Chapter Eight
Building The EBusiness Backbone:
Enterprise Resource
Planning
ERP: The Technological Backbone of EBusiness
Typical corporate computing environment today of mainframebased apps is antiquated
– Cannot meet demands of new economy and must be replaced
ERP integrated app suite
– Framework to automate back-office functions: Financial,
Manufacturing and Distribution, HR, Administrative
– Unites major business processes within single family of
modules: production, order processing, inventory mgmt and
warehousing, A/P and A/R, general ledger, and payroll
ERP phenomenon also catching fire among dot-coms
– Managing customer relationships key for the newer online firms
– ERP offers customers efficient, high-quality service
• Ability to order online; inquire about product pricing and
order status
– ERP prices dropping and rental ASP model becoming prevalent
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ERP: The Technological Backbone of EBusiness
ERP is the technological backbone of ebusiness
– Enterprise-wide transaction framework with links
into
• sales order processing; inventory mgmt and
control; production and distribution planning;
finance
– In early 1990s, only large manufacturers saw
benefits of ERP
– Today, medium-size and dot-com firms also
recognize necessity of integrating back-office
processes for front-office success in e-commerce
world
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Who Really Uses ERP Suites?
Large corporations that want to gain control
over disparate groups of core business apps
– 3Com, Chevron Products Company, GM
3 primary categories of ERP implementations
– Single to few products in single industry: eToys
– Single SBU firms, selling only few products in a
single industry: Delta Airlines, Dell, Microsoft, Nike
– Large corporate conglomerates or multiple-SBU
firms, selling many products in multiple industries:
GE, IBM, Colgate-Palmolive, and Nabisco
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The Basics of ERP
Integrated Logistics
Production
Planning
Accounting
& Financials
Sales
Distributions
(Order only)
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Human
Resources
These apps are
themselves built
from smaller s/w
modules that perform
specific business
processes within a
given functional area
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Evolution of ERP
Wave 4
Interenterprise Integration (XRP)
Wave 3
Customer-Centric Integration (CRP)
Wave 2
Enterprise Integration (ERP)
Wave 1
Manufacturing Integration (MRP)
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Evolution of ERP
• 1960s
• Automation of all aspects of
production master
scheduling
• Showed technology could
link disconnected business
functions
Wave 4
Interenterprise Integration (XRP)
Wave 3
Customer-Centric Integration (CRP)
Wave 2
Enterprise Integration (ERP)
Wave 1
Manufacturing Integration (MRP)
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Evolution of ERP
• Began in 1980s as MRP II as
execs sought for similar benefits
as MRP by integrating other
functions
• Business drivers of ERP:
replacing legacy systems,
greater control, globalization,
regulatory change, integration
of decisions across enterprise Wave 3
• Y2K preparation in 1999 a
significant factor
Wave 4
Interenterprise Integration (XRP)
Customer-Centric Integration (CRP)
Wave 2
Enterprise Integration (ERP)
Wave 1
Manufacturing Integration (MRP)
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Evolution of ERP
• ERP evolving into CRP to
integrate “brick” with “click”
• Using middleware has
drawbacks
Wave 4
• Traditional ERP build for maketo-stock business models; but
this is no longer the case;
customer value, effectiveness,
enhanced service delivery key
today
Interenterprise Integration (XRP)
Wave 3
Customer-Centric Integration (CRP)
• Continuous planning vs. long
Wave 2
planning cycle of ERP
• Ericsson
Enterprise Integration (ERP)
Wave 1
Manufacturing Integration (MRP)
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Evolution of ERP
• A company’s partners
benefit from the same
seamless integration as the
company itself
• Extends beyond four walls of
the enterprise to customer,
suppliers and trading
partners
• B2B marketplaces
• ERP does not support
continuous-planning
requirements of SCP
Wave 2
• Collaborate or perish
Wave 4
Interenterprise Integration (XRP)
Wave 3
Customer-Centric Integration (CRP)
Enterprise Integration (ERP)
Wave 1
Manufacturing Integration (MRP)
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Benefits of ERP
Critical business need: Enterprise-wide shared
services
– Replace old, autonomous departmental, or
divisional services with single, streamlined,
corporate-level process
Shared-services standardize the processes for
routine, non-core functions for all business
units to use
– Accounting
With processes defined, an ERP-based IT
infrastructure can be established to manage
them efficiently
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ERP Decision = Enterprise Architecture
Planning
Management must resolve enterprise
architecture issues before selecting an ERP
suite of products
– “What kind of company do we want to be?”
– Not, “What are each application’s features?”
Inability to find the right fit between ERP apps
and their business causing corporate
frustration
– FoxMeyer
Problem not with ERP concept but in
management’s demands for quick fixes and
rapid cures to underlying structural problems
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ERP Decision = Enterprise Architecture
Planning
Selecting and installing a new ERP solution one of the
most important and most expensive endeavors
– Also most likely to go wrong
– Lack of alignment between ERP, business processes and ecommerce objectives can derail best of firms
– Managers must understand core functionality, not abdicate
responsibility to IT dept
Successful organizational change is gradual
– Enterprise apps require moving decades of corporate
knowledge and information to a new technology platform
– Technology is not the only challenge in managing
transformation
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ERP Decision = Enterprise Architecture
Planning
Cannot lose sight of customers
– “Is this something our customers will recognize as valuable?”
– “Will it shorten order-to-delivery cycle?”
– “Will this improve our product and performance?”
ERP impacts not just s/w
– Corporate culture, business processes, staff, and day-to-day
procedures are all affected
Executive mgmt must understand technical basis for
business change and e-commerce functionality, besides
ROI of new technology
– “What business are we in?”
– “What are the key issues facing us today?”
– “What issues will be important tomorrow?”
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ERP Decision: Build Vs Buy Vs Rent
Important decision: whether to build or buy or
rent
– ERP apps define overall corporate architecture
– Enterprise-wide implementations
Custom design app that meets specific
requirements of an organization has several
drawbacks
– Highly complex
– Lengthy design, development and implementation
efforts
– Limited flexibility to support diverse and changing
operations or to respond effectively to evolving
business demands and technologies
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ERP Decision: Build Vs Buy Vs Rent
COTS apps address limitations of custom built apps
– Provide broad functionality, better integration with existing
legacy systems, greater flexibility to change and upgrade, and a
lower TCO
Downside of COTS apps
–
–
–
–
Reengineer estbd. business practices
Customize apps
Hire consultants to make s/w work
No competitive edge
Mgmt must view COTS apps within the context of overall
business strategy
– “What business processes bring us our identity and our
competitive advantage?”
– “How can we ensure that we enhance these with COTS
solution?”
– “How can we support our ecommerce initiatives with COTS?”
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Capabilities of COTS ERP Solutions
• Consolidation of back office
• Creation of single back office that supports
multiple distribution channels
• Facilitation of changes in business practices
• Facilitation of changes in technology
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Microsoft
Spent 10 months and $25 million installing SAP R/3 to
replace a tangle of 33 financial-tracking systems in 26
subsidiaries
$18 million annual savings
Growth rate was straining company’s systems
– 50 subsidiaries worldwide; continues to grow every day
– More than 30 systems implemented in a piecemeal fashion
over time supported financial, operations and HR groups
alone
– Batch processes to move information between systems
• Run time grew to more than 12 hours
• 90% of the more than 20,000 batch robs that ran each
month retrieved and processes same information
Mgmt realized it needed a global and integrated solution
to support its core business
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ERP Implementation: Catching the Bull by
the Horns
Installation of ERP packages unique
– Each ERP app suite has own architecture, customization
features, installation procedures, and level of complexity
Implementation strategies for SAP
– Step-by-step
• One module at a time
– Big bang
• Replacing all old systems at once
– Modified big bang
• Various modules at once, but pilot first
• Very common
Even if implementation strategy is right, setting up the
solution not easy
– Brother Industries
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Roadmap to Rapid Implementation:
Accelerated ERP Approach
Today’s intense competitive pressures require
fast response
– ERP app suites can’t keep up
But successful companies understand business
processes, simplify them, and then introduce
automation
– Automating complex or non-value-adding
processes will not increase productivity or provide
measurable improvements in performance
– Automation without simplification immortalizes
ineffective processes
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Roadmap to New Leadership Skills
Effective coordination mgmt encompasses a
combination of four capabilities
– Strategic thinking
• How well does your ERP selection,
implementation, and evolution strategy align
with your business strategy?
– Process reengineering
– Managing implementation complexity
– Transition management
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Strategies, Inc.
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contact@ebstrategy.com
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