Ch. 09 BPR/ERP
Rev 4: April 15, 2015
Prof. Euiho Suh
POSTECH Strategic Management of Information and Technology Laboratory
(POSMIT: http://posmit.postech.ac.kr)
Dept. of Industrial & Management Engineering
POSTECH
Business Process Reengineering
Why BPR?
Globe
-driven
Information
-driven
Management
Paradigm
Shift
Technology
-driven
Customer
-driven
3
Reengineering Business Processes
■ Called BRP or Reengineering
– Fundamental rethinking and radical redesign of business processes
– Dramatic improvements in critical contemporary measure of performance, such as cost, quality,
speed, and service
■ “Do not automate , but, obliterate it “
HBR, 1990 by Michael Hammer, Prof at MIT Sloan Management School
Fundamental Concept of BRP
Process
Fundamental
Radical
Dramatic
Shift from function based thinking to process based thinking
Fundamental rethinking of the way of conducting business
Disregarding all existing structures and inventing complete new ways
– not improvement or modification
Making quantum leaps in performance rather than incremental
improvement
4
Links Hammer
■ BPR by Dr. Michael Hammer
■ The role of the process owner
5
Definition of Process
■ A process is a cross-functional interrelated series of activities that convert business
inputs into business outputs
Supplier
Input
Activity
Activity
Activity
Process
6
Output
Customer
Seven Principles of BPR (1/8)
Organize around outcomes, not task
Have those who use the output of the process
perform the process
Subsume Information processing work
into the real work that produces the Information
BPR
Principles
Treat geographically dispersed resources as though
they were centralized
Link parallel activities
instead of integrating their results
Put the decision point where the work is performed,
and build control into the process
Capture all information at the source
7
Seven Principles of BPR (2/8)
■ 1. Organize around outcomes, not task
– One person perform all the steps in a process
– Design that person’s job around an objective or outcome instead of a single task
 Example) Electronics company
» Customer service representative of the five steps between sell and install the equipment
Product / Service
Product / Service
Reengineer
Task
1
Task
2
Task
3
Task
4
Task
5
8
Task
5
Task
2
Task
4
Task
3
Task
1
Seven Principles of BPR (3/8)
■ 2. Have those who use the output of the process perform the process
– Establish specialized department to handle specialized process
• Each department does only one type of work
• BUT it’s slow and bureaucratic
– Now that computer-based data are more readily available, departments, units, individuals can
do more for themselves
• Individuals who need the result of a process can do it themselves
• Greatly reduced the problem of capacity planning
 Example) Electronics equipment manufacturer’s service reengineering
» Customer make simple repairs themselves and only for complex problem is a service technician dispatched
End performer
End performer
Reengineer
Database
9
Seven Principles of BPR (4/8)
■ 3. Subsume information-processing work into the real work that produces the
information
– To maintain consistency and to reduce repetitive information process
– In the past, why didn’t an organization that produces information also process it?
• Not enough time to process the information
• Low trust to do both produce and process the information
• Belief that people at lower organizational levels are incapable
 Example) Ford’s redesigned accounts payable process
» Receiving department, receiving and processing the received information from vendor instead of sending it to
accounts payable
10
Seven Principles of BPR (5/8)
■ 4. Treat geographically dispersed resources as though they were centralized
– Centralization vs. Decentralization
– Decentralizing a resource gives better service to those who use it
• BUT at the cost redundancy, bureaucracy, and missed economies of scale
– Using database, telecommunications networks, and standardized processing systems to get the
benefit of scale and coordination while maintaining the benefits of flexibility and service
 Example) Hewlett-Packard- 50 manufacturing unit’s separated purchasing department
» Provided excellent responsiveness and service but prevented realizing the benefits of its scale
» So each unit has access to a shared database on vendor and own purchase orders
» Separated department centralized by using database
» 150% improvement on-time delivery, 50% reduction in lead time, 75% reduction in failure rates
Manufacturing units #1
Manufacturing units #2
Purchasing department #1
Purchasing department #2
Reengineer
Centralized
Database
Manufacturing units #3
Purchasing department #3
Manufacturing units #4
Purchasing department #4
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Seven Principles of BPR (6/8)
■ 5. Link parallel activities instead of integrating their results
– Forge links coordinate parallel functions during the process-not after it’s completed
– Communication networks, shared database can bring independent group together
– Usually, used in the product development
• Having people do development work simultaneously save time
 Example) Development of photo copier
» develop each subsystem(optics, paper handling, power and etc.) in a separated unit
» Easy to fail to work together
Success!
R&D department for optics
Integrated
result
Reengineer
R&D department for paper handling
Failure!
Links, communication networks
R&D department for power
Database
12
Seven Principles of BPR (7/8)
■ 6. Put the decision point where the work is performed, and build control into the
process
– Suggests that the people who do the work should make the decisions and can have built-in
controls
– Self-managing, self-controlling, disappearing hierarchy through IT or Expert system
 Example) MBL (Mutual benefit Life)
» Case manager provides end-to-end management of the process, reducing the need for traditional manager
Department A
Step 1
Department A
Step 2
....
Reengineer
Issuance
Application
Case Manager
Issuance Policy
Department E
Step 30
13
Seven Principles of BPR (8/8)
■ 7. Capture information once and at the
source
– In the past, information was difficult to
transmit
– It made sense to collect information
repeatedly
– Today, company store it in on-line database
for all who need it
• Bar coding(POS: Point Of Sale), relational database,
electronic data interchange(EDI)
 Example) Insurance company
» ‘Stovepipe’ computer system support and integrate,
connect the different function.
» As a result, company was able to eliminate redundant
data entry
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Common Procedures When Performing BPR
1. Selection of project
2. Analysis of initial capability
3. Selection of process and project scope
4. Work analysis
5. Redesign of alternative process
6. Cost/benefit analysis for each alternative process
7. Selection of alternative process
8. Implementation of process
9. Change of process information
15
BPR vs. Other Programs (1/3)
■ Taylorism vs. BPR
Taylorism
BPR (Hammerism)
Orientation
Task, Function
Process
Tool
Stopwatch
IT
Domain
Production Management
Entire organization
Goal
Mass production
Customer satisfaction
Age
Industrial revolution
Information revolution
16
BPR vs. Other Programs (2/3)
■ BPR vs. Business Improvement
Business Improvement
Business Process Reengineering
Level of Change
Incremental
Radical
Process Change
Improved new version of process
Brand-new process
Starting Point
Existing processes
Clean slate
Frequency of Change
One-time or continuous
Periodic one-time change
Time Required
Short
Long
Typical Scope
Narrow, within functions
Broad, cross functional
Horizon
Past and present
Future
Participation
Bottom-up
Top-down
Path to Execution
Cultural
Cultural, structural
Primary Enabler
Statistical control
Information technology
Risk
Moderate
High
17
BPR vs. Other Programs (3/3)
Reengineering
Rightsizing
Restructuring
TQM
Automation
Customer
Wants and
Needs
Technology
Applications
Assumptions
Questioned
Fundamental
Staffing
Reporting
Relationships
Scope of
change
Radical
Staffing, Job
Responsibilities
Organizations
Bottom-up
Systems
Orientation
Processes
Functional
Functional
Processes
Procedures
Improvement
Goals
Dramatic
Incremental
Incremental
Incremental
Incremental
18
Discussion Questions
1. Why BPR?
2. Why cross-functional and cross-layer?
3. Provide your own example for the Hammer’s 7 principles
4. Why and how is BPR different from the previous concepts?
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Enterprise Resource Planning
What is ERP?
■ Definition of ERP (Enterprise Resource Planning)
– A set of applications designed to bring business functions into balance and represents
the next generation of business systems – by Gartner Group
– An accounting oriented information system for identifying and planning the enterprise
wide resource – by APICS
Advanced
Process
Information
Technology
ERP
Process
Innovation
BPR
21
Why ERP?
■ Roles of ERP (Enterprise Resource Planning)
–
–
–
–
–
The backbone of business processes
A cross-functional enterprise system
An integrated suite of software modules
A system supports basic internal business processes
A system facilitates business, supplier, and customer information flows
22
ERP Application Components
23
Benefits and Challenges of ERP
ERP Costs
ERP Business Benefits
1. Quality & efficiency
1. High risk & cost
2. Decreased costs
2. Hardware and
software are a small
part of overall
project
3. Decision support
4. Enterprise agility
3. Failure can cripple
or kill a business
24
Costs of Implementing a New ERP
25
Causes of ERP Failures
Common Causes of ERP Failure
Under-estimating
the complexity of
planning,
development,
training
Failure to involve
affected
employees in
ERP Selection Criteria
planning and
development
Over-reliance on
ERP vendor or
consultants
Insufficient
training
Insufficient data
conversion and
testing
Trying to do too
much, too fast
26
Development of ERP
Inter-company Optimization
Enterprise-wide Planning
Closed Loop MRP
Management Innovation
ERP
(Enterprise
Resource
Planning)
Capacity Planning
Material Planning
Minimum Inventory
MRP
(Material
Requirement
Planning)
1970’s
Cost Reduction
MRPII
(Manufacturing
Resource
Planning)
1980’s
1990’s
27
Win-Win-Win
SCM
(Supply Chain
Management)
2000’s
The view of Information Systems
View Point 1
Data
Information
Statistical
Analysis
Decision Aids
Math
Analysis
Knowledge
Reasoning
View Point 2
Layer based
Top
DSS
Middle
IPS
low
Extreme low
TPS
OAS
Function based
View Point 3
H
Strategic Value
Extreme top
EIS/ESS
E
R
P
?
?
L
L
FIS
AIS
MkIS
PIS
28
IS Expansion
H
Characteristics of ERP
BPR Enabler
Enterprise
Real-time
Integration
• BPR Tool
• BPR Infrastructure
• Data Integration
Integration
• Single View of Distributed Systems
• Communication Tool
• Configuration Function
Globalization
• No Programming
• Supporting Multi-language
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Phases of ERP Selection
• Studies the business(mission, strategy, etc.), business processes
Acquirement
Phase 0 • Decide if the company has to acquire an ERP
• Conduct a market research initiative looking for ERPs
First filter
Phase 1 • Reduce the number of candidates
• Obtain one or more interviews with the providers
Second filter
Analysis
Phase 2
• Get as many fact sheets, catalogs, articles, ect., as possible
• Select 2 or 3 ERP candidate solutions
• Analyze the demonstration of candidates
Phase 3 • Visit the providers
• Make final decisions
Final decision
Phase 4 • Negotiate and plan
30
ERP Selection Criteria (1/3)
■ Functionality criteria
Criteria
Definition
•
•
Areas or functions of the company that the ERP has to serve
It is described how the ERP covers each function
•
Functional area or areas for which the ERP is specially oriented
or strong
•
Possible level of customization in general and for the specific
company
Openness for
1) custom development
2) working with other systems
•
•
Level of openness to additional bespoke development
(internal or external) and to other existing applications
E.g. API, CRM, SCM, etc.
Specifics supports
•
E.g. Y2K, euro, ISO-9000, etc.
Included functionality
Main target
Adaptability
31
ERP Selection Criteria (2/3)
■ Technical criteria
Criteria
Definition
Platforms
•
Information technology platforms supported
Database management systems
•
DBMS or DBMSs used as base for the ERP
•
Languages and development tools used to customize the
ERP
•
Management capabilities: users, user groups, access levels,
roles, authorizations, etc.
•
Type of user documentation for training and helping to
use the ERP
•
Technical documentation provided about internal structure
of ERP master programs and databases
•
Types of external connectivity supported
Languages and development tools
User management tools
User documentation
1) Printed manual
2) Online help
3) Tutorials
Technical documentation
1) Database schema
2) Source code
3) Design
User documentation
1) Internet/Web
2) Remote
3) EDI
32
ERP Selection Criteria (3/3)
■ Others
– Cost
• Are the license costs justified given the functionality offering?
• Are annual maintenance charges reasonable?
• How quickly can payback be received?
– Service & Support
•
•
•
•
Can the supplier provide a complete turn-key solution?
How quick are non-critical software bugs fixed?
Does the vendor offer business process reengineering as part of the implementation process?
Does the supplier have industry experience?
– Vendor longevity
• How many years has the company been actively engaged?
• When was the product’s first release? What is the current release version being quoted?
33
Market Share
■ Market share of ERP vendors in 2005, 2010 and 2013
2005
36%
39%
SAP
Oracle
Others
25%
2013
2010
15%
31%
24%
SAP
30%
Oracle
47%
Oracle
Sage
Others
25%
MS Dynamic
5%
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SAP
6%
6%
12% Infor
Microsoft
Others
ERP Vendors with Their Characteristics (1/2)
■ Logistics & Workflow
SAP
•
•
Workflow-oriented
Excellence in outbound logistics
Oracle
•
Effective in e-commerce
SAP
•
•
Offering tools to simplify system administration
users cannot utilize sufficiently
Oracle
•
Ease of system administration (basis of Oracle Database)
SAP
•
•
Excellence in interface bet. Modules
Lack of 3rd party vendors
Oracle
•
Following OLE, ODBC, DDE standard
■ System Administration
■ Integration of Modules
35
ERP Vendors with Their Characteristics (2/2)
■ Usability
SAP
•
Complex to use
Oracle
•
Good in usability
SAP
•
Very complex to implement
Oracle
•
•
AIM (Application Implementation Methodology)
Ease of configuration
■ Ease of implementation
36
Links ERP
■ Why do we need ERP?
■ Introduction to ERP
37