1 ERP – Enterprise Resource Planning Presented By: David Giles Matthew Haack LeRue Holbrooke

2 Topics of our presentation Overview of ERP Best Practices of implementing ERP Summary of ERP Vendors Case studies of ERP Implementations

3 What is ERP? Enterprise Resource Planning is the implementation of software that allows companies the ability to integrate their software to work more efficiently and hopefully provide better customer service. Integrates several business functions: Finance, Accounting, Logistics, HR, Sales & Marketing, ETC… Davenport, Thomas. “Putting The Enterprise Into The Enterprise System” Harvard Business Review. July-August pp

4 How does ERP work The simplest way to describe ERP is to think of it like a building block that you can add to on any side. These building blocks are known as modules that work together by sharing information. The information that the modules share can vary from finance to manufacturing and all points in between.

5 Before ERP

6 Enterprise Resource Modules

7 ERP Model Employees Managers and Stakeholders Central Database Reporting Applications Human Resource Management Applications Financial Applications Manufacturing Applications Inventory And Supply Applications Human Resource Management Applications Service Applications Sales and Delivery Applications Sales Force And Customer Service Reps Customers Back-office Administrators And Workers Suppliers Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug Employees Managers and Stakeholde rs Central Database Reporting Applications Human Resource Management Applications Financial Applications Manufacturing Applications Inventory And Supply Applications Human Resource Management Applications Service Applications Sales and Delivery Applications Sales Force And Customer Service Reps Customers Back-office Administrators And Workers Suppliers Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug

8 History of ERP Thin Client Client Server Mainframe

9 Where is ERP headed Enterprise Resource Planning will become more and more prevalent in the business world as prices for technology reduce and software vendors try to find new customers. ERP will also be moved back onto a central computer such as a host so that more customers can use their ERP software anywhere.

10 Project Lifecycle

11 ERP Implementation Best Practices 1.Business process review / re- engineering 2.Establish knowledgeable project team 3.Ensure software compatibility with industry practices and requirements 4.Prepare organization for change 5.Establish sufficient training methods 6.Perform gradual implementation 7.Keep short project lifecycles

12 Promised Benefits of ERP Improved Productivity –What was the improved productivity at MEMC? Improved Customer Demand Management Cost Reductions Manufacturing Efficiencies Seewald, N., “Enterprise Resource Planning Tops Manufacturers’ IT Budgets,” Chemical Week, New York, Sep 11, 2002, Vol. 164, Issue 35, p.34

13 Hidden Costs of ERP Organizational Culture Change Testing Data Conversion Data Analysis Transition From Outside Consultants

14 Hidden Cost of Training Costs usually underestimated Owens-Corning –Original Estimate – 6% of Project Budget –Actual Results – 13% of Project Expense Train the Trainers White, J.B., D. Clark and S. Ascarelli. “The German Software Is Complex, Expensive, and Wildly Popular.” Wall Street Journal, March 14, 1997, A1, A12.

15 Hidden Costs of Integration Typically 30% of Project Cost Unplanned customizations raise cost Incremental integrations more successful Vowler, J. “You Cannot Afford to Ignore Integration.” Computer Weekly, June 3, 1999, 44.

16 ERP Overview of Vendors  PeopleSoft / JD Edwards  SAP  Oracle  Baan, IFS, Great Plains, Lawson, et. al.

17 ERP Vendor Revenues (2002) Per each companies FY 2002 annual report

18 ERP Vendor Net Incomes (2002) Per each companies FY 2002 annual report

19 Peerstone Research Group via http:// ERP By Customer Size (2003 Data)

20 Peerstone Research Group via http:// ERP By Company Type (2003 Data)

21 Peerstone Research Group via http:// ERP Functions Utilized (2003 Data)

22 Peerstone Research Group via http:// Costs of ERP By Vendor (2003 Data)

23 CASE STUDY FoxMeyer Drug

24 Enterprise Resource Modules

25 FoxMeyer Drug Formerly $5 billion in revenue (1995) 2400 employees in 21 states Pharmaceutical products Major customers – hospitals & universities 4 th largest distributor of pharmaceuticals in U.S. Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5 th Americas Conference Milwaukee WI Aug. 1999

26 FoxMeyer – Why ERP? Align technology with business strategy Basic strategy of growing the business Unisys mainframe nearing capacity – orders including more than 300,000 items each day Decided client/server was best option Project “Delta III” initiated in 1993 Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

27 “Delta III” Project Plan 18 months $65 million cost Estimated $40 million in annual savings Outsourced to Andersen Consulting (now Accenture) and Pinnacle Automation CEO & CIO were co-project champions Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5 th Americas Conference Milwaukee WI Aug. 1999

28 FoxMeyer Drug Consultants Andersen Consulting (Accenture) –Provided Implementation Support –On-Site staff of 50 people at one point Pinnacle Automation –Supplied conveyor equipment –Supplied Warehouse Automation System SAP – Provided ERP package Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

29 Why Pinnacle Warehousing? FoxMeyer required software capable of: –High volume of transactions –Complex pricing models SAP not a leader in warehouse management at the time. SAP could have provided software, but at a high cost. Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

30 Recipe For Disaster? Two software systems (SAP & Pinnacle) Two consulting firms (Andersen & Pinnacle) Highly complex pricing models High frequency of daily transactions Short project timeline of 18 months

31 Delta III Project Results 6 months late – finished late 1995 Project Costs over $100 million ($35 million greater than original plan) Bankruptcy in 1996 $40 million in projected annual savings never realized Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

32 What Went Wrong? Management Failures: –University Healthcare Consortium –Treatment of Warehouse Employees –Lack of internal IT involvement Scott, Judy E. “The FoxMeyer Drugs” Bankruptcy: Was it a failure of ERP? Assoc. IS 5 th Americas Conference Milwaukee WI Aug. 1999

33 University Healthcare Consortium (UHC) Nationwide network of teaching hospitals July 1994 agreement –FoxMeyer given contract to sell to UHC –Projected annual sales of more than $1 billion Agreement never led up to potential Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

34 UHC Changed Project Focus Original goal was to supplement mainframe capacity Sheer volume of UHC deal required immediate volume capacity increases Delta III project timeline accelerated Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

35 FoxMeyer’s Distribution Network Prior to ERP 23 Distribution Centers Customer completed electronic order Orders filled manually at each site Olson, David Louis. Introduction to Information Systems Project Management. Publisher: McGraw-Hill/Irwin; Book and CD- ROM edition (August 14, 2000) ISBN:

36 New Warehouse Plan 1 national distribution center (Ohio) Automated order fulfillment Cashflow savings from better inventory management Olson, David Louis. Introduction to Information Systems Project Management. Publisher: McGraw-Hill/Irwin; Book and CD- ROM edition (August 14, 2000) ISBN: Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

37 Warehousing Transition Ohio warehouse opened 3 months late Automated system not 100% functional Workers not properly trained on new system Old mainframe system ran out of capacity before completion Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

38 Warehouse Workers Morale problems with closure of old warehouses Orders were half-filled or not filled at all Shipments to new warehouse damaged and unfit for sale Large inventory shrink - $34 million Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

39 Andersen’s View According to Andersen Spokesperson: “We delivered, the work we performed was successfully completed, and we were paid in full.” Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

40 Pinnacle’s View According to Christopher Cole, COO of Pinnacle Automation: “…the problem wasn’t the [automation equipment]; it was the way that they [FoxMeyer] were running orders through the system.” “the old mainframe system choked and died.” Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

41 SAP Perspective Peter Dunning Executive VP of Global Accounts with SAP: “It’s one of those stories where the operation was a success, and the patient died.” Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

42 Outside Perspective According to Adam Feinstein, research associate at Salomon Brothers: “They spent a lot of money and tried to put together a progressive management information system, but they overspent and bit off more than they could chew.” Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

43 Summary of viewpoints Andersen was happy to get paid and was not concerned enough about Pinnacle. Pinnacle blamed old systems and warehouse workers for their system failures. SAP software worked, but not fully integrated as a true ERP solution FoxMeyer absent from viewpoints because of a lack of internal involvement Jesitus, J. “Broken Promises?; FoxMeyer’s Project was a Disaster. Was the company too aggressive or was it Misled?”, Industry Week, November 3, 1997, 31-37

44 Lessons Learned Perform BPR prior to project Use realistic objectives Do not rush projects without testing Provide adequate training at all levels Prepare Organization For Change Gradual Implementation is beneficial Re-evaluate Sourcing Strategies De-Escalation cannot be ruled out

45 What Happened After Bankruptcy? After bankruptcy, a holding company called Avatex bought majority share of remaining value. McKesson (former #1 competitor) announced intent to purchase remaining assets in October 1996 FoxMeyer is no more

46 The University of Missouri System Source:

47 The University of Missouri — Columbia Predominantly a residential campus. Fall 2003 enrollment — 26,805 20,441 undergraduate 6,354 graduate & professional 5,107 teaching and research staff 6,605 administrative and support staff

48 University of Missouri — Kansas City Mixed residential/commuter campus. 36% of the students attend part-time Fall 2003 enrollment 14,244 6,850 undergraduate 5,038 graduate & professional 2,368 teaching and research staff 1,763 administrative and support staff.

49 University of Missouri — Rolla Institution of science and engineering The enrollment Fall 2002 was 5,240 3,849 undergraduate 1,391 graduate

50 University of Missouri — St Louis Large non-traditional student population 59% of students enrolled part-time The enrollment for Fall 2003 was 15,605 (12,630 undergraduate, 2,975 graduate). 1,412 teaching and research staff 1,135 administrative and support staff.

51 PeopleSoft and University of Missouri How many people here are familiar with the PeopleSoft implementation on campus?

52 University of Missouri “Identify the Problem” –Select the problem to be analyzed –Clearly define the problem and establish a precise problem statement –Set a measurable goal for the problem solving effort –Establish a process for coordinating with and gaining approval of leadership

53 University of Missouri December 1996Administrative Systems Project Committee (ASP) was established January 1997 The Board of Curators approved implementation of the University wide Administrative Systems Project, an effort to improve the University's basic administrative and support services and processes. The goal of the project was to transform significantly the business procedures and administrative systems that support the University's core missions – teaching, research and service -- resulting in cost savings and improved recruitment of students and staff.

54 University of Missouri “ They are too paper intensive, require numerous approvals, take an inordinate amount of time to complete and are supported by computer hardware and software that is as much as 20 years old” James McGill, UM Executive Vice President “The recommended strategies are to redesign processes to meet customer needs” James McGill, UM Executive Vice President

55 University of Missouri The Committee developed a vision statement: “The business processes and administrative systems project must focus first on policy, organization structure and process technology (I.e., new software and hardware) should be viewed as an enabler”

56 University of Missouri December 1997The Board of Curators authorized implementation of the recommendations of the Administrative Systems Project to improve the core administrative and support processes and replace the related information systems. The Administrative Systems Project will be phased in over a period of four to five years.

57 University of Missouri The project goals included: Reducing paperwork Eliminating redundant or unnecessary procedures Replacing a patchwork of outdated, standalone data systems with a unified, compatible information network

58 University of Missouri In March 1998, the University purchases the following PeopleSoft modules: Human Resources Payroll Benefits Student Administration Admissions Student Records Financial Aid Student Financials Finance General LedgerBudgets Accounts PayableGrants Accounts Receivable

59 University of Missouri July 1998 The Board of Curators approved a contract to hire KPMG as the Administrative Systems Project Implementation Partner for the implementation of PeopleSoft software.

60 University of Missouri “Analyze the Problem” –Identify the processes that impact the problem and select one –List the steps in the process as it currently exists –Collect and analyze data related to the problem –Identify root causes of the problem “Develop A Solution” –Generate potential solutions that will address the root causes of the problem

61 University of Missouri October 1998Dozens of representatives from all four campuses, Health Services, Outreach & Extension and Systems Administration examined ways to simplify and standardize processes through “fit/gap” workshops in each of the Human Resources, Financial Services, and Student Services areas Established Initial Project Plan

62 University of Missouri “Implement a Solution” –Implement the chosen solution on a trial or pilot basis –Identify systemic changes and training needs for full implementation

63 University of Missouri Proposed DateModuleActual July 2000General LedgerJuly 2001 November 2000BudgetsFebruary 2001 April 2001PurchasingJuly 2002 July 2001Payables, Asset Management July 2002 Receivables, Billing, Inventory, Finance Modules

64 University of Missouri Proposed Date ModuleActual Date January 2001Base HR, Base Benefits, Payroll, Pension January 2002 February 2001 Recruit Workforce – Rolla March 2001Recruit Workforce - UMSL, UMKC, O&E April 2002 April 2001Recruit Workforce - UMC, Hospital July 2001Benefits Administration February 2002 Human Resources Management

65 University of Missouri Proposed DateModuleActual Date JulyRecruiting SeptemberAdmissions, student financials (app fees) September 2002 January/FebruaryFinancial aid (except loans) FebruaryRecords, student financials (fees, payment) MayFinancial aid (loans)February 2003 Student Administration UMR started July 2001 UMSL, UMKC, UMC started July 2002

66 University of Missouri Best Practices Create knowledgeable project team Review business processes in granular detail Recognize management style of Senior Management Compare processes and function of software to corporate processes and function of corporation Interview current users of the software in your industry Request on-site demonstration Keep implementation lifecycles short. Preferably about 6 months

67 Combined Case Study Best Practice List Best PracticesFoxMeyerUMSL Business Process Review / Re- engineering NoYes Establish Knowledgeable Project Team Yes Perform Gradual Implementation NoYes Prepare Organization (Change Management) No? Keep project lifecycles short YesNo Ensure software is compatible with industry NoYes Establish training methodologies NoYes

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