Business Driven Information Systems 2e CHAPTER 10 ENTERPRISE RESOURCE PLANNING CLASSROOM EXERCISE SIMULATION: Lemonade Tycoon Jennifer Nightingale from Duquesne shared this simulation with us that she uses for teaching ERP - it is excellent!! http://get.games.yahoo.com/proddesc?gamekey=lemonade

ENTERPRISE RESOURCE PLANNING Enterprise resource planning – integrates all departments and functions throughout an organization into a single IT system (or integrated set of IT systems) so that employees can make enterprise-wide decisions by viewing enterprise-wide information on all business operations Many organizations fail to maintain consistency across business operations. If a single dept decides to implement a new system without considering the other depts, inconsistencies can occur throughout the company Silos! This section covers: Core ERP components Extended ERP components ERP benefits ERP risks Future of ERP CLASSROOM VIDEO Strategy to Align Business and Technology: ERP Video Solid financial management is essential to running your business. Enterprise Resource Planning (ERP) systems support financial management as well as other back office functions such as human resources. Although not generally considered mission-critical, ERP systems must be implemented and managed properly to provide visibility into operations in a cost-effective, flexible way. Join featured analyst firm, Gartner Inc. VP and Distinguished Analyst Jeff Comport, and Kirsten Greenfield, Practice Director of Oracle Professional Services, USinternetworking, Inc. (USi), for a new webcast available now “Closing the Application Value Gap: Strategies for Aligning IT with Business” as they examine how organizations are driving maximum benefit from their ERP investments. You'll also learn the steps that USi client, The Princeton Review, took to effectively manage the ongoing maintenance of its Oracle implementation while strategically deploying its internal IT resources. Tune in and learn: * Two exercises to determine whether an ERP solution is right for you or not * Key strategies when implementing an ERP system * How to navigate the balancing act between what to have inside, what to develop yourself, and what to get from outside the organization * How to get maximum value out of an ERP system * How to make your ERP system “the single source of truth” http://www.itbriefingcenter.com/programs/gartner_usialigntech.html

ENTERPRISE RESOURCE PLANNING Reasons ERP systems are powerful tools ERP is a logical solution to incompatible applications ERP addresses global information sharing and reporting ERP avoids the pain and expense of fixing legacy systems Microsoft Business Solutions–Axapta helped Giant Bicycle USA link four factories and 12 distribution centers, and provided immediate information to their customer service people. http://www.microsoft.com/dynamics/ax/product/giantbicycle.mspx CLASSROOM VIDEO Giant Bicycle "Before, our customer service department had to get off the phone, look at three or four screens, go into a file cabinet, and call a warehouse to track a shipment," says Mike Forte, director of strategic information systems at Giant Bicycle USA. "Now they can see the whole shipment process on the screen, right at their fingertips." Watch this video to see how Microsoft Business Solutions–Axapta (now Microsoft Dynamics AX) has helped Giant Bicycle USA link four factories and 12 distribution centers, and provided immediate information to their customer service people. http://www.microsoft.com/dynamics/ax/product/giantbicycle.mspx

ENTERPRISE RESOURCE PLANNING Sample data from a sales database When displaying the sales database example and the accounting database be sure to point out the differences in the data

ENTERPRISE RESOURCE PLANNING Sample data from an accounting database

ENTERPRISE RESOURCE PLANNING Why is correlating these two spreadsheets difficult? How can you understand customers when one spreadsheet has customer name and one has customer ID? How can you understand sales reps when one spreadsheet has sales rep names and one spreadsheet has sales rep ID? Date format is different – will this cause problems? One quantity is in units and one quantity has decimal points – what problems will this cause? Unit price and unit cost is rounded to dollars in one spreadsheet and contains cents in another – what problems will this cause?

ENTERPRISE RESOURCE PLANNING ERP systems collect data from across an organization and correlates the data generating an enterprise-wide view to help run the business

ENTERPRISE RESOURCE PLANNING Most organizations require anywhere from 10 to 100 to 1,000 different systems to run their business Finding one system that could meet all the needs of an entire organization from billing to sales is almost impossible, “sort of a utopia” An organization can purchase an ERP and still have other applications running parts of its business (for example, taxation packages) that are not supported, or not supported well, by the ERP system

The Heart of ERP At the heart of all ERP systems is a database

The Heart of ERP ERP systems automate business processes

The Heart of ERP ERP systems automate business processes, for example, order fulfillment When a CSR takes an order from a customer, he or she has all the information necessary to complete the order (the customer’s credit rating and order history, the company’s inventory levels, and the delivery schedule) Since the company is using an ERP, everyone else in the company will automatically see the information that the CSR types into the ERP system When one department finishes with the order, it is automatically routed via the ERP system to the next department To determine where an order is at any point in time, a user only needs to login to the ERP system and track it down

The Heart of ERP The organization before ERP

The Heart of ERP Problems that could occur if all departments maintain their own database and systems Update issues Redundancy Inaccurate information across databases Different formats of information in the different databases Inability to access other department information and not being provided with a 360 degree view of the organization Different customer information in different databases Customer contact from multiple departments with different messages

The Heart of ERP In most organizations, information has traditionally been isolated within specific departments, whether on an individual database, in a file cabinet, or on an employee’s PC. ERP enables employees across the organization to share information across a single, centralized database. With extended portal capabilities, an organization can also involve its suppliers and customers to participate in the workflow process, allowing ERP to penetrate the entire value chain, and help the organization achieve greater operational efficiency

The Heart of ERP ERP – bringing the organization together When discussing this slide be sure to explain to your students how one database that supports the entire organization could eliminate many of the issues discussed on the previous slide Ask your students what issues could be caused by having one database that supports the entire organization? Not as flexible and far more difficult to change Might not meet all department needs as well as an individual specific system Multiple access levels increases security issues Ethical dilemmas from accessing different department information – such as payroll

The Heart of ERP Issues that could be caused by having one database that supports the entire organization Not as flexible and far more difficult to change Might not meet all department needs as well as an individual specific system Multiple access levels increases security issues Ethical dilemmas from accessing different department information – such as payroll

The Heart of ERP Digital dashboards offer an effective and efficient way to view enterprise-wide information at near real-time. According to Nucleus Research, there is a direct correlation between use of digital dashboards and a company’s’ return on investment (ROI), hence all executives should be using or pushing the development of digital dashboards to monitor and analyze organizational operations.

Turner Industries Turner Industries grew from $300 million in sales to $800 million in sales in less than 10 years thanks to the implementation of an ERP system. Ranked number 369 on the Forbes 500 list of privately held companies, it is a leading industrial services firm. It develops and deploys advanced software applications designed to maximize the productivity of its 25,000 employees and construction equipment valued at more than $100 million.

Turner Industries The company considers the biggest challenge in its industry to be completing projects on time, within budget while meeting customer expectations It’s ERP system runs all of Turner’s construction, turnaround, shutdown and maintenance projects and helps achieve higher profit margins The company passes on the cost savings to its customers giving it an incredible competitive advantage

The Evolution of ERP

Core and Extended ERP Components Core ERP component – traditional components included in most ERP systems and they primarily focus on internal operations Extended ERP component – extra components that meet the organizational needs not covered by the core components and primarily focus on external operations

Core and Extended ERP Components

CORE ERP COMPONENTS Three most common core ERP components Accounting and finance Production and materials management Human resource Accounting and finance components – manage accounting data and financial processes within the enterprise with functions such as general ledger, accounts payable, accounts receivable, budgeting, and asset management Production and materials management components – handle the various aspects of production planning and execution such as demand forecasting, production scheduling, job cost accounting, and quality control Human resource components – track employee information including payroll, benefits, compensation, performance assessment, and assumes compliance with the legal requirements of multiple jurisdictions and tax authorities

Accounting and Finance ERP Components Accounting and finance ERP component – manages accounting data and financial processes within the enterprise with functions such as general ledger, accounts payable, accounts receivable, budgeting, and asset management Discuss the Harley-Davidson example

Accounting and Finance ERP Components Deeley Harley-Davidson Canada (DHDC), has improved inventory, turnaround time, margins, and customer satisfaction—all with the implementation of a financial ERP system. The system has opened up the power of information to the company and is helping it make strategic decisions when it still has the time to change things. The ERP system provides the company with ways to manage inventory, turnaround time, and utilize warehouse space more effectively. Credit-management feature set limits on how much a customer can owe at any time Product profitability analysis feature allows companies to perform all types of advanced profitability modeling techniques Discuss the Harley-Davidson example

Production and Materials Management ERP Components Production and materials management ERP component – handles the various aspects of production planning and execution such as demand forecasting, production scheduling, job cost accounting, and quality control Discuss the Groupo Farmanova Intermed example Grupo Farmanova Intermed, located in Costa Rica, is a pharmaceutical marketing and distribution company that markets nearly 2,500 products to approximately 500 customers in Central and South America. The company identified a need for software that could unify product logistics management in a single country. It decided to deploy PeopleSoft financial and distribution ERP components allowing the company to improve customer data management, increase confidence among internal and external users, and coordinate the logistics of inventory. With the new PeopleSoft software the company enhanced its capabilities for handling, distributing, and marketing its pharmaceuticals.

Production and Materials Management ERP Components Grupo Farmanova Intermed, located in Costa Rica, is a pharmaceutical marketing and distribution company that markets nearly 2,500 products to approximately 500 customers in Central and South America. The company identified a need for software that could unify product logistics management in a single country. It decided to deploy PeopleSoft financial and distribution ERP components allowing the company to improve customer data management, increase confidence among internal and external users, and coordinate the logistics of inventory. With the new PeopleSoft software the company enhanced its capabilities for handling, distributing, and marketing its pharmaceuticals.

Human Resource ERP Component Human resource ERP component – tracks employee information including payroll, benefits, compensation, performance assessment, and assumes compliance with the legal requirements of multiple jurisdictions and tax authorities Provides the ability to perform a detailed employee analysis to discover who is likely to leave the company unless additional compensation or benefits are provided Can also identify employee resource utilization such as employee long distance bills and online training

EXTENDED ERP COMPONENTS Extended ERP components include: Business intelligence – describes information that people use to support their decision-making efforts Customer relationship management – involves managing all aspects of a customer’s relationships with an organization to increase customer loyalty and retention and an organization's profitability Supply chain management – involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability Depending on when you cover this material, these terms may or may not need to be reviewed (since the students have already learned about BI, CRM, and SCM) If you do want to review – simply cut and paste the definitions into the slide above Ebusiness – means conducting business on the Internet, not only buying and selling, but also serving customers and collaborating with business partners The original focus of ERP systems was the internal organization In other words, ERP systems are not fundamentally ready for the external world of e-business The newest and most exciting extended ERP components are the e-business components e-logistics and e-procurement Elogistics – manages the transportation and storage of goods Eprocurement – the business-to-business (B2B) purchase and sale of supplies and services over the Internet

EXTENDED ERP COMPONENTS Ebusiness – means conducting business on the Internet, not only buying and selling, but also serving customers and collaborating with business partners The original focus of ERP systems was the internal organization. In other words, ERP systems are not fundamentally ready for the external world of e-business The newest extended ERP components are Elogistics – manages the transportation and storage of goods Eprocurement – the business-to-business (B2B) purchase and sale of supplies and services over the Internet

EXTENDED ERP COMPONENTS Ebusiness and ERP complement each other by allowing companies to establish a web presence and fulfill orders expeditiously Deploying a web presence without integration of the back-office or ERP system could prevent a company from processing orders despite sufficient on-hand inventory Customers and suppliers are demanding access to ERP information such as order status, inventory levels and invoice reconciliation ERP vendors need to build two channels of access – B2C (customers) andB2B (partners, suppliers, businesses)

INTEGRATING SCM, CRM, AND ERP SCM, CRM, and ERP are the backbone of e-business ERP vendors carry SCM and CRM components, but they are usually not as good as the vendors that specialize in SCM and CRM components Integration of these applications is the key to success for many companies Integration allows the unlocking of information to make it available to any user, anywhere, anytime It might be a bit confusing to your student that many ERP vendors offer SCM and CRM components Explain to your students that these modules are typically not as functional or flexible as the modules offered by industry leaders who specialize in SCM and CRM A good analogy is to brand-name foods at a grocery store A grocery store, such as Safeway, maintains all types of products Safeway offers its own products, such as Safeway’s spaghetti sauce and Safeway’s paper towels, (these are known as name brand products and usually offer a cost advantage) The store also carries products that are specific to a manufacturer, such as Ragu’s spaghetti sauce and Bounty’s paper towels Customers can choose to buy Safeway’s product (this is similar to product supplied by the ERP), or customers can choose to buy a specialty product that is usually more expensive but offers better quality, additional features, and better taste (such as Ragu) Explain to your students that ERP vendors carry SCM and CRM components, but they are usually not as good as the vendors that specialize in SCM and CRM components (Siebel CRM, i2 SCM)

INTEGRATING SCM, CRM, AND ERP SCM and CRM market overviews The leaders and their respective market share are displayed in the above figures

INTEGRATING SCM, CRM, AND ERP General audience and purpose of SCM, CRM and ERP

INTEGRATING SCM, CRM, AND ERP Del Monte, the nations largest producer and distributor of processed fruits, vegetables and tomato products with over $3 billion in annual sales acquired StarKist, nature’s Goodness, 9Lives and Kibbles ‘n Bits from the HJ Heinz Company Del Monte needed to migrate multiple platforms and consolidate applications centrally on a single system Del Monte implemented an ERP system to support its entire US operations – HQ in SF, operations in Pittsburgh and distribution centers and manufacturing facilities across the country Customers and trading partners are now provided with a single, consistent and integrated view of the company

Integration Tools Many companies purchase modules from an ERP vendor, an SCM vendor, and a CRM vendor and must integrate the different modules together Middleware Enterprise application integration (EAI) middleware

Integration Tools One of the big selling points of an ERP or SCM system can be the EAI that is offered to easily integrate with other vendors’ modules For example, if a company is looking at purchasing Siebel CRM and they find out that Siebel has already built many integrations to PeopleSoft financials, it would be more inclined to purchase the product Middleware – several different types of software which sit in the middle of and provide connectivity between two or more software applications Enterprise application integration (EAI) middleware – packages together commonly used functionality which reduced the time necessary to develop solutions that integrate applications from multiple vendors

Integration Tools Data points where SCM, CRM, and ERP integrate Companies run on interdependent applications If one application of the company does not function well, the entire customer value delivery system is affected The world-class enterprises of tomorrow must be built on the function of world-class applications implemented today CLASSROOM EXERCISE Designing a Digital Dashboard for an ERP System Digital dashboards offer an effective and efficient way to view enterprisewide information at near real-time. According to Nucleus Research, there is a direct correlation between use of digital dashboards and a company’s’ return on investment (ROI), hence all executives should be using or pushing the development of digital dashboards to monitor and analyze organizational operations. Break your students into groups and ask them to develop a digital dashboard for an ERP system. Review the digital dashboards on page 98. Be sure your students have addressed all of the following in their digital dashboard: Accounting Finance Logistics Production Distribution Manufacturing Human resources SCM CRM

MEASURING ERP SUCCESS Companies can not manage what they can not measure Metrics must be developed based on the priorities of the strategic plan Rule of thumb – 7 key metrics ±2 The value of metrics is in their ability to provide a factual basis for defining: Strategic feedback to show the present status of the organization from many perspectives for decision makers. Diagnostic feedback into various processes to guide improvements on a continuous basis. Trends in performance over time as the metrics are tracked. Feedback around the measurement methods themselves and which metrics should be tracked. Quantitative inputs to forecasting methods and models for decision support systems

MEASURING ERP SUCCESS Balanced scorecard – is a management and measurement system that enables organizations to clarify their vision and strategy and translate them into action Developed by Drs. Kaplan and Norton in the early 1990’s Provides a clear prescription as to what companies should measure in order to balance the financial perspective Financial measures tell the story of past events which is inadequate for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology and innovation

MEASURING ERP SUCCESS Balanced scorecard views the organization from four perspectives Users should develop metrics, collect data and analyze their business relative to each of these Learning and growth Internal business process Customer Financial

MEASURING ERP SUCCESS

CHOOSING ERP SOFTWARE Successful ERP projects share 3 attributes Overall fit This refers to the degree of gaps that exist between the system and the business process. A well-fitting ERP has no major process gaps and very few minor ones Off the rack Off the rack and tailored to fit Custom made Overall fit Proper business analysis The best way to determine which fit strategy is right is to conduct a thorough business analysis. Successful companies normally spend up to 10 percent of the project budget on a business analysis. A proper analysis must result in a documented list of the business processes at work within the company. This will provide a basic tool that can measure vendor capability. Solid implementation plans As with the installation of any successful process or machinery, a plan is needed to monitor the quality, objectives, and timelines. The plan will also employ processes such as workflow analysis and job combination to harvest savings. A thorough implementation will transfer knowledge to system users. When the project is complete, employees must be capable of using the tools the new system provides. The users must also know what to do in cases when the process fluctuates. Most failed systems result from poor quality implementation. ERP is simply a tool Tools that people do not know how to use can be as useless as having no tools at all Which of the three basic attributes is most important when considering an ERP purchase? All are important, depending on the project the level of importance might change

CHOOSING ERP SOFTWARE Proper business analysis The best way to determine which fit strategy is right is to conduct a thorough business analysis. Successful companies normally spend up to 10 percent of the project budget on a business analysis. A proper analysis must result in a documented list of the business processes at work within the company. This will provide a basic tool that can measure vendor capability. Overall fit Proper business analysis Solid implementation plans As with the installation of any successful process or machinery, a plan is needed to monitor the quality, objectives, and timelines. The plan will also employ processes such as workflow analysis and job combination to harvest savings. A thorough implementation will transfer knowledge to system users. When the project is complete, employees must be capable of using the tools the new system provides. The users must also know what to do in cases when the process fluctuates. Most failed systems result from poor quality implementation. ERP is simply a tool Tools that people do not know how to use can be as useless as having no tools at all Which of the three basic attributes is most important when considering an ERP purchase? All are important, depending on the project the level of importance might change

CHOOSING ERP SOFTWARE Solid implementation plans As with the installation of any successful process or machinery, a plan is needed to monitor the quality, objectives, and timelines. A thorough implementation will transfer knowledge to system users. When the project is complete, employees must be capable of using the tools the new system provides. The users must also know what to do in cases when the process fluctuates. Most failed systems result from poor quality implementation. ERP is simply a tool Tools that people do not know how to use can be as useless as having no tools at all