Hour 2: ERP Modules
Historical development
Historical
• Initial Computer support to business
– Easiest to automate – payroll & accounting
– Precise rules for every case
• Early 1970s
– centralized mainframe computer systems
– MIS systematic reports of financial
performance
– Variance analysis between budget and actual
MRP
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•
•
•
Material requirements planning
Inventory reordering tool
Evolved to support planning
MRPII extended to shop floor control
SAP Modules
FINANCIAL
R/3 INTERNAL
SD
Sales & Distribution
MM
Materials Management MRP
PP
Production Planning
QM
Quality Management
PM
Plant Maintenance
HR
Human Resources
FI
Financial Accounting
CO
Controlling
AM
Asset Management
PS
Project System
WF
Workflow:
prompt actions
IS
Industry solutions:
best practices
MRPII (with others)
Comparative Modules
SAP
Oracle
PeopleSoft
JDEdwards
SD
Marketing, Sales
Supply chain
Order management
MM
Procurement
Supplier relationship
Inventory, procurement
PP
Manufacturing
QM
Manufacturing mgmt
Enterprise perform
Technical foundation
PM
Service
Enterprise service
HR
Human Resources
Human capital mgmt
Workforce management
FI
Financials
Financial mgmt sol.
Financial management
CO
Time & Expense mgmt
AM
Asset Management
Enterprise asset mgmt
PS
Projects
Project management
WF
Order Management
Contracts
Subcontract, real estate
Industry-Specific Focus
• Each vendor has turned to customized ERP
products to serve industry-specific needs
– Examples given from BAAN, PeopleSoft
– Microsoft also has entered the fray
BAAN Industry-Specific
Variants
Discrete Manufacturing
Aerospace & Defense
Automobile
Industrial Machinery
Electronics
Telecommunications
Construction
Logistics
Process Manufacturing
Chemicals
Food & Beverage
Pharmaceuticals
Cable & Wire
Pulp & Paper
Metals
PeopleSoft Industry Solutions
Communications
Financial Services
Consumer Products Federal
Government
Healthcare
Higher Education
High Technology
Industrial Products Public Sector
Professional
Services
Staffing
Utilities
Wholesale
Distribution
Microsoft Great Plains Business
Solutions
Accounting & Finance
Customer Relationship Management
E-Business
Human Resources & Payroll
Manufacturing
Project Accounting
Supply Chain Management
Relative ERP Module Use
(Mabert et al. 2000; Olhager & Selldin, 2003)
Use reported - US
Use reported – Sweden
Financial & Accounting
91.5%
87.3%
Materials Management
89.2%
91.8%
Production Planning
88.5%
90.5%
Order Entry
87.7%
92.4%
Purchasing
86.9%
93.0%
Financial Control
81.5%
82.3%
Distribution/Logistics
75.4%
84.8%
Asset Management
57.7%
63.3%
Quality Management
44.6%
47.5%
Personnel/HR
44.6%
57.6%
Maintenance
40.8%
44.3%
R&D Management
30.8%
34.2%
Module
Relative Module Use
• Mabert et al. (2000) surveyed Midwestern
US manufacturers
– Some modules had low reported use (below
50% in red)
– Financial & Accounting most popular
• Universal need
• Most structured, thus easiest to implement
– Sales & Marketing more problematic
Why Module Use?
• Cost:
– Cheaper to implement part of system
– Conflicts with concept of integration
• Best-of-Breed concept:
– Mabert et al. found only 40% installed system as
vendor designed
• 50% used single ERP package; 4% used best-of-breed
– Different vendors do some things better
– Conflicts with concept of integration
Middleware
• Third-party software
– Integrate software applications from several
vendors
– Could be used for best-of-breed
– Usually used to implement “add-ons” (specialty
software such as customer relationship
management, supply chain integration, etc.)
Customization
• Davenport (2000) choices:
– Rewrite code internally
– Use existing system with interfaces
• Both add time & cost to implementation
• The more customization, the less ability to
seamlessly communication across systems
Federalization
• Davenport (2000)
– Roll out different ERP versions by region
– Each tailored to local needs
• Core modules shared
• some specialty modules unique
– Used by:
• Hewlett-Packard
• Monsanto
• Nestle
EXAMPLES
• Dell Computers
– Chose to not adopt
• Siemens Power Corporation
– Implementation of selected modules
Dell Computers
Evaluation of SAP R/3
Need to continue project
evaluation
• Initial project adoption
– 1994 Dell began implementation of SAP R/3
enterprise software suite
– Spent over 1 year selecting from 3,000
configuration tables
• After 2 year effort ($200 million), revised
plan
– Dell business model shifted from global focus
to segmented, regional focus
Rethinking
• In 1996 revised plan
• Found SAP R/3 too inflexible for Dell’s
new make-to-order operation
• Dell chose to develop a more flexible
system rather than rely on one integrated,
centralized system
Best-of-Breed
• I2 Technologies software
– Manage raw materials flow
• Oracle software
– Order management
• Glovia software
– Manufacturing control
• Inventory control
• Warehouse management
• Materials management
• SAP module
– Human resources
Core Competencies
• Glovia system interfaced with
– Dell’s own shop floor system
– I2 supply chain planning software
• This retained a Dell core competency
– Would have lost if adopted publicly available
system
Points
• Demonstrates the need for speed
– Prolonged installation projects become outdated
– Need to continue to evaluate project need after
adoption
• Tendency to stick with old decision
• But sunk cost view needed
• Demonstrates need to maintain core
competitive advantage
– Adopting vendor ERP doesn’t
Siemens ERP Implementation
Hirt & Swanson (2001)
Nuclear fuel assembly manufacturer
Engineering-oriented
Siemens Power Corporation
• 1994 Began major reengineering effort
– Reduced employees by 30%
• 1996 Adopted SAP R/3 system
– Replacement of IS budgeted at $4 million
• Some legacy systems retained
Siemens Modules
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•
•
•
•
•
•
FI
CO
AR
AP
MM
PP
QC
Finance
Controlling
Accounts receivable
Accounts payable
Materials management
Production planning
Quality control
Implementation
• To be led by users
• Project manager from User community
• Consultant hired for IT support
– IS group only marginally involved
Project Progress
• Oct 1996
Installed FI module
• Sep 1997
Installed other modules
• On time, within budget
Permanent Team
• Made project team a permanent group
• Project manager had been replaced
– 2nd PM retained
• SAP steering committee
• SAP project team formed
SAP steering committee
• 7 major user stakeholders
– Guided operating policy
– major expenditures
– major design changes
SAP project team formed
• 15 members from key user groups
• part-time
– Trainer
– User help
– Advisors to middle management
Training
• End users became more proficient with time
– Average of 3 months to learn what needed
• Management training took longer
– Management didn’t understand system well
– Often made unrealistic requests
Operations
• During first year
– Major errors in ERP configuration
– Evident that users needed additional training
– New opportunities to change system scope
suggested
• Two years after installation
– R/3 system upgrade
Summary
• Core idea of ERP complete integration
• In practice, modules used
– More flexible, less risk
– Can apply best-of-breed concept
• Ideal, but costly
– Related concepts
• Middleware – integrate external software
• Customization – tailor ERP to organization
• Federalization – different versions of ERP in different
organizational subelements