08. Enterprise Resource Planning (ERP)
Rev: Feb, 2013
Euiho (David) Suh, Ph.D.
POSTECH Strategic Management of Information and Technology Laboratory
(POSMIT: http://posmit.postech.ac.kr)
Dept. of Industrial & Management Engineering
POSTECH
Contents
1
2
3
Introductions of ERP
1)
Fundamental Introductions of ERP
2)
Development of ERP
3)
Functions of ERP
4)
Structure of ERP System
5)
Characteristics of ERP
ERP Selection Criteria
1)
Phases of ERP Selection
2)
ERP Selection Criteria
3)
Market Share
4)
ERP Vendors with Their Characteristics
Case Study
1. Introductions of ERP
What is ERP?
1) Fundamental Introductions of 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
3
1. Introductions of ERP
Why ERP ?
1) Fundamental Introductions of 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
4
1. Introductions of ERP
ERP Application Components
1) Fundamental Introductions of ERP
5
1. Introductions of ERP
Benefits and Challenges of ERP
1) Fundamental Introductions 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
6
1. Introductions of ERP
Costs of Implementing a New ERP
1) Fundamental Introductions of ERP
7
1. Introductions of ERP
Causes of ERP Failures
1) Fundamental Introductions of ERP
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
8
1. Introductions of ERP
Development of ERP
2) 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
9
Win-Win-Win
SCM
(Supply Chain
Management)
2000’s
1. Introductions of ERP
Functions of ERP
3) Functions of ERP
ERP
Product Development Process
CAD/CAM
PDM
Drawing/Docu Mgmt
EC Mgmt
Configuration Control
Release Control
Finance/
Accounting
Engineering
Employee
Management Process
Logistics
Manufacturing Process
Customer
Sales/
Mktg
Production
MES
Finite Scheduling
Order Fulfilment Process
Data Collection/POP
Supplier
Facility Management
Quality Management
10
FA
1. Introductions of ERP
Structure of ERP System
4) Structures of ERP System
Product Life cycle
PDM
Engineering
Purchasing
Order Admin
Planning
Finance
Manufacturing PlantsDistribution Centers
Supplier
E
D
I
.
W
e
b
Planning
Planning
Order
Entry
Order
Inventory
Inventory
Shipping
Receiving
Order
Entry
Order
Shipping
Receiving
Shop Floor Control
AP
GL
AR
AP
FA
11
GL
AR
E
D
I
.
W
e
b
Customer
1. Introductions of ERP
Characteristics of ERP
BPR Enabler
Enterprise
Real-time
Integration
5) Characteristics of ERP
• BPR Tool
• BPR Infrastructure
• Data Integration
Integration
• Single View of Distributed Systems
• Communication Tool
• Configuration Function
Globalization
• No Programming
• Supporting Multi-language
12
2. ERP Selection Criteria
Phases of ERP Selection
1) 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
13
2. ERP Selection Criteria
ERP Selection Criteria (1/3)
2) ERP Selection Criteria
■ 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
14
2. ERP Selection Criteria
ERP Selection Criteria (2/3)
2) ERP Selection Criteria
■ 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
15
2. ERP Selection Criteria
ERP Selection Criteria (3/3)
2) ERP Selection Criteria
■ 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?
16
2. ERP Selection Criteria
Market Share
3) Market Share
■ Market share of ERP vendors in 2005 and 2010
2005
2010
15%
SAP
36%
31%
39%
Oracle
Oracle
25%
SAP
30%
Others
25%
Others
17
MS Dynamic
ERP Vendors with Their Characteristics (1/2)
2. ERP Selection Criteria
4) ERP Vendors with Their Characteristics
■ 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
18
ERP Vendors with Their Characteristics (2/2)
2. ERP Selection Criteria
4) ERP Vendors with Their Characteristics
■ 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
19
Note
■ MIT PPT materials (MRP/ERP)
– http://ocw.mit.edu/courses/sloan-school-of-management/15-761-operations-management-sum
mer-2002/lecture-notes/lec13xrp.pdf
20
Reference
■ Euiho Suh, “BPR/ERP(PPT Slide)”, POSMIT Lab.
(POSTECH Strategic Management of Information and Technology Laboratory)
■ Euiho Suh, “ERP Selection Criteria (PPT Slide)”, POSMIT Lab.
(POSTECH Strategic Management of Information and Technology Laboratory)
■ O’Brien & Marakas, “Introduction to Information Systems – Sixteenth Edition”,
McGraw – Hill, Chapter 8
21