Enterprise Resource Planning
Wisnu Cahyono
Wenbin Li
Erica Price
Jurlian Sitanggang
April 25, 2007
1
Overview

Introduction

Suppliers of ERP

Implementation of ERP

Case Studies
2
ERP Evolution
The Evolution of ERP Systems: A Historical Perspective, 2002
3
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
4
Before ERP Implementation
Marketing
and Sales
Financial
Management
Human
Resource
Management
Operations
Management
Customer
Relationship
Management
(CRM)
Customers
Supply
Chain
Management
(SCM)
Suppliers
Distributors
Individualized Business Systems with no Central Database!!! Not Efficient!!
5
Witten Bentley Dittman, System Analysis and Design Methods, 6th, McGraw-Hill, 2004
After ERP Implementation
The Evolution of ERP Systems: A Historical Perspective, 2002
6
Data Flow Before / After ERP Application
Legacy System
ERP System
Logistics
http://www.sei.cmu.edu/plp/EI_IRAD/ERP-Solutions.pdf
Ordering
Finance
HP/Payrroll
7
ERP Modules
mySAP ERP Demos
8
www.networkdictionary.com/software/erp.php and http://projects.bus.lsu.edu/independent_study/vdhing1/erp/
Typical Benefits of an ERP System

Reductions:




Inventory: ≥ 20%
Material Cost: ≥ 5%
Labor Cost: ≥ 10%
Improvements


Reduction Benefits of ERP

% Reduction
25%

20%
15%
10%
5%
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
0%
Inventory
Material Cost
Labor Cost
Based on Studies that surveyed manufacturers about the impact of
ERP systems on firm performance. For all industries and company
size
9
Maximizing Your ERP System, Scott Hamilton, 2002
Advantages of an ERP System
These are the benefits that an industry standard ERP system may bring to an organization
10
The Evolution of ERP Systems: A Historical Perspective, 2002
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 reengineering than Process
Enhancement
Biggest ERP Challenges
Lack of Project
Resources, 19%
Lack of ERP
expertise, 33%
Too small of a
budget, 10%
Not enough
executive support,
0%
Lack of Employee
Buy-In, 38%
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, 11
Paul Nation, eSG enterprise Solution Group
Disadvantages of an ERP System
12
The Evolution of ERP Systems: A Historical Perspective, 2002
Market Share of Packaged Application
SCM
6%
CRM
18%
eProcurement
6%
PLM
5%
ERP
65%
ERP Software Market grew to $25.4 Billion in 2005!!!
http://www.bptrends.com/publicationfiles/TB%20Wolf%20Pack%20Appl%20Market%20Size%204%2D5%2D0
31%2Epdf
13
ERP Market Share Within the Industries
14
Overview

Introduction

Suppliers of ERP

Implementation of ERP

Case Studies
15
Top 5 Revenue Share
Other, 38%
Growth Rate: /
SAP, 42%
Growth Rate, 12%
Oracle, 20%
Growth Rate: 110%
ERP Software Market grew to $25.4 Billion in 2005!!!
Source: AMR Research, 2006
16
Pilot Software
Intention to buy Retek Inc.
SPL
(Nov. 2006)
Hyperion
Tangosol
Lodestar
Siebel
(June 2006)
Peoplesoft
(Jan 7, 2005)
http://new.quote.com/stocks/adv_chart.action?sym=ORCL
Retek Inc
(Apr.6, 2005 )
17
http://www.sap-centric-eam.com/2007/cartoon_dec.html
18
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
http://www.sap.com/germany/company/investor/reports/gb2006/en/business/financial-summary.html
http://www.sap.com/usa/company/index.epx
,
http://www.nasdaq.com/asp/
19
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)
http://www.sap.com/solutions/index.epx
,
http://www.forbes.com/markets/feeds/afx/2007/04/23/afx3640526.html
http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9011563
20
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%)
http://www.oracle.com/corporate/story.html
http://www.infoworld.com/article/05/06/29/HNoraclerevenuejumps_1.html
http://news.com.com/Oracle+profit+rises+on+new+software+revenue/2100-1014_3-6087043.html
http://www.nasdaq.com/asp/
21
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).
http://www.oracle.com/products/index.html#applications
,
http://www.oracle.com/corporate/acquisition.html
http://www.oracle.com/products/index.html#applications http://www.itnews.com.au/newsstory.aspx?CIaNID=50355&src=site-marq
http://news.com.com/Oracle+to+swallow+Siebel+for+5.8+billion/2100-1014_3-5860113.html , http://money.cnn.com/2004/12/13/technology/oracle_peoplesoft/
http://www.internetnews.com/bus-news/article.php/3582106 (Siebel) , http://new.quote.com/stocks/story.action?id=RTT704240824001488 (Lodestar)
http://www.eweek.com/article2/0,1895,2099636,00.asp (Hyperion)
,
http://www.oracle.com/corporate/press/2007_apr/hyperion-clearances.html
http://www.marketwatch.com/news/story/oracle-buy-hyperion-52-share-33/story.aspx?guid=%7BDD070F86-54F7-4709-A26A-12199FEB68B3%7D
22
Other Vendors
: - Microsoft Dynamics (mid-large company)
- Retail Management System (small and midsized 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)
http://www.microsoft.com/dynamics/default.mspx , http://www.lawson.com/ , http://www.sage.com/
http://www.epicor.com/www/products/enterprise/
, http://www.invensys.com/
, http://www.ssaglobal.com/
http://go.infor.com/docs/FINAL_Infor_Acquires_Extensity_and_Systems_Union.pdf
23
Overview

Introduction

Suppliers of ERP

Implementation of
ERP

Case Studies
24
Cost and Time of ERP Implementation
Average Cost:
Average Time:
Average Usage:
$9.1 million
at least 1 year
27.6% of ERP available functionality
Cost
Allocation
Survey of 107 separate
ERP applications
http://www.standishgroup.com/chaos/beacon_243.php
25
Performance of ERP Implementation
http://www.standishgroup.com
26
Critical Success Factors for ERP Implementation
Four–Phase Model of ERP Implementation
------- developed by Markus and Tanis in 1999
Chartering: Decision define business case and solution constraints
Project:
Getting system and end users up and running
Shakedown: Stabilizing, eliminating “bugs”, getting to normal operation.
Onward and Upward: System maintenance, users support, system upgrading and extension.
Critical Success Factors for Enterprise Resource Planning Implementation and Upgrade, Journal of
27
Computer Information Systems, 2006, Fiona Fui-Hoon Nah and Santiago Delgado
Importance of Critical Success Factors Across the Phase of ERP
Implementation
4
Importance Score
3.5
3
2.5
2
Survey in utility industry and non-profit organization
1.5
Chartering
Project
Shakedown
Onward & Upward
Phase
Business Plan or Vision
Communication
TopManagement Support and Championship
System Analysis, Selection and Technical Implementation
Change Management
ERPTeam Composition, Skills and Compensation
Project Management
28
Survey of 500 Separate ERP Implementations
Industry
30%
Machinery
Manufacturers
25%
Automative
20%
CPG/Food&Beverage
Metals and Metal
Products
15%
High Tech
Medical Devices
Aerospace&Defence
10%
5%
Other
0%
Geography
South America
1%
Europe
17%
Asia Pacific
14%
Company Size (annual revenue)
Middle East and
Africa
2%
North America
66%
Small Enterprises
(< US$ 50 million)
40%
Larger enterpises
( > US$ 1 billion)
9%
Mid-Sized
Enterprises
(US$ 1 billion US$ 50 million)
51%
29
Business Drivers for ERP Implementation
Survey of 500 corporations
30
Software Selection for ERP Implementation
31
Main Methods used in ERP Implementation
32
Challenges and Responses of ERP
Implementation
33
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
34
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
35
Overview

Introduction

Suppliers of ERP

Implementation of ERP

Case Studies
36
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
37
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
38
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
39
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
40
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
41
FoxMeyer Drug Co.
Case 1 : FoxMeyer Drugs
ERP Implementation
Source: delivery.acm.org
42
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
43
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
44
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 .
45
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.



Implemented PeopleSoft Financial (general ledger, fixed assets, AR,
AP) – Financial Module of ERP





Benefit: Provided single point of data entry for all of their financial
information.
Business Drivers: Standardization of processes and linking of operations
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
46
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

47
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
48
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
49
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
50
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

51
( Why implement ERP? )
52
Case 3: PT. PLN
Project Scope and Schedule



Vendor selection in February 2004 - 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
53
Case 3: PT. PLN
Software Selection

Vendor selection:
 February 2004 - 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

54
Case 3: PT. PLN - ERP Application
PLN - IT System
Management
Functional /
Operational
ERP Back Office
All Employees
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
55
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
56
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
57
Case 3: PT. PLN
Challenges

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
58
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

59
60
61
ACCENTURE HUMAN CAPITAL DEVELOPMENT FRAMEWORK
62
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
63
Case Comparisons
Case 1 – FoxMeyer
Drugs (1993)
Case 2 – Schnucks
(1999)
Case 3 – PLN (2006)
FoxMeyer Drug Co.
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
SAP
Project Cost
Over $100 million
Unknown
$15.4 million
Modules
Warehouse Automation
Financial
Human Resources
Material
Financial
Methods used
- ERP Vendor and consultant
- ERP Vendor and consultant
- ERP consultant
Class
Failure
Average
Average
Outcomes
COO
Became
Pilot project in 4 units
Potential outcome :
- Reduced FTE (Full Time Equivalent)
- Increase ITO (Inventory Turn over)
- Reduced Inventory Level
Resign
$ 34 M charge for inventory
and order mix-ups
Bankruptcy
Sues Anderson Consultant
Sues SAP
Y2K compliant
Financials became more timely
and accurate – faster analysis
IT gained new technology
knowledge
64
Future of ERP Systems
http://itmanagement.earthweb.com/erp/print.php/3643966
65
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
http://itmanagement.earthweb.com/erp/print.php/3643966
66
Questions???
67