1. Enterprise Resource Planning
Wisnu Cahyono
Wenbin Li
Erica Price
Jurlian Sitanggang
April 25, 2007

2. Overview Introduction Suppliers of ERP Implementation of ERP
Case Studies

3. ERP Evolution
The Evolution of ERP Systems: A Historical Perspective, 2002

4. What is ERP?
ERP is a packaged business software system that enables a company to manage the efficient and effective use of resources (materials, human resources, finance, etc.) by providing a total, integrated solution for the organization’s information-processing needs.
Fiona Fui-Hoon Nah et al, “Critical factors for successful implementation of enterprise systems” Business Process Management Journal, 2001

5. Before ERP Implementation
Marketing and Sales
Financial Management
Human Resource Management
Operations Management
Customer Relationship Management (CRM)
Supply Chain Management (SCM)
Suppliers
Distributors
Customers
Individualized Business Systems with no Central Database!!! Not Efficient!!
Witten Bentley Dittman, System Analysis and Design Methods, 6th, McGraw-Hill, 2004

6. After ERP Implementation
The Evolution of ERP Systems: A Historical Perspective, 2002

7. Data Flow Before / After ERP Application

8. ERP Modules mySAP ERP Demos
and

9. Typical Benefits of an ERP System
Reductions:
Inventory: ≥ 20%
Material Cost: ≥ 5%
Labor Cost: ≥ 10%
Improvements
Customer Service and Sales: ≥ 10%
Accounting Control (Reducing the days of outstanding receivables): ≥ 18%
Balance Sheet: Inventory Reduction and Accounts Receivable
Income Statement: Inventory Reduction, Material Cost Reduction, Labor Cost Reduction and Increased Sales
Based on Studies that surveyed manufacturers about the impact of ERP systems on firm performance. For all industries and company size
Maximizing Your ERP System, Scott Hamilton, 2002

10. Advantages of an ERP System
These are the benefits that an industry standard ERP system may bring to an organization
The Evolution of ERP Systems: A Historical Perspective, 2002

11. Potential Pitfalls of ERP Implementation
No executive sponsor
Becomes a centralized implementation in 1 department when it is really needs to be adapted by all departments
No full-time project manager
Lack of training for employees
Proper research of vendors before selection of ERP package
Lack of Budget – need to consider software, consultants, employee training and upgrade costs
Lack of thorough documentation when implementing the system
Concentrating more on re-engineering than Process Enhancement
Web Poll survey conducted by Panorama Consulting Group, n~50, conducted on 11/7/06
Weekly Poll Results, Eric Kimberling, Panorama Consulting Group, 11/7/06 and The Top 8 Pitfalls of ERP Implementation and How to Avoid Them,
Paul Nation, eSG enterprise Solution Group

12. Disadvantages of an ERP System
The Evolution of ERP Systems: A Historical Perspective, 2002

13. Market Share of Packaged Application
ERP Software Market grew to $25.4 Billion in 2005!!!

14. ERP Market Share Within the Industries

15. Overview Suppliers of ERP Introduction Implementation of ERP
Case Studies

16. ERP Software Market grew to $25.4 Billion in 2005!!!
Top 5 Revenue Share
ERP Software Market grew to $25.4 Billion in 2005!!!
Source: AMR Research, 2006

17. Pilot Software SPL (Nov. 2006) Siebel (June 2006) Retek Inc
Intention to buy Retek Inc.
SPL
(Nov. 2006)
Hyperion
Tangosol
Lodestar
Siebel
(June 2006)
Retek Inc
(Apr.6, 2005 )
Peoplesoft
(Jan 7, 2005)

19. Systems Applications and Products in Data Processing
Founded in 1972
Based in Waldorf, Germany
US Corporate Headquarters in Newtown Square, PA
39,300 employees in over 50 countries
Supports more than 38,000 customers, with over 121,000 installations in more than 120 countries and 31 languages (over 12 million daily users)
From small business to global enterprise (To-date: 65% of SAP customers are small & midsize companies)
Revenue 2006 = € 9,402 million (+10%) ~ $ 12.2 Billion
Net Income 2006 = € 1,871 million (+25%) ~ $ 2.4 Billion ,

20. Products SAP Business Suite (CRM, ERP, SCM, PLM, SRM)
SAP All-in-One (Mid-size company)
SAP Business One (over 10,000 small businesses)
Duet
Provides access to SAP business processes and data via Microsoft Office
SAP xApps Composite Applications
Major business strategy of today:
SAP Acquires Pilot Software (OLAP) on Feb 2007
To target mid-market companies to expand their market share
All-in-One features integrated CRM, BI and analytics, and a redesigned user interface.
IBM and SAP announce the expansion of their partnership to reach midsize companies in Europe and Asia-Pacific (Apr 23, 2007) ,

21. World Headquarters in Redwood Shores, CA 55,000+ employees
Founded in 1977
World Headquarters in Redwood Shores, CA
55,000+ employees
Used in 98 of the Fortune 100 companies
First software company to develop and deploy 100 percent internet-enabled enterprise software across its entire product line
Revenue 2006 = $14.38 billion (+21.87%)
Net Income 2006 = $3.38 billion (+17.15%)

22. Products
Oracle e-Business Suite (business applications for the enterprise)
JD Edwards World (IBM iSeries platform, small businesses)
JD Edwards Enterprise One (medium-end)
PeopleSoft Enterprise (high-end)
Retek Inc. - SCM (Apr.6, 2005, controls 92.8 percent of Retek shares)
Siebel – CRM Solution (4,000 customers)
Major business strategy of today:
Project Fusion (merged suite, 2008)
With strategic acquisitions, Oracle strengthens its product offerings, accelerates innovation, meets customer demand more rapidly, and expands partner opportunity.
Hyperion - producer of business-intelligence software
Tangosol Inc. - Memory Data Grid Leader: perform real time data analytics, grid based in-memory computations and high performance transactions
LODESTAR Corporation - a provider of meter data management and energy solutions for the utilities industry (Oracle's 29th buy in less than 3 years). ,
, (Siebel) , (Lodestar)
(Hyperion) ,

23. Other Vendors : - Microsoft Dynamics (mid-large company)
- Retail Management System (small and mid-sized retailers)
: Industry tailored application (small-mid co)
: Distribution and Logistics (start up – large co)
: Industry solution (mid market)
: Industry, control and transportation (high-end)
: Manufacturers (mid market)
, , , ,

24. Overview Implementation of ERP Introduction Suppliers of ERP
Case Studies

25. Cost and Time of ERP Implementation
Average Cost: $9.1 million
Average Time: at least 1 year
Average Usage: % of ERP available functionality
Cost Allocation
Survey of 107 separate ERP applications

26. Performance of ERP Implementation

27. Four–Phase Model of ERP Implementation
Critical Success Factors for ERP Implementation
Four–Phase Model of ERP Implementation
developed by Markus and Tanis in 1999
Chartering: Decision define business case and solution constraints
Project: Getting system and end users up and running
Shakedown: Stabilizing, eliminating “bugs”, getting to normal operation.
Onward and Upward: System maintenance, users support, system upgrading and extension.
Critical Success Factors for Enterprise Resource Planning Implementation and Upgrade, Journal of Computer Information Systems, 2006, Fiona Fui-Hoon Nah and Santiago Delgado

28. Survey in utility industry and non-profit organization

29. Survey of 500 Separate ERP Implementations

30. Business Drivers for ERP Implementation

31. Software Selection for ERP Implementation

32. Main Methods used in ERP Implementation

33. Challenges and Responses of ERP Implementation

34. Performance Improvement with ERP Implementation
Laggard(30%): ERP implementations that are significantly behind the average ---poor performance
Average(50%): ERP implementations that represent the average or normal---average performance
Best in Class(20%): ERP implementations that are superior to the industry normal---top performance

35. Expected and Actual ROI with ERP Implementation
Laggard(30%): ERP implementations that are significantly behind the average ---poor performance
Average(50%): ERP implementations that represent the average or normal---average performance
Best in Class(20%): ERP implementations that are superior to the industry normal---top performance

36. Overview Case Studies Introduction Suppliers of ERP
Implementation of ERP
Case Studies

37. FoxMeyer Drug Co.
Case 1 – FoxMeyer Drugs
FoxMeyer Drugs was the nation’s fourth largest Wholesale Distributor of Drugs and Beauty aids, based in Dallas
Has 23 distribution centers
Major Product: Wholesale distribution of drugs & beauty aids
Customers/serves: Drugs stores, Chains, hospitals, care facilities
Revenue (1995): $ 5 Billions => 1996 Sold for just$ 80 Millions
The VP of IT Department report to COO
Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

38. Case 1 : FoxMeyer Drugs Why they want to implement ERP?
FoxMeyer Drug Co.
Case 1 : FoxMeyer Drugs Why they want to implement ERP?
FoxMeyer expected high growth in drug sales
To increase efficiency
Their Unisys computer systems were reaching the end of their life and the vendor was discontinuing support.
FoxMeyer expected the project to save $ 40 M annually (Promised benefits).
Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

39. Case 1 : FoxMeyer Drugs Project Scope, Time, & Cost
FoxMeyer Drug Co.
Case 1 : FoxMeyer Drugs Project Scope, Time, & Cost
Project: The Delta III
Project scope: ERP R/III Edition & Warehouse Automation System
Time & budget estimation:
- 18 Months
- 15 Millions
Actual project delivery date & cost:
- 24 Months
- Over 100 Millions
Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

40. Case 1 : FoxMeyer Drugs Suppliers/Vendors
FoxMeyer Drug Co.
Case 1 : FoxMeyer Drugs Suppliers/Vendors
SAP: Provide ERP Version R/3 Project
Pinnacle: Provide Warehouse Automation System
Anderson Consulting: Perform Integration
Source: Source: Judy E. Scott, The University of Texas at Austin

41. Case 1 : FoxMeyer Drugs Which ERP Function Module are Applied?
FoxMeyer Drug Co.
Case 1 : FoxMeyer Drugs Which ERP Function Module are Applied?
SAP R/3 Edition:
Financials and Controlling (FICO)
Human Resources (HR)
Materials Management (MM)
Sales and Distribution (SD)
Source: Judy E. Scott, The University of Texas at Austin

42. Case 1 : FoxMeyer Drugs ERP Implementation
FoxMeyer Drug Co.
Case 1 : FoxMeyer Drugs ERP Implementation
Source: delivery.acm.org

43. Case 1 : FoxMeyer Drugs Why this project is a failure?
FoxMeyer Drug Co.
Case 1 : FoxMeyer Drugs Why this project is a failure?
The customers less commitment
The scope of the project was risky
FoxMeyer was over expectations
The new system initially could only process 100,000 orders/night compared to 420,000 orders with the previous system
FoxMeyer management did not feel it knew enough to cope with the Consultant and the Vendors
FoxMeyer did not have the necessary skill in house
The project spin out of control
Source: Gray, Paul, Manager’s Guide to Making Decisions about Information Systems, 1st, John Wiley & Sons, 2006

44. Case 1 : FoxMeyer Drugs Lessons Learned
FoxMeyer Drug Co.
Case 1 : FoxMeyer Drugs Lessons Learned
Respond to environmental and strategic changes at more tactical (project) levels
Recognize the importance of organizational culture; foster an open culture and encourage open communication
Take a realistic view of the role technology can play in supporting your firm’s strategy; engage in a strategy of “small wins” to leverage knowledge gained
Manage the project; employ a strong project leader and well defined methodology.
Source: April 2002/vol. 45 No. 4 Communications of the ACM

45. Case 2 – Schnucks Founded in St. Louis in 1939
Major Departments: Groceries, Bakery Goods, Florist, and Pharmacy
Has more than 100 stores in Missouri, Illinois, Indiana, Wisconsin, Tennessee, Mississippi and Iowa
2006 Revenues – 2.4 Billion
IT department has 90 people
About 30 of the 90 are developers
Mark Zimmerman is the VP of IT and he reports to the President of the company, Todd Schnuck .

46. Case 2: Schnucks Why they needed ERP
Needed to upgrade their system to be Y2K ready and wanted to have a relational database (UNIX) to get off the mainframe system.
Benefit: Provided single point of data entry for all of their financial information.
Business Drivers: Standardization of processes and linking of operations
Implemented PeopleSoft Financial (general ledger, fixed assets, AR, AP) – Financial Module of ERP
Selected between Oracle and PeopleSoft
Decision factors: ease of use and meeting IT needs
PeopleSoft provided better ease of modification and had slightly better cost
Project started in fall of 1998 and completed in October 1999 on time.
Budget Estimate had 2 components – Purchase price of the software and the consultants

47. Case 2: Schnucks Implementation of the Financial Module
Used a combination of PeopleSoft software, consultants and in-house personnel to implement the system
Critical success factors used:
Top Management Support
Minimum Customization
Focused on Training for Employees
Used a full-time Project Manager
Critical success factors not used:
Sufficient prior ERP knowledge – underestimated budget and staff needed
Cross-functional team for implementation
Accurate documentation of implementation – need this for upgrades, especially if staff if lost

48. Case 2: Schnucks Improvements/Disappointments
Biggest Improvements
Provided more timely and accurate financial status and analysis with no wait for IT
Provided a new technology for IT to learn and was easier to use
Better access to data, query capacity and learned controls and provided Y2K compliance
Biggest Disappointments
On-going costs for software
Underestimated the needs and costs for the infrastructure of the new software
Not enough expertise at the time of implementation
Need more training resources

49. Case 2: Schnucks Changes from Implementation
Before ERP Implementation
All financial data was running off a mainframe system (Legacy)
Not Y2K Compliant
Financial Status and Analysis was timely for executives to complete because of poor access to data
IT had little knowledge of ERP systems
After ERP Implementation
All financial data came from a relational database (UNIX)
System was Y2K Compliant
Financial Status and Analysis was more efficient and accurate for executives because they had access to the data w/o IT’s help
IT gained experience in Oracle technology

50. Case 2: Schnucks Our Lessons Learned
Be aware of the on-going costs of an ERP system
Take the time to research vendors, analyze your needs and understand ERP systems before starting implementation
Keep accurate documentation during implementation to be used for upgrades
Have sufficient staff before implementation of the system

51. Case 3 – PT. PLN (Persero)
PT. PLN is the Indonesian state-owned electricity company.
Has 25 regional units across all the 32 provinces in Indonesia
2005 Revenues – Rp 76,5 Trillion ( ~ US$ 8 Billion )
IT department in Head-office has 45 people
The Deputy Director of IT Strategy reports to the Director of Marketing & Customer Service
Source of case information: Poedji Wisaksono
HR Information System Manager in the Head office and he reports to the Deputy Director of Human Resource Development System.
One of the change agents for ERP Implementation in the company

52. ( Why implement ERP? )

53. Case 3: PT. PLN Project Scope and Schedule
Vendor selection in February April 2005
Project started in May 2005
Go Live:
Finance Module: April ‘06 & July ‘06
Material Module: April ‘06 & July ‘06
Human Resource Module: December ‘05, April ‘06 & July ’06
ERP Budget
IT budget for the development of the ERP system is US$ 25 million.
in which, $ 15.4 Million was allocated to 4 Pilot Project Units:
----- Head Office
----- Bali Distribution Unit
----- Jakarta Distribution Unit
----- Load Control Center (P3B) Unit

54. Case 3: PT. PLN Software Selection
Vendor selection:
February April 2005
Accenture (Consultant)
SAP (Application)
HP (Hardware)
Oracle (Database)
Reason of Software Selection:
Functionality
Total Cost of Ownership
Ease & Speed of Implementation
Best Practice

55. Case 3: PT. PLN - ERP Application
PLN - IT System
Management
Functional / Operational
All Employees
ERP Back Office
Finance Module
Material Module
HR Module
ESS (Employee Self-Service)
SEM / BW (Strategic Enterprise Management /
Business Warehouse)
Direct information and services for employees
- Financial Management Report
- Material Management Report
- HR Management Report

56. Case 3: PT. PLN Method Used
Deploying through consultant agency
After ERP Go-Live:
Has a Helpdesk of 7 persons in Head Office
User Support
Has a developer team of 30 persons preparing for the Onward and Upward phase:
System maintenance, system upgrading and extension

57. Four–Phase Model of ERP Implementation
Case 3: PT. PLN Critical Success Factors
Four–Phase Model of ERP Implementation
developed by Markus and Tanis in 1999
Shakedown: Stabilizing, eliminating “bugs”, getting to normal operation.
Employees were not completely ready for the new system
Not enough expertise at the time of implementation
Need more training resources
Still needs to implement both legacy and new system for Finance and Human Resources
Change management
Critical Success Factors for Enterprise Resource Planning Implementation and Upgrade, Journal of Computer Information Systems,
2006, Fiona Fui-Hoon Nah and Santiago Delgado

58. Case 3: PT. PLN Challenges
Customization Related Challenges
Training
Little flexibility in adapting to business processes
Lengthy or incomplete integrations
Responses to challenges:
Aligning software capabilities to business processes
Use external consultants
Wrap existing applications with web services
360 degree assessment

59. Case 3: PT. PLN Changes from Implementation
Before ERP Implementation
Data are not standardized
Data input redundancy
Uses several applications for reporting
After ERP Implementation (Still in the verge of implementing ERP)
In the transition period: Still uses both ERP and legacy applications
Better access to data
Acquiring new technology
Reduced FTE (Full Time Equivalent)
Increase ITO (Inventory Turn over)
Reduced Inventory Level (more control on inventory)
Cuts transactions and administration works

62. ACCENTURE HUMAN CAPITAL DEVELOPMENT FRAMEWORK

63. Case 3: PT. PLN Lessons learned
Replacing the legacy system cannot be done after the implementation of the pilot project
Extensive training for employees
Management Support is needed
Changing application needed data cleansing
Development of the Human Capital

64. Case Comparisons Case 1 – FoxMeyer Drugs (1993) Case 2 – Schnucks
(1999)
Case 3 – PLN (2006)
Revenue
~ $ 5 Billion
~ $ 2.4 Billion
~ $ 8 Billion
Reason for ERP
Increase the sales
Increase the efficiency
Replaced legacy system
Increase profit
To become Y2K compliant and replace legacy systems
- Have a controlled and standardized environment
- Implementing adopted Best Practices
- Get a better operation and control mechanism
Time
24 months
~ 1 year
18 months
Vendor
SAP
PeopleSoft
Project Cost
Over $100 million
Unknown
$15.4 million
Modules
Warehouse Automation
Financial
Human Resources
Material
Methods used
- ERP Vendor and consultant
- ERP consultant
Class
Failure
Average
Outcomes
COO Resign
$ 34 M charge for inventory and order mix-ups
Bankruptcy
Sues Anderson Consultant
Sues SAP
Became Y2K compliant
Financials became more timely and accurate – faster analysis
IT gained new technology knowledge
Pilot project in 4 units
Potential outcome :
- Reduced FTE (Full Time Equivalent)
- Increase ITO (Inventory Turn over)
- Reduced Inventory Level
FoxMeyer Drug Co.

65. Future of ERP Systems
                                                                                                                                                                                          

66. Future Goals of ERP
There is a movement toward a global ERP system, which is a key factor shaping the future of ERP
Companies want to have fewer and fewer ERP systems running – meaning eventually they only want to open one application to get any information they need.
There is a shift toward creativity around product strategies rather than the current products

67. Questions???