INTRODUCTION

TO ERP SYSTEMS
Learning Outcomes:
1. Define enterprise resource planning (ERP) and its characteristics.
2. Analyze the evolution of ERP.

Asst. Prof. JAY-ARR C. TAYAO, LPT, MCE, MCP, MIT

Professional Lecturer IV
CONTENTS

 Historical Context of ERP

 What is ERP?
 Why all the fuss about ERP?
 What is ERP offering?
 What is driving the ERP Movement?
 Phases of ERP Implementation
 ERP Failure and Success
 HISTORICAL CONTEXT OF ERP

Historically, companies created “islands of automation”. A

hodge-podge of various systems that operated or managed
various divergent business processes. Sometimes these systems
were integrated with each other and sometimes they weren’t.
Sometimes they were loosely interfaced and sometimes they
were more tightly interfaced.
 HISTORICAL CONTEXT OF ERP

The total organizational costs of maintaining a patchwork of

redundant and overlapping systems has grown over the years to
the point where the cost of maintaining these systems is greater
than installing a new system.
 HISTORICAL CONTEXT OF ERP

Analysts have speculated that widespread adoption of the same

ERP package by the firms in a single industry (an observed
phenomenon for semi-conductor manufacturers) might lead to
the elimination of process innovation-based competitive
advantage (Davenport, 1998).
 HISTORICAL CONTEXT OF ERP

Most companies have failed to implement ERP packages successfully or

to realize the hoped-for financial returns on their ERP investment.
Companies have had similar difficulties with each new wave of
information technology since the first mainframe systems. It takes
years to realize some envisioned IT-enabled changes in organizational
processes and performance, and there are many ways to fail along the
way.
 ERP DEFINITION

Enterprise systems are commercial software

packages that enable the integration of
transactions-oriented data and business processes
throughout an organization (and perhaps eventually
throughout the entire inter-organizational supply
chain).
Enterprise systems include ERP software and
related packages as advanced planning and
scheduling, sales force automation, customer
relationship management, product configuration.
 CHARACTERISTICS OF ENTERPRISE
SYSTEMS

Integration: seamless integration of all the

information flowing through a company – financial
and accounting, human resource information,
supply chain information, and customer
information.
 CHARACTERISTICS OF ENTERPRISE
SYSTEMS

Packages: Enterprise systems are not developed in

house.
 IS life cycle is different: 1)mapping organizational
requirements to the processes and terminology
employed by the vendor and 2) making informed
choices about the parameter setting.
 Organizations that purchase enterprise systems
enter into long-term relationships with vendors.
Organizations no longer control their own destiny.
 CHARACTERISTICS OF ENTERPRISE
SYSTEMS
Best Practices: ERP vendors talk to many different
businesses within a given industry as well as
academics to determine the best and most efficient
way of accounting for various transactions and
managing different processes. The result is claimed
to be “industry best practices”.
The general consensus is that business process change
adds considerably to the expense and risk of an
enterprise systems implementation. Some
organizations rebel against the inflexibility of these
imposed business practices.
 CHARACTERISTICS OF ENTERPRISE
SYSTEMS
Some Assembly Required: Only the software is
integrated, not the computing platform on which it
runs. Most companies have great difficulty
integrating their enterprise software with a package
of hardware, operating systems, database
management systems software, and
telecommunications suited to their specific needs.
 Interfaces to legacy systems
 Third-party bolt-on applications
 Best of Breed Strategy (American Standard,
Starbucks)
 CHARACTERISTICS OF ENTERPRISE
SYSTEMS

Evolving: Enterprise Systems are changing

rapidly.
Architecturally: Mainframe, Client/Server, Web-
enabled, Object-oriented, Componentization
(Baan).
Functionally: front-office (ie. sales
management), supply chain (advanced
planning and scheduling), data warehousing,
specialized vertical industry solutions, etc.
WHY ALL THE FUSS ABOUT ERP?

 Market statistics
 US ERP sales grew from under $1 billion in 1993 to $8 billion in 1998
(Dataquest, $14.5 billion worldwide).
 In 1998 US companies spent $80 billion on ERP systems integration.
 Industry analysts expect an average rate growth of 37% per year for
the next 5 years.
WHY ALL THE FUSS ABOUT ERP?

 Market statistics
 AMR estimates worldwide ERP software sales to grow to $52 billion
by 2002.
 If systems integration costs stay constant firms will be spending
$552 billion by 2002.
 Firms also spend about 15-20% annually to keep ERP systems up to
date.
WHAT IS ERP OFFERING?

 ERP is business process infrastructure

 ERP is a software mirror image of the major business processes of a
firm, such as customer order fulfillment and manufacturing.
 ERP software automates and integrates the basic processes of a
firm, from finance to the shop floor, and eliminate complex,
expensive links between computer systems that were never meant
to talk to each other.
WHAT IS ERP OFFERING?

 ERP is business process infrastructure

 ERP provides enterprise wide business process, information and
data management
 stream-line and standard business processes and operating
procedures
 provide interorganizational collaboration
 intraorganizational information sharing
 WHAT IS ERP OFFERING?

 ERP Business Technology architecture

 Business Process Workflow Management
 Functional Information Management
 Marketing, Operations, HRM, etc.
 Decision Support Models and Tools
 Data Management
 WHAT IS ERP OFFERING?

 ERP Functional Architecture

 Information Systems Modules
 Human Resources Management
 Manufacturing Management
 Financial Management
 Accounting
 Marketing Management
 Workflow Management
 EXAMPLES OF ERP PACKAGES

ERP Packages

 BAAN www.baan.com
 JD Edwards www.jdedwards.com
 Oracle www.oracle.com
 PeopleSoft www.peoplesoft.com
 SAP www.sap.com
MOTIVATION FOR
IMPLEMENTING ERP
Achieving and maintaining competitive
advantage requires better information
management
 Information Quality
 Information Reliability
 Information Access
 Information Sharing
MOTIVATION FOR
IMPLEMENTING ERP
 Firms View ERP As A System:
 to provide better information management
 to transform the competitive space
 to transform relationships between
 their customers
 their suppliers
 their competitors
MOTIVATION FOR IMPLEMENTING
ERP - COMPETITIVE SPACE
 MOTIVATION FOR IMPLEMENTING ERP

 FIRMS ACHIEVE COMPETITIVE ADVANTAGE BY

 Locking in customer and suppliers
 Locking out the competition
 Attracting away competitors’ customers by
 product functionality
 cost performance
 service, reliability and flexibility
 quality and innovation
 response time/ time-to-market
MOTIVATION FOR
IMPLEMENTING ERP
 MOTIVATION FOR IMPLEMENTING
ERP- (INTER-ORGANIZATIONAL EFFICIENCY)
 Better Supply Chain Management
 Inbound Logistics
 Operations
 Outbound Logistics
 Marketing And Sales
 Service
 Disintermediation and Market Reach
 Online Store Front
 Internet Banking
 Allows an organization to Reengineer all their processes.
 REASONS FOR NOT ADOPTING ENTERPRISE
SYSTEMS

Lack of Feature-Function Fit: between a company’s

needs and the packages available in the marketplace.
Company growth, strategic flexibility or decentralized
decision-making style. Many ERP systems are not
easy to change once they are configured and installed.
Availability of alternatives for increasing the level of
systems integration: Data Warehousing (Kraft,
CapitalOne?), Middleware (Dell)
 PHASES OF ERP
IMPLEMENTATION
The Chartering Phase
Comprises the decisions leading up to the funding of an enterprise
system.
 Key Players: Vendors, Consultants, Company Executives, IT
specialists.
 Key Activities: Build a business case for ERP, Select a software
package, Identify a project manager, Approve a budget and
schedule.
 PHASES OF ERP
IMPLEMENTATION
The Project Phase
Comprises the activities performed to get the system up and running
in one or more organizational units.
 Key Players: Project Manager, Project team members, Internal IT
specialists, Vendors, and Consultants.
 Key Activities: Software configuration, system integration, testing,
data conversion, training, and rollout.
 PHASES OF ERP
IMPLEMENTATION
The Shakedown Phase
The organization’s coming to grips with the ERP System.
Ends when “normal operations” have been achieved.
(Or they give up and pull the plug on the system)
 Key Players: Project Manager, Project team
members, Operational Managers, and End users.
 Key Activities: Bug fixing and rework, system
performance tuning, retraining, staffing up to handle
temporary inefficiencies. This is the phase in which
the errors of prior phases are felt. New errors can
arise in this phase also.
 PHASES OF ERP
IMPLEMENTATION
The Onward and Upward Phase
Continues from normal operation until the system is
replaced with an upgrade or a different system. This is
where the organization is able to ascertain the benefits (if
any) of its investment.
 Key Players: Operational Managers, End-users, IT support
personnel (Vendors and consultants may be involved –
upgrades)
 Key Activities: Continuous business improvement,
additional user skill building, post implementation benefit
assessment. Most of these activities are not performed.
 PHASES OF ERP
IMPLEMENTATION
There are several possible outcomes for
each phase of the implementation.
Unresolved problems from one phase
are inherited by the next phase.
Just like the SDLC, the longer problems
go undetected and unresolved, the
more expensive it is to fix them.
 ERP SCOPE AND IMPACTS

The ERP phenomenon is all encompassing for companies

and their key business partners:
1. Financial Costs and Risks
2. Technical Issues
3. Managerial Issues
4. IT Adoption, use and Impacts
5. Integration
ERP systems have strong conceptual links with every
major information systems area.
 ERP FAILURE
Standish Group Study of ERP Implementations:

 35% are Cancelled

 55% overrun their budgets
 Less than 10% are on time and under
budget.
 ERP FAILURE
Standish Group Study of ERP Implementations:
Implementation Averages
 Cost: 178% over budget
 Schedule: 230% longer
 Functionality: –59%
 or: the system will only perform 41% of the functions it was intended to
perform.
 WHY IMPLEMENTATIONS FAIL

1. People Don’t want the systems to succeed

2. People are comfortable and don’t see the need for the new
system.
3. People have unrealistic expectations of the new system.
4. People don’t understand the basic concepts of the system.
5. The basic data is inaccurate.
6. The system has technical difficulties.
 WHAT IS ERP SUCCESS?
KPMG Management Consulting’s recent report Profit-Focused
Software Package Implementation showed some worrying
results. Eighty-nine percent of respondent companies claimed
that their projects were successful, but only a quarter had
actually obtained and quantified all the planned benefits.
(KPMG, 1998)
 WHAT IS ERP SUCCESS?
 How do you measure success?
 What are we trying to achieve? Scope,
Vision.
 Project Metrics.
 Early Operational Metrics.
 Longer Term Business Results.
 WHAT IS ERP SUCCESS?

 Success is multidimensional and relative to both time

and objectives.
 What is success today may not be success in two years.
(Or 6 months)
 An ERP system that gives competitive advantage today
may not do so when competitors catch up and this large
ERP system simply becomes a cost of doing business.
 Success is often judged relative to the organization’s
unique goals for the system.
 FACTORS IN ERP SUCCESS
Factors External to an Organization’s Control
Starting conditions: Competitive position, industry,
financial position, prior relevant experience, size,
structure, management systems.
These conditions may change over the course of the
implementation.
ERP Implementations are highly fluid and subject to radical
and unforeseen changes.
An organization’s goals and plans for the ERP system may
not be realistic when viewed objectively in light of their
starting conditions.
 ORGANIZATION’S MOTIVATED
BEHAVIOR
An organization’s goal-directed enterprise systems
behavior can be defined in four categories:
1. Goals: Some goals are more conducive to success than
others. Some are too limited, some are too unrealistic.
2. Plans: The methodology is critical for success.
3. Execution: A good methodology does not guarantee
quality in execution of the plan.
4. Response to Unforeseen Problems: Successfully
resolve problems – changing goals, plans and actions
to ensure a favorable outcome.