trained users
Continuous management support
Copyright © 2001 McLeod and Schell
Copyright © 2001 Prentice-Hall Inc 5

11. ERP growth
An expected increase in information technology spending over the next five years ( ) should help the enterprise resource planning applications market to grow
The ERP applications industry will generate revenues of US$26.7 billion in 2004 which is about $1.7 billion more than 2003, this figure should reach $36 billion by the end of 2008
Copyright © 2004 Lopez

12. ERP drivers Customer satisfaction Business development
Increasing competition
More efficient processes
Other software applications do not meet business needs
Complete information infrastructure integration
Better project management support

13. Issues tackled by ERP Resources shortages Productivity enhancement
Customer service
Inventory problems
Quality and efficiency problems

14. ERP core systems Sales and marketing Materials requirement planning
Capacity requirement planning
Purchasing
Logistics
Accounts payable/receivable

15. ERP integration Headquarters Information Systems Project management
Inventory
Purchasing
Sales
Budget
Cash collection
Manufacturing
Location purchasing
Invoice verification
Inventory management
Internal sales, shipping and billing
Profit/loss
Capacity utilization
Marketing and Sales
Sales, shipping and billing
Purchasing of trading goods
Inventory management
Customer service

16. ERP players Only limited number of vendors
Largest vendor is SAP (
Training and consulting is a booming market 6

17. ERP feasibility ERP is a large investment and must be treated as such
Investment entails more than cash outlays
Commitment to focus on interacting business processes
Benefits are not always economic (intangibles)
Feasibility includes
Economic
Technical
Organizational 9

18. Economic feasibility
Concerned with justifying an expenditure by considering both costs and benefits in monetary terms
Investment costs for ERP
Very high: 10 million US dollars for a moderate sized application
High likelihood of negative ROI
Tangible and intangible benefits must be considered
Opportunity costs of NOT implementing ERP

19. Technical feasibility
ERP are technically complex systems reflecting organizational database management systems
ERP could be centralized or distributed
Usually requires latest technology particularly in larger organizations
Staff preparations and capacity building is a must

20. Organizational feasibility
Persons in the organization must be willing and able to achieve the change from current IS to ERP
Is business process standardization desirable?
Loss of personalization of customer data
Cultural changes
Management support is essential
Person or group who serves as driving force
Lead the organization to a fundamental revamping of core business processes

21. ERP advantages
ERP is a commercial software package that integrates the information flow within a firm including…
Financial, accounting, human resources, supply chain and customer information
Online/real-time information throughout all functional areas
Data standardization and accuracy across the enterprise (ease of use and multi-purpose)
Increased efficiency enforced by enterprise-wide information sharing
Analysis and reporting can be used for long term planning
Allows customization and tools for ad-hoc inquiries
Provides a competitive advantage for the business
Enables business re-engineering
Suppliers and customers could be digitally connected
Knowledge transfer between industries contributes to innovation

22. Minimizing ERP failures
Understand the organization’s span of complexity
Recognize processes where value cannot be maintained if standardization is imposed
Achieve a consensus in the organization before deciding to implement an enterprise information system
ERP failure is frequently caused by lack of support by management especially in not taking the time to structure the organization to take advantage from it

23. Important ERP Qs What business problems need to be solved?
Do you know and understand the priorities?
Do you comprehend the current as-is condition versus the could-be/should be processes in place?
What tasks will be accomplished and when?
What are the missing links in the organizational processes?
What are the real costs, benefits and timetable?
Do you have an executive-level champion to provide necessary management support?
Who will implement ERP once in place?

24. Case of Nestle
In 2000, Nestlé SA signed a 280 million US dollars contract with SAP to install an ERP system for its global enterprise
The Switzerland-based consumer goods giant intends to use the SAP system to help centralize a conglomerate that owns 200 operating companies and subsidiaries in 80 countries
Speculation focused on how the process will affect the corporate culture, which is decentralized, and tries to centralize it which was risky (how to manage change?)
Nestlé learned the hard way that an enterprise wide resource planning involves much more than simply installing software, it is more changing the way people work (planning and implementation)

25. Case of Nestle
Initially, Nestlé was a collection of independently operating brands, however in 1991, the brands were unified and reorganized into Nestlé
SAP Proposal - One Nestlé, Under SAP (1997) One Nestlé was to reflect the goal of transforming the separate brands into one highly integrated company with a set of best practices that would become common work procedures for every Nestlé division (all divisions would give up their old approaches and accept the new One Nestlé way)
Data was an important factor to be complied from each division in order to implement a common structure across the company. SAP system would be customized around uniform business processes

26. Case of Nestle
Initial SAP would include 5 modules: purchasing, financial, sales and distribution, accounts payable and accounts receivable and the supply chain. Each would be deployed across every Nestlé division
It is important to note that the process installation was faced with resistance at all levels and chaos was diffused across the company. The problem was the lack of involvement of direct supervisory levels
Workers did not understand the new system, could not use it and did not even understand the new processes. The case also applied to divisional executive. No one was interested anymore to know how the new processes will function (turnover among employees reached 77%)
Upon ERP implementation technical problems start to emerge (integration not complete among divisions)
Example: A salesperson giving a valuable customer a discount rate and entering into the new system will not be identified by the accounts receivable department.

27. Case of Nestle Change of project management in 2000
Working on integration points and improving system based on initial feedback and internal testing (employees feedback)
Decision made was to start all over and re-visit all new processes starting with the business requirements rather than trying to fit the project into the desired shape; this time supervisory levels and management involvement was key
Employees involvement and feedback was also a determining factor in processes development
To date, SAP system has allowed Nestlé to reduce inventory and save on supply chain cost; time and money saved was an advantage

28. Case of Nestle
Nestlé has already achieved significant ROI with the largest chunk of savings from better demand forecasting. "The old process involved a sales guy giving a number to the demand planner who turns the number over to factory, and the factory not convinced with the number would change it….
With SAP in place, common databases and business processes lead to more trustworthy demand forecasts for the various Nestlé products. Furthermore, because Nestlé is using the same data, it can forecast down to the distribution center level allowing the company to reduce inventory and the redistribution expenses that occur when too much of a product is sent to one place and not enough to another. Savings are estimated to be in the order of 325 million US Dollars per year through SAP
Lesson learnt: “there is a big difference between installing software and implementing a solution”

29. Success factors for ERP
Only 20% of current companies have these factors in place
Down with decentralization
Establish and communicate a vision among business units
ERP only improves a business competitive position if it allows the business to use standardized processes to deal with customers, suppliers and materials
Companies that are highly decentralized and base business-unit performance on profit-and-loss measurements are only 50% likely to get a better-than-expected return on their ERP software investments than their more centralized counterparts
Copyright © 2004 Hill

30. Success factors for ERP
Send in specialists
Enterprises must establish a team whose job is to document, study and improve business processes (40% success factor)
Management support is key (60% believe that a chief process improvement officer is a must)
Monitor the progress
Companies must give the task of evaluating and measuring the benefits of technology expenditures to a financial analyst
Establish the ERP business case with concerned managers and setting the terms for proper implementation and assessment
Copyright © 2004 Hill

31. Conclusion Integrates all organizational units
ERP enables the management of an organization’s resources to be used more effectively and more efficiently
ERP enables both internal and external processes in today’s internetworked and extended enterprise