Hour 2: ERP Modules Historical development

Historical Initial Computer support to business –Easiest to automate – payroll & accounting –Precise rules for every case Early 1970s –centralized mainframe computer systems –MIS systematic reports of financial performance –Variance analysis between budget and actual

MRP Material requirements planning Inventory reordering tool Evolved to support planning MRPII extended to shop floor control

SAP Modules SDSales & Distribution MMMaterials Management MRP PPProduction Planning MRPII (with others) QMQuality Management PMPlant Maintenance HRHuman Resources FINANCIALFIFinancial Accounting COControlling AMAsset Management PSProject System R/3 INTERNALWFWorkflow: prompt actions ISIndustry solutions: best practices

Comparative Modules SAPOraclePeopleSoftJDEdwards SDMarketing, SalesSupply chainOrder management MMProcurementSupplier relationshipInventory, procurement PPManufacturingManufacturing mgmt QMEnterprise performTechnical foundation PMServiceEnterprise service HRHuman ResourcesHuman capital mgmtWorkforce management FIFinancialsFinancial mgmt sol.Financial management COTime & Expense mgmt AMAsset ManagementEnterprise asset mgmt PSProjectsProject management WFOrder Management ContractsSubcontract, real estate

Industry-Specific Focus Each 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 ManufacturingProcess Manufacturing Aerospace & DefenseChemicals AutomobileFood & Beverage Industrial MachineryPharmaceuticals ElectronicsCable & Wire TelecommunicationsPulp & Paper ConstructionMetals Logistics

PeopleSoft Industry Solutions CommunicationsConsumer ProductsFederal Government Financial ServicesHealthcareHigher Education High TechnologyIndustrial ProductsPublic Sector Professional Services Staffing UtilitiesWholesale 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) ModuleUse reported - USUse reported – Sweden Financial & Accounting91.5%87.3% Materials Management89.2%91.8% Production Planning88.5%90.5% Order Entry87.7%92.4% Purchasing86.9%93.0% Financial Control81.5%82.3% Distribution/Logistics75.4%84.8% Asset Management57.7%63.3% Quality Management44.6%47.5% Personnel/HR44.6%57.6% Maintenance40.8%44.3% R&D Management30.8%34.2%

Relative Module Use Mabert et al. (2000) surveyed Midwestern US manufacturers –Some modules had low reported use (below 50% in red) –Financial & Accounting most popular Universal need Most structured, thus easiest to implement –Sales & Marketing more problematic

Why Module Use? Cost: –Cheaper to implement part of system –Conflicts with concept of integration Best-of-Breed concept: –Mabert et al. found only 40% installed system as vendor designed 50% used single ERP package; 4% used best-of-breed –Different vendors do some things better –Conflicts with concept of integration

Middleware Third-party software –Integrate software applications from several vendors –Could be used for best-of-breed –Usually used to implement “add-ons” (specialty software such as customer relationship management, supply chain integration, etc.)

Customization Davenport (2000) choices: –Rewrite code internally –Use existing system with interfaces Both add time & cost to implementation The more customization, the less ability to seamlessly communication across systems

Federalization Davenport (2000) –Roll out different ERP versions by region –Each tailored to local needs Core modules shared some specialty modules unique –Used by: Hewlett-Packard Monsanto Nestle

EXAMPLES Dell Computers –Chose to not adopt Siemens Power Corporation –Implementation of selected modules

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 ($200 million), revised plan –Dell business model shifted from global focus to segmented, regional focus

Rethinking In 1996 revised 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 –Would have lost if adopted publicly available system

Points Demonstrates the need for speed –Prolonged installation projects become outdated –Need to continue to evaluate project need after adoption Tendency to stick with old decision But sunk cost view needed Demonstrates need to maintain core competitive advantage –Adopting vendor ERP doesn’t

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 FIFinance COControlling ARAccounts receivable APAccounts payable MMMaterials management PPProduction planning QCQuality 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 1996Installed FI module Sep 1997Installed other modules On time, within budget

Permanent Team Made project team a permanent group Project manager had been replaced –2 nd PM retained SAP steering committee SAP project team formed

SAP steering committee 7 major user stakeholders –Guided operating policy –major expenditures –major design changes

SAP project team formed 15 members from key user groups part-time –Trainer –User help –Advisors to middle management

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

Summary Core idea of ERP complete integration In practice, modules used –More flexible, less risk –Can apply best-of-breed concept Ideal, but costly –Related concepts Middleware – integrate external software Customization – tailor ERP to organization Federalization – different versions of ERP in different organizational subelements