08. Enterprise Resource Planning (ERP) Rev: Feb, 2013 Euiho (David) Suh, Ph.D. POSTECH Strategic Management of Information and Technology Laboratory (POSMIT: Dept. of Industrial & Management Engineering POSTECH

Contents 1Introductions of ERP 1)Fundamental Introductions of ERP 2)Development of ERP 3)Functions of ERP 4)Structure of ERP System 5)Characteristics of ERP 2ERP Selection Criteria 1)Phases of ERP Selection 2)ERP Selection Criteria 3)Market Share 4)ERP Vendors with Their Characteristics 3Case Study

3 What is ERP? ■Definition of ERP (Enterprise Resource Planning) –A set of applications designed to bring business functions into balance and represents the next generation of business systems – by Gartner Group –An accounting oriented information system for identifying and planning the enterprise wide resource – by APICS 1. Introductions of ERP 1) Fundamental Introductions of ERP Advanced Process Information Technology Process Innovation BPR ERP

4 Why ERP ? ■Roles of ERP (Enterprise Resource Planning) –The backbone of business processes –A cross-functional enterprise system –An integrated suite of software modules –A system supports basic internal business processes –A system facilitates business, supplier, and customer information flows 1. Introductions of ERP 1) Fundamental Introductions of ERP

5 ERP Application Components 1. Introductions of ERP 1) Fundamental Introductions of ERP

6 Benefits and Challenges of ERP ERP Business Benefits 1. Quality & efficiency 2. Decreased costs 3. Decision support 4. Enterprise agility ERP Costs 1. High risk & cost 2. Hardware and software are a small part of overall project 3. Failure can cripple or kill a business 1. Introductions of ERP 1) Fundamental Introductions of ERP

7 Costs of Implementing a New ERP 1. Introductions of ERP 1) Fundamental Introductions of ERP

8 Causes of ERP Failures Insufficient training Insufficient data conversion and testing Trying to do too much, too fast Failure to involve affected employees in planning and development Under-estimating the complexity of planning, development, training Over-reliance on ERP vendor or consultants Common Causes of ERP Failure ERP Selection Criteria 1. Introductions of ERP 1) Fundamental Introductions of ERP

9 Development of ERP 1970’s 1980’s1990’s2000’s Material Planning Minimum Inventory Closed Loop MRP Capacity Planning Cost Reduction Enterprise-wide Planning Management Innovation Inter-company Optimization Win-Win-Win MRP (Material Requirement Planning) MRPII (Manufacturing Resource Planning) ERP (Enterprise Resource Planning) SCM (Supply Chain Management) 1. Introductions of ERP 2) Development of ERP

10 Functions of ERP ERP Finance/ Accounting Engineer- ing Sales/ Mktg Supplier Production Logistics Customer Product Development Process CAD/CAM PDM Drawing/Docu Mgmt EC Mgmt Configuration Control Release Control Order Fulfilment Process Manufacturing Process Manufacturing Process Management Process Management Process Employee MES Finite Scheduling Data Collection/POP Facility Management Quality Management FA 1. Introductions of ERP 3) Functions of ERP

11 Structure of ERP System Supplier AR Planning APGL Receiving Shipping Inventory AR Planning AP GL Receiving Shipping Inventory Manufacturing Plants Distribution Centers Product Life cycle EngineeringPurchasingPlanning Order Admin Finance OrderEntry Order Shop Floor Control OrderEntry Order PDM EDI.Web EDI.Web FA Customer 1. Introductions of ERP 4) Structures of ERP System

12 Characteristics of ERP Enterprise Real-time Integration BPR Tool BPR Infrastructure BPR Enabler Data Integration Single View of Distributed Systems Communication Tool Integration Configuration Function No Programming Supporting Multi-language Globalization 1. Introductions of ERP 5) Characteristics of ERP

13 Phases of ERP Selection Acquirement Phase 0 Studies the business(mission, strategy, etc.), business processes Decide if the company has to acquire an ERP Phase 1 Conduct a market research initiative looking for ERPs Reduce the number of candidates Phase 2 Obtain one or more interviews with the providers Get as many fact sheets, catalogs, articles, ect., as possible Select 2 or 3 ERP candidate solutions Phase 3 Analyze the demonstration of candidates Visit the providers Phase 4 Make final decisions Negotiate and plan First filter Second filter Analysis Final decision 2. ERP Selection Criteria 1) Phases of ERP Selection

14 ERP Selection Criteria (1/3) ■Functionality criteria CriteriaDefinition Included functionality Areas or functions of the company that the ERP has to serve It is described how the ERP covers each function Main target Functional area or areas for which the ERP is specially oriented or strong Adaptability Possible level of customization in general and for the specific company Openness for 1) custom development 2) working with other systems Level of openness to additional bespoke development (internal or external) and to other existing applications E.g. API, CRM, SCM, etc. Specifics supportsE.g. Y2K, euro, ISO-9000, etc. 2. ERP Selection Criteria 2) ERP Selection Criteria

15 ERP Selection Criteria (2/3) ■Technical criteria CriteriaDefinition PlatformsInformation technology platforms supported Database management systemsDBMS or DBMSs used as base for the ERP Languages and development tools Languages and development tools used to customize the ERP User management tools Management capabilities: users, user groups, access levels, roles, authorizations, etc. User documentation 1) Printed manual 2) Online help 3) Tutorials Type of user documentation for training and helping to use the ERP Technical documentation 1) Database schema 2) Source code 3) Design Technical documentation provided about internal structure of ERP master programs and databases User documentation 1) Internet/Web 2) Remote 3) EDI Types of external connectivity supported 2. ERP Selection Criteria 2) ERP Selection Criteria

16 ERP Selection Criteria (3/3) ■Others –Cost Are the license costs justified given the functionality offering? Are annual maintenance charges reasonable? How quickly can payback be received? –Service & Support Can the supplier provide a complete turn-key solution? How quick are non-critical software bugs fixed? Does the vendor offer business process reengineering as part of the implementation process? Does the supplier have industry experience? –Vendor longevity How many years has the company been actively engaged? When was the product’s first release? What is the current release version being quoted? 2. ERP Selection Criteria 2) ERP Selection Criteria

17 Market Share ERP Selection Criteria 3) Market Share ■Market share of ERP vendors in 2005 and 2010

18 ■Logistics & Workflow ■System Administration ■Integration of Modules SAP Workflow-oriented Excellence in outbound logistics OracleEffective in e-commerce SAP Offering tools to simplify system administration users cannot utilize sufficiently OracleEase of system administration (basis of Oracle Database) SAP Excellence in interface bet. Modules Lack of 3rd party vendors OracleFollowing OLE, ODBC, DDE standard ERP Vendors with Their Characteristics (1/2) 2. ERP Selection Criteria 4) ERP Vendors with Their Characteristics

19 ■Usability ■Ease of implementation SAPComplex to use OracleGood in usability 2. ERP Selection Criteria 4) ERP Vendors with Their Characteristics ERP Vendors with Their Characteristics (2/2) SAPVery complex to implement Oracle AIM (Application Implementation Methodology) Ease of configuration

20 ■MIT PPT materials (MRP/ERP) – 2002/lecture-notes/lec13xrp.pdfhttp://ocw.mit.edu/courses/sloan-school-of-management/ operations-management-summer- 2002/lecture-notes/lec13xrp.pdf Note

21 Reference ■Euiho Suh, “BPR/ERP(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)Euiho Suh, “BPR/ERP(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory) ■Euiho Suh, “ERP Selection Criteria (PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)Euiho Suh, “ERP Selection Criteria (PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory) ■O’Brien & Marakas, “Introduction to Information Systems – Sixteenth Edition”, McGraw – Hill, Chapter 8O’Brien & Marakas, “Introduction to Information Systems – Sixteenth Edition”, McGraw – Hill, Chapter 8