Enterprise Resource
Planning
November 11, 2004
Scott Burchette
Joseph Mario
Doug Frye
Objectives
1.
2.
3.
4.
5.
Convey an understanding of what ERP stands for
and is.
Understand the underlying benefits of ERP
Understand the evolution of ERP.
Recognize the major suppliers of ERP.
Apply to real-world examples.
Outline

Introduction of ERP




ERP Vendors





What is ERP?
History of ERP?
Future of ERP?
Description/Financial
Customer Profile/Perceived Value
Vendor Future
Critical Success/Failure Factors
Case Studies



Oregon Health & Sciences University
Nestle USA
Monsanto
What is ERP?
Enterprise Resource Planning (ERP) is a packaged
business software system that allows a company to
automate and integrate the majority of its business
processes, to share common data and practices across
the entire enterprise, and to produce and access
information in a real-time environment.
Source: http://www.datainstincts.com/glossary.htm
Example…
Starting a Lemonade
Stand.
Inputs
Process
Outputs
Lemonade Stand
Source: http://www91.homepage.villanova.edu/william.wagner/MBA8556/erplec1.ppt
Lemonade Business Process
Get
approval
from
parents
Buy
supplies
Collect
cash
Make
lemonade
Set-up
stand
Advertise
Find a good
location
Source: http://www91.homepage.villanova.edu/william.wagner/MBA8556/erplec1.ppt
Lemonade Business Process
Get
approval
from
parents
Is it
feasible?
Buy
supplies
What
supplies
do I
need?
Collect
cash
Am I making
money?
Make
lemonade
How much
should I
make?
Set-up
stand
Advertise
What should I
sell it for?
Find a good
location
Who am I selling to?
Source: http://www91.homepage.villanova.edu/william.wagner/MBA8556/erplec1.ppt
Business Partners
Customers
Friends
Grocery
Parents
Source: http://www91.homepage.villanova.edu/william.wagner/MBA8556/erplec1.ppt
In the Real World…
Get
approval
from
parents
Buy
supplies
Make
lemonade
Advertise
-Legal Issues
-Suppliers
-Inventory Control
-Resource
-Material Prices
-Production
-Advertising
-Potential Market
-Material Availability
-Human Resource
-Pricing
Collect
cash
-Accounting
-Financial Reporting
Set-up
stand
Find a good
location
-Target Customer
-Customer Relationships
Source: http://www91.homepage.villanova.edu/william.wagner/MBA8556/erplec1.ppt
Benefits of ERP
What are the benefits of all the partners
in this process having access to each
other’s information in real-time……?
-Single point of data entry
-Accurate inventory management
-Available vendor information
-Pending purchasing information
-Automatic data transfer and reconciliation
-Accurate financial information
ERP automates and integrates many of the tedious,
common business practices.
Source: http://www91.homepage.villanova.edu/william.wagner/MBA8556/erplec1.ppt
ERP In Practice…
Source: www.freequality.org/beta%20freequal/fq%20web%20site/ training/EnterpriseResourcePlanning2%5B1%5D.ppt
Risks of ERP





Survey of 600 companies(1)
 57% finished 10% - 30% or more over budget
 3% finished 10% to 30% under budget
 45% took 10% - 30% or more time than planned to implement
W.W. Grainger Inc(2)
 Experienced “substantial systems and transaction processing disruptions”
that caused losses of $.24/share
 Stock dropped 2%/$100M in market value on the earnings
announcement
Hewlett-Packard Inc(3)
 $400M 3Q 2004 loss blamed on “Poorly executed” migration
Hershey Foods Corp(2)
 Delayed customer order processing costing sales during Halloween
Whirlpool Corp(2)
 Poor implementation led to series of shipment delays to customers
(1) The Controller’s Report. New York: May 2004., Iss. 5; pg. 7, 1 pgs
(2) James P. Miller. Wall Street Journal. (Eastern Edition). New York, N.Y.: Jan 10, 2000. pg. C.12
(3) Patrick Thibodeau, Don Tennant. Computerworld. Framingham: Sep 27, 2004. Vol.38, Iss. 39; pg. 14, 1pgs
History Of ERP
MRP
Mathematical
Programming
techniques
focused on
planning
1920’s
Inventory
and time
reduction
with new
production
planning
systems
1960/70’s
MRP II
Greater
reduction
due to
integration
with
accounting
and HR
systems
1980’s
ERP
ERP II
Focused on
clients. Real
time transactions. Asset
management.
1990’s
Optimizing
the whole
business
network;
including
suppliers
and clients.
2000’s
Source: http://www.e-innovation.org/presentations/kick-off/mrp-erp.ppt
History Of ERP
1. Manual Intensive
3. Non-Collaborative
2. Not real-time
4. Multiple Application
Source: http://webprofesores.iese.edu/valor/Docs/EMBA/intro%20ERPS.pdf
History Of ERP
1. Automated
3. Collaborate
2. Real-time
4. Single Application
Source: http://webprofesores.iese.edu/valor/Docs/EMBA/intro%20ERPS.pdf
Future Of ERP
Enterprise Resource Planning II



Shift from enterprise optimization to value chain/ecommerce.
Manufacturing & distribution to all sectors/segments.
Manufacturing, sales/distribution and finance processes
to cross-industry, industry sector and specific industry
processes.
Source: http://webprofesores.iese.edu/valor/Docs/EMBA/intro%20ERPS.pdf
Future Of ERP
Enterprise Resource Planning II



Shift from internal/hidden process to externally
connected.
Web-aware to web-based.
Internally generated and consumed to internally and
externally published and subscribed.
Source: http://webprofesores.iese.edu/valor/Docs/EMBA/intro%20ERPS.pdf
ERP Vendors

SAP

Oracle

PeopleSoft/JD Edwards
ERP Vendors

SAP





Stock Symbol: SAP
“SAP is the world's largest inter-enterprise software company
and the world's third-largest independent software supplier
overall”
Founded in 1972 – Headquartered in Waldorf, Germany
30,000 employees in 50 countries
Known For:

mySAP Business Suite

open and flexible, supporting databases, applications, operating
systems, and hardware from almost every major vendor
Source: http://www.sap.com
mySAP Business Suite
Source: http://www.sap.com
mySAP Business Suite
Source: http://www.sap.com
ERP Vendors

Oracle






Stock Symbol: ORCL
“Our goal is to make sure that you spend less money on your
systems while getting the most up-to-date and accurate
information from them”
Founded in 1979 – Headquartered in California
40,000 employees worldwide
Estimated 12M users worldwide
Known For:

“We know more by spending less”
Source: http://www.oracle.com
ERP Vendors

PeopleSoft/JD Edwards





Stock Symbol: PSFT
“PeopleSoft's business solutions are built with the flexibility
to fit your business today and the adaptability to change with
your business over time”
Founded in 1987 – Headquartered in California
12,000 Employees
Known For:

“unprecedented flexibility to optimize business operations and
compete more effectively…best overall user experience at the
lowest cost of ownership”
Source: http://www.peoplesoft.com
PeopleSoft Enterprise
Source: http://www.peoplesoft.com
ERP Vendors - Financial
Revenue/Net Income
FY 2003 Profitabilty
$10.0
$9.0
$8.0
$7.0
$6.0
$5.0
$4.0
$3.0
$2.0
$1.0
$0.0
Revenue
Net Income
PeopleSoft
SAP
Company Name
Oracle
ERP Vendors - Financial
ERP Vendors - Financial
ERP Vendors - Financial
ERP Vendors - Financial
ERP Vendors - Customers
ERP Vendors - Customers
ERP Vendors - Performance
ERP Vendors - Performance
ERP Vendors - Future
ERP Vendors - Future
ERP Vendors - Future
Critical Factors For Success

Top management support.


Project team competence.



Intelligence of team
Experience with company processes
Interdepartmental co-operation.


Implies active backing by senior management
ERP by definition integrates multiple functions
Clear goals and objectives.


Phase I - conceptualization of goals
Manage “scope creep”
Source: H Akkermans and K van Heldon. European Journal of Information systems.Vicious and
virtuous cycles in ERP implementation. 2002 pg 35-46
Critical Factors For Success

Project Management.



Methodical planning
Ability to be flexible and improvise
Interdepartmental communication.




Communication across functional boundaries
Management of expectations
Careful not to “oversell” end-users
Alignment of expectations
Source: H Akkermans and K van Heldon. European Journal of Information systems.Vicious and
virtuous cycles in ERP implementation. 2002 pg 35-46
Critical Factors For Success

Project champion.



Vendor support.


Ability to make substantial organizational changes happen
Authority to “Market” to end-users
Success is associated with compatibility of IT vendors
employed
Careful package selection.

Package fits business processes and strategy
Source: H Akkermans and K van Heldon. European Journal of Information systems.Vicious and
virtuous cycles in ERP implementation. 2002 pg 35-46
Critical Factors For Failure

Failure to understand true significance of project.




Failure to commit appropriate amount of resources.



Replacement of legacy systems
Future flexibility depends on present choice
Underestimate of scale and impact
Not allocating “Best”
Under committing resources
Failure to effectively manage change.


Impact of ERP on people, roles, etc
Inherent resistance by end-users
Source: H Akkermans and K van Heldon. European Journal of Information systems.Vicious and
virtuous cycles in ERP implementation. 2002 pg 35-46
Critical Factors For Failure

Failure to manage benefits.



Failure to embrace integration.


Loss of focus on expected benefits
Cost/service trade-off during project
Organizing around system benefits
Failure to plan for the end BEFORE you start.


Clearly define measures of success
Long-term implications
 Roll-out to organization
 System support
 Enhancements
Source: H Akkermans and K van Heldon. European Journal of Information systems.Vicious and
virtuous cycles in ERP implementation. 2002 pg 35-46
Case Study
Oregon Health and Sciences
University
Case Study

Oregon Health & Sciences University

Academic, health and research university






3500 student enrollment
187,000 patients annually
Introduced 650 new medical technologies since 1985
Headquartered in Portland, Oregon
11,000 employees
Generates $2.35B annually in regional economic activity
Source: http://www.ohsu.edu/about/facts/simply_ohsu.pdf
Case Study

Oregon Health & Sciences University


Installed Oracle ERP
Separated from the Oregon State System of Higher
Education


10 year phased installation


Needed independent financial system
1994 – 2004
Cost - ???
Backie Kelly Schuerenberg. Health Data Management. New York: Jun 2004. Vol.12, Iss 6; pg. 56, 4 pgs
Case Study

Oregon Health & Sciences University

Phased implementation



1994 – Integrated administrative applications
 G/L, A/P, Purchasing
1998 – Implemented additional applications
 Cash management, HR, payroll, fixed assets, and grants software
Recent – Installed browser-based front ends
 Integration of affiliate healthcare providers
Backie Kelly Schuerenberg. Health Data Management. New York: Jun 2004. Vol.12, Iss 6; pg. 56, 4 pgs
Case Study

Oregon Health & Sciences University

Success???


Estimated annual savings of $2M
 Automated ordering and receiving
 Volume based purchase ordering
 2004 – “We feel like we are finally through the pain of transition
and to the point where we’re getting a lot of value from the ERP
system” Bridget Haggerty – Senior Manager
Risk averse approach
 No major application glitches
 System operated as required
Backie Kelly Schuerenberg. Health Data Management. New York: Jun 2004. Vol.12, Iss 6; pg. 56, 4 pgs
Case Study
Nestlé USA
Case Study

Nestlé USA

Multi-National Food and Beverage Company




Popular Brands:
 Nescafé, Nesquick, Kit Kat, Stouffer’s Lean Cuisine, Alpo,
Butterfinger, Taster’s Choice, Carnation Baby Formulas, Baby
Ruth, SweeTarts, Häagen Dasz
Annual Revenue: $8.1 Billion
Number of Employees: 16,000
IT Staff (including outside consultants): 250
Ben Worthen. CIO. Framingham: May 15, 2002. Vol.15, Iss. 15; pg. 1
Case Study

Nestlé USA had to organize each division


For example, Nestle USA’s brands were paying 29 different
prices for vanilla - to the same vendor¹
Nine different general ledgers and 28 points of customers
entry

Years of autonomous operation provided an almost
“insurmountable hurdle”

“… Nestle was the world’s NO. 1 food and beverage
company– but one of the least efficient”
Ben Worthen. CIO. Framingham: May 15, 2002. Vol.15, Iss. 15; pg. 1
Case Study

Nestlé USA


1997, embarked on SAP project code name “Best.”
(Business Excellence through Systems Technology)
Intentions:


Unify previously independently operated brands, such as Stouffer’s
and Carnation, into one highly integrated company
Implement a common structure across the company, so that would
vanilla would be the same code in each division
Ben Worthen. CIO. Framingham: May 15, 2002. Vol.15, Iss. 15; pg. 1
Case Study

Nestlé USA

Implement Five SAP modules:







Purchasing
Financials
Sales and Distribution
Accounts Payable
Accounts Receivable
Also planned to implement supply chain module with
Manugistics – at the time an SAP partner
50 top business executives and 10 senior IT professionals
Ben Worthen. CIO. Framingham: May 15, 2002. Vol.15, Iss. 15; pg. 1
Case Study

Nestlé USA



Development work began in 1998.
The deadline for four of the modules was 2000
Nestlé USA made the deadline, but in its haste created
many new problems, including:



Angry division executives
Worker confusion and, in some cases, rebellion
Technical Problems, including modules not being integrated (ex:
Accounts Rec. would not know about certain discounts)
Ben Worthen. CIO. Framingham: May 15, 2002. Vol.15, Iss. 15; pg. 1
Case Study

Nestlé USA


In June 2000, the project was halted and Co-Leader was fired
Project completed late and over budget in April, 2001 at a
cost of $210 million


A month later, Tom James, new Director of Process Change, is
“shocked” by “still poor relationship between divisions and project
team”
Jeri Dunn, vice president and CIO, says Nestlé USA still saved the
company $325 million
Ben Worthen. CIO. Framingham: May 15, 2002. Vol.15, Iss. 15; pg. 1
Case Study

Nestlé USA

Success???

A common database and standard business processes lead to more
trustworthy demand forecast





Reduce inventory
A comprehensive account planning tool
Nestle can now forecast down to the redistribution center level
Even though the implementation went over budget, Nestlé still
believes the process saved the company money
$325M in savings
Ben Worthen. CIO. Framingham: May 15, 2002. Vol.15, Iss. 15; pg. 1
Case Study
Monsanto
Case Study

Monsanto Co.


Global provider of agricultural products and integrated
technology solutions
Major Products:







RoundUp, Dekalb & Asgrow brand seed, Roundup Ready technology,
and Posilac
FY04 - Revenue - $5.5B
FY04 - Net Income - $267M
FY04 - Free Cash Flow - $1B
Mkt. Cap - $11.5B
Headquartered in St Louis, Mo
14,000 employees in 46 countries
Case Study

Monsanto Co.

Who I interviewed




Chris Dufner – Director NALAN IT
22 years w/Monsanto
Started SAP project as “Ag” business advocate; finished as entire
business advocate.
IT Philosophy



Secure operating environment
Add more value/lower cost
Monsanto IT



600 fulltime/400 contractor
$100M annual expenses
CIO (Jan Holloway) reports to Chairman/CEO
Case Study

Monsanto Co.

Need for ERP identified in 1996


Purchasing/payables/finance/Mfg integration
“Life Sciences” integration


Promised benefits






Chemical/Pharmaceutical/Nutrition/Agriculture
Y2K solution in Europe
Finance/purchasing savings
“Life Sciences” platform
Faster integration of seed company acquisitions
CEO project champion
Why SAP?

Vendor stability/capability

More integration and flexible suite of products
Case Study

Monsanto Co.

Implementation Scope

Pre-2000




2000


Full US/Europe mfg, g/l, purchasing and payables integration
2001 - Present





Solutia mfg integration (Spun-off in 1999)
Europe/Fayetteville mfg integration
US general ledger integration w/legacy parallel systems
WW order to cash integration
SAP implementation in Brazil/Argentina/Mexico
4.6 upgrade
Worldwide HR integration (2004)
Future - 2006



Full integration of North America/South America/Europe – Africa
Transition from BPCS in Asia to SAP
Full, worldwide Integration on one box
Implementation Scope
Europe/Africa
Order To Cash
Manufacturing
Finance, A/P, HR
NALAN
APAC *(2006)*
Order To Cash
Order To Cash
Manufacturing
Manufacturing
Finance, A/P, HR
Finance, A/P, HR
Andeans
Order To Cash
Manufacturing
Finance, A/P, HR
Case Study

Monsanto Co.

Critical decisions


Project team selection
 Full-time Monsanto employees who where “functional experts”
 Higher caliber internal IT employees
 Outside SAP consultants
 Contracted outside “deployment” experts
Software strategy
 Build strong, common master file data
 Design common business model around “best practices”
 No changes to SAP base code to allow future add-ons/upgrades
Case Study

Monsanto Co.

Success???








Estimated $50M in annual IT savings
On-time and on-budget
Total companywide integration
Enhanced reporting capabilities
Ability to see “real-time” data
Successful, stable ERP platform for future
Active SAP training and certification process
Sharing – across countries and functions
Lessons Learned
•
1.
2.
3.
4.
5.
Nestlé USA
Do not worry about deadlines. Set
benchmarks.
Reassess your budget. Updates will
be necessary.
Focus on changing business. Not
simply introducing new software.
Keep communication lines open.
Measure various levels of
acceptance.
Integrate all systems.
•
1.
2.
3.
4.
5.
Monsanto
Good organization and planning is
essential to successful
implementation.
Hire quality people.
Understand scope of and
effectively manage change.
Communicate changing of roles
and expectations.
Teach the importance and effect of
integrated systems.
Thank you for listening!