Enterprise Resource
Planning (ERP)
Group 6
Zhenyu Zhu (Adam)
Rich Stansfield
John Palmer
Ryan Kramme
1
What will we cover today?
• The Background Knowledge of ERP--Adam
• One case study of failed ERP implementation
(Raskas Foods)--Rich
• One case study of successful ERP implementation
(Cisco Systems)--John
• ERP Best Practices / Summary--Ryan
2
Background of ERP
•
•
•
•
•
History of ERP
What is ERP?
Major ERP suppliers
Why companies want to implement ERP
ERP implementation procedures
3
History of ERP
• 1960's-focused on Inventory control issues
• 1970's focused on MRP (Material Requirement
Planning) systems
• 1980's focused on the concept of MRP-II
(Manufacturing Resources Planning) which was an
extension of MRP
• Early 1990's MRP-II was further extended to cover
areas like Engineering, Finance, Human Resources,
Projects Management, etc.
• Beginning of ERP as we know it today
4
History of ERP (Cont.)
ERP
MRP II
MRP
Inventory
control
1960’s
1970’s
1980’s
1990’s
5
The Concept of ERP
• ERP software ties all departments in a company
together into one common system
• ERP allows Information Technology to integrate
with your company's core business processes to
achieve specific business objectives
– Information Technology
– Core Processes
– Specific Business Objectives
6
Enterprise Integration
Purchase
Inventory
Manufacturing
Units
Sales
ERP
HR
Treasury
7
The Relationship Among Three
Components of ERP
Business
management
practice
Information
Technology integrates
with your company's
core business processes
Specific
business
objectives
8
ERP Market Space
• $16 Billion Total Annual Spending (2002)
[The Steady Stream of ERP Investments Fenella Scott, Jim Shepherd AMR research August
24, 2002]
• U.S. Federal Government spending on ERP and
related systems and services will increase at a
compound annual growth rate of 13%
• 2002 = $3.5 Billion
• 2007 = $6 Billion
[http://www.input.com/article_printver.cfm?article_id=606] (Viewed March 18)
9
Major ERP Suppliers
The Top Five ERP Vendors
1.
2.
3.
4.
5.
SAP
Oracle Corporation
Peoplesoft, Inc.
JD Edwards & Company
Baan International
http://erp.ittoolbox.com/pub/erp_overview.htm#r2 (Viewed March 18, 2003)
Microsoft purchased two ERP vendors; Great Plains in
2001 and Navision in 2002
http://erp.ittoolbox.com/documents/document.asp?i=1662 (Viewed March 18, 2003)
10
Market Share for ERP Suppliers
11
Different Markets
for Different Providers
• 11% of the companies surveyed are still using
homegrown (legacy) applications
• SAP is the market leader in Manufacturing companies
• Oracle shows strength in both Manufacturing and
Service companies
• PeopleSoft is the market leading is Services companies
[The Steady Stream of ERP Investments Fenella Scott, Jim Shepherd August 26, 2002
AMR Research]
12
Leading ERP Companies
General Market Shares
40
20
SAP
Oracle
Peoplesoft
0
50
40
30
20
10
0
Manufacture
ERP
25
20
15
10
5
0
Service
ERP
13
Benefits of ERP
•
•
•
•
•
Improve productivity
Increase customer demand (sales)
Increase competitive advantage
Increase market share
Position company for sale
14
Business Drivers for ERP
others
29%
im proving
productivity
31%
com petitive
custom er
advantage
16% dem and
24%
www.amrresearch.com/Research/Alerts/Pdf/020826alert14775.pdf (viewed March 16, 2003)
15
How Does ERP Improve
the Business?
ERP helps improve information sharing, enhance
business performance, and promote service
efficiency
1. Allow companies to better understand their business.
2. Helps companies standardize business processes and
more easily enact best practices.
3. More efficient processes enable companies to
concentrate their efforts on serving their customers,
maximizing profit, and building a competitive
advantage.
16
ERP Cost/Benefit Analysis
•
Average Cost for ERP
Among the 63 companies surveyed—including small, medium
and large companies in a range of industries—the average cost
for an ERP implementation was $15 million.
•
Average Payback for ERP (Time & Dollars)
Among the 63 companies surveyed, it took eight (8) months after
the new ERP system was implemented to see any benefits. The
median annual savings from a new ERP system was $1.6 million.
http://www.cio.com/research/erp/edit/erpbasics.html#erp_abc (viewed March 24, 2003)
17
ERP Strategies
1. The Big Bang-companies cast off all their legacy
systems at once and install a single ERP system across
the entire company.
2. Franchising-Independent ERP systems are installed in
each unit, while linking common processes, such as
financial bookkeeping, across the enterprise.
3. Slam Dunk-ERP dictates the process design in this
method; where the focus is on just a few key processes,
such as those contained in an ERP system's financial
module. The slam dunk is generally for smaller
companies expecting to grow into ERP by initially
18
purchasing only a few modules.
ERP Implementation
Procedure
Steps for ERP implementation
•
•
•
•
•
•
Cost analysis
Blueprinting of Business Processes
Staff Training
Integration
Data Conversion
“Going Live” with ERP
19
ERP:
Winner’s Legend, Loser’s
Nightmare
While 9 out of 10 ERP implementations failed in
India, the one success story produced such
spectacular results that it was enough to keep the
entire ERP market alive!
http://216.239.57.100/search?q=cache:ji6Ym4n6lLYC:www.expresscomputeronline.co
m/20020107/focus6.shtml+ERP+market+statistic&hl=en&ie=UTF-8 [2002.Jan 7]
20
Case Study #1
Failed ERP Implementation at
Raskas Foods, Inc.
21
Raskas Foods, Inc.
• One of the 150 Largest Privately held companies
in St. Louis
• Purchased by Schreiber Foods in October, 2002
[St. Louis Business Journal, April 2002]
22
Raskas Foods Background
• Founded in 1888
• Nations first private
label manufacturer of
cream cheese for retail
grocery distribution
• Sales of over $280
million in 2002
• 3 Manufacturing Plants
23
Raskas Foods, Inc.
• Dr. Heschel Raskas, President and CEO
• Ed Thibeault, Sr. Vice President – Marketing and
Sales
• Rich Coker, Sr. Vice-President – Operations
• Rich Scheuerman, Sr. Vice-President – Finance
24
Raskas Foods, Inc.
Four Factions to Satisfy:
•
•
•
•
Owners
Marketing
Operations
Finance
25
Owners
• Seven owners, all related
• Three were employed by Raskas
• Two had been looking to sell Raskas for over ten
years
• Wanted to position Raskas Foods for sale
26
Marketing
• Finance helped Marketing get Gross-to-Net and
Cognos BI software
• ERP wouldn’t do anything for them
• Since Finance helped Marketing get their programs,
Marketing was willing to back Finance on the ERP
project – provided that Marketing wouldn’t have to
supply any bodies to the implementation process
27
Operations
• Operations has wanted a new plant since 1994
• Operations liked their “homegrown” Excel based
system
• Operations traded support for the ERP system in
exchange for future support from Finance for a new
plant – as soon as certain production levels were
met.
28
Finance
• Finance felt about the legacy Accounting system
that “the wheels were about to come off the cart”
• Wanted an entire package…”It’s time to get into the
Big Leagues”
• Just came off successful implementation of Grossto-Net and Cognos for Marketing
29
The ERP Package
•
•
•
•
•
•
•
•
Approved in early 1999
Adage ERP package
SCT consultants
Budgeted $2.2 million
Anticipated 6 months to 1 year to complete
Waited until after the Y2K problem to implement
Completed the Blueprint of Business Processes
Training for IS
30
Project Personnel
•
•
•
•
Mike Doyle (Finance), Project Manager
Cliff Thomason (Finance), Project Facilitator
John Lazare (IT), Project Lead
Wayne Dixon, Director - IT, was left out
31
Problems
• Implementation started in April of 2000
• Employees found that the ERP system didn’t do
things the same way they did things
• Changes approved to keep Operations involved
• Stopped for fall Busy Season September 2000
32
Startup-January, 2001
• No momentum restarting
• Had to upgrade the software to the latest release
• Budget increases to $3.3 million
33
Large Sales Increase
• The number two private label Cream Cheese
manufacturer develops quality and delivery
problems
• Spring 2001, Operations gets approval for a new
plant
• Operations pulls key people from ERP for new
plant startup
34
More Problems….
• Work on the ERP implementation stopped for fall
busy season again
• By February, “something was wrong.”
• March 2002, lack of Upper Level Management
interest in ERP
• April 2002, a successful ERP implementation was
no longer necessary
35
Lessons Learned
• The budget will increase when changes are made
• Senior level personnel have to stay involved
• Everyone involved in the project has to be 100%
dedicated to the project
• The people involved in the ERP project have to be
“key” employees
• ERP has to be the number one priority
36
Case Study #2
Successful ERP
Implementation at Cisco
Systems, Inc.
37
Cisco, NOT Sysco!
Just to clarify, the company I will
be talking about today is not the
food company Sysco, it is Cisco
Systems, Inc.
YES
NO
38
Company Background
Corporate Overview
• Worldwide leader in networking for the Internet
• Provide Internet Protocol-based (IP) networking
suite of solutions
• Cisco solutions are in most corporate, education,
and government networks worldwide
http://newsroom.cisco.com/dlls/company_overview.html (viewed March 14, 2003)
39
Company Background-Cont.
• Founded in 1984 by a group of computer scientists
from Stanford University
• Publicly traded starting in 1990 (NASDAQ: CSCO)
– $13.71 per share (as of April 4, 2003 4:00 PM)
• 34,987 employees (as of February 2003)
http://newsroom.cisco.com/dlls/corpfact.html (viewed March 14, 2003)
Cisco Systems, Inc. Annual Report 2002, page 1
40
Company Background-Cont.
• Global company (HQ in San Jose, CA)
• 2002 Net Sales of $18.9 Billion
http://newsroom.cisco.com/dlls/corpfact.html (viewed March 14, 2003)
Cisco Systems, Inc. Annual Report 2002, page 1
41
John Chambers-President &
CEO of Cisco Systems, Inc.
Cisco Systems, Inc. Annual Report 2002, page 3
42
Core Product Offering
• Cisco provides the broadest line of solutions for
transporting data, voice, and video within
buildings, across campuses, or around the world
• Primary products are “routers” and “switches”
• Main competitors are 3Com and Dlink
• Market share leader with over 75% of the market
http://newsroom.cisco.com//dlls/corpfact.html (viewed March 14, 2003)
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School 43
Online Case Study #9-699-022 (Rev: May 6, 2002)
Company Structure
• Centralized functional organization
• Manufacturing, customer support, finance, human
resources, IT, and sales are centralized
• Product Marketing and R&D are decentralized
into the following “Lines of Business”:
– Enterprise (Large Corporations)
– Small / Medium Business
– Service Provider
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online
Case Study #9-699-022 (Rev: May 6, 2002)
44
Time for a Change
• January 1993, Cisco was $500 million
company running a Unix-based legacy
software package
• CIO Pete Solvik saw the need for change
• Initially, Cisco avoided an ERP solution
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online
45
Case Study #9-699-022 (Rev: May 6, 2002)
Pete Solvik-CIO
“We wanted to grow to a $5 billion-plus company.
We were not able to make changes to the application
to meet our business needs anymore. The
application had become too customized. The
software vendor did offer an upgrade but we knew
even after the upgrades it would still be a package
for $300 million companies--and we’re a $1 billion
dollar company.”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online
Case Study #9-699-022 (Rev: May 6, 2002)
46
Randy Pond-Dir. of Manuf.
“We knew we were in big trouble if we did not do
something. Anything we did would just run over the
legacy systems we had in place. It turned into an effort
to constantly band-aid our existing systems. None of
us were individually going to go out and buy a
package….the disruption to the business for me to go to
the board and say ‘Okay, manufacturing wants to spend
$5 or $6 million dollars to buy a package and by the
way it will take a year or more to get in….’ was too
much to justify.”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
Online Case Study #9-699-022 (Rev: May 6, 2002)
47
The Final Straw
• System failure in January, 1994
• Company shut down for 2 days
• February, 1994 assembled team in charge of
finding a suitable replacement application
• Decided on the Big Bang implementation strategy
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
Online Case Study #9-699-022 (Rev: May 6, 2002)
48
Carl Redfield-SVP of Manuf.
“I knew we wanted to do this quickly. We were not
going to do a phased implementation, we would do it
all at once. We were not going to allow a lot of
customization either. Also, we wanted to create a
schedule that was doable and make it a priority in the
company as opposed to a second tier kind of effort.”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
Online Case Study #9-699-022 (Rev: May 6, 2002)
49
“A Team Effort”
•Team consisted of internal resources (Cisco
employees), consultant (KPMG), and ERP software
vendor (Oracle)
Solvik said, “Our orientation in pulling people out of their
jobs to work on the project was if it was easy then we
were picking the wrong people. We pulled people out that
the business absolutely did not want to give up.”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online
50
Case Study #9-699-022 (Rev: May 6, 2002)
Software Vendor Selection
• 20 person team did extensive research on ERP
providers
• 5 vendors in 2 days
• 10 days to draft RFP for vendors
• Visited vendor reference clients
• Scheduled 3 day onsite software demos
• Entire process took only 75 days!
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
Online Case Study #9-699-022 (Rev: May 6, 2002)
51
Why Oracle?
•Win-win situation for both Cisco and Oracle
Pond said, “Oracle wanted this win badly. We ended up
getting a super deal. There are, however, a lot of strings
attached. We do references, allow site visits and in
general talk to many companies that are involved in
making this decision.”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online 52
Case Study #9-699-022 (Rev: May 6, 2002)
Project Approval
• Target timeline was 9 months
• Projected cost was $15 million
• Largest capital project ever approved by Cisco
Pond said, “Before we even get the first slide up I hear
the chairman speaking from the back of the room. He
says ‘How much?’ I said I was getting to it and he
responded: ‘I hate surprises. Just put up the slide right
now.’ After I put it up he said ‘Oh my God, there better
be a lot of good slides….”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
Online Case Study #9-699-022 (Rev: May 6, 2002)
53
Implementation Team
• Expanded from 20 to 100 members (See slide #55)
• Steering committee at top to ensure project
visibility, sponsorship, and motivation
• Split into 5 key areas (Order Entry,
Manufacturing, Finance, Sales/Reporting, and
Technology)
• All areas consisted of internal Cisco
employees, KPMG consultants, and
Oracle consultants
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business
School Online Case Study #9-699-022 (Rev: May 6, 2002)
54
Cisco ERP Implementation Team Structure
Executive Steering
Committee
Project Management
Office
Order Entry
Manufacturing
Business Lead
Business Lead
IT Lead
Finance
Sales/Reporting
Technology
Business Lead
IT Lead
IT Lead
IT Lead
IT Lead
Business
Consultants
IT Consultants
Business
Consultants
Business
Consultants
Business
Consultants
IT Consultants
IT Consultants
IT Consultants
Users
Users
Users
IT Consultants
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business
School Online Case Study #9-699-022 (Rev: May 6, 2002)
55
ERP Rollout
• Broke into phases called CRP’s (Conference
Room Pilots)
– CRP0 = Training and technical configuration
– CRP1 = System works for each specific area
– CRP2 = Modifications (red, yellow, or green),
continued training, and initial testing (See slide #57)
– CRP3 = Full system testing “preparation to go live”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
Online Case Study #9-699-022 (Rev: May 6, 2002)
56
List of “Red” Modifications
• Packout-custom barcoding, queues, inventory, and
shipping modifications
• Canada-separate set of books for separate currency
• Product Configurator-enables Cisco to enter
“rules” for product ordering
• OE Form-discounts, cost data, multinational
orders, etc.
• Net Change Bookings-daily log of all order
activity
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business
School Online Case Study #9-699-022 (Rev: May 6, 2002)
57
Initial Challenges
• Hardware failures
• System instability
• Software unable to handle initial volume
Solvik said, “I wouldn’t say the company hit a wall, but I
would say we had major day to day challenges that
needed to be solved quickly to avoid significant impact
to the company.”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard
Business School Online Case Study #9-699-022 (Rev: May 6, 2002)
58
Vendor Commitment
• Team effort-overcame problems within 3 months
Solvik said, “So for about 60 days we were in complete
SWAT-team mode, get this thing turned around. For
example, the president of the hardware vendor was our
executive sponsor. This vendor probably had 30 people on
site at one point. They were all over it. They lost money on
this big time. It was great for them to get such a great
reference, but it was a tough experience for them.
Remember we had bought a capability, so everything they
did to add capacity was out of their own pocket.”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
Online Case Study #9-699-022 (Rev: May 6, 2002)
59
ERP Results
•
•
•
•
•
Project completed on-time (See slide #61)
Project completed on budget
Cisco ERP team bonus totaling $200,000
Overall successful systems replacement
Minimal company interference
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
Online Case Study #9-699-022 (Rev: May 6, 2002)
60
ERP Implementation Dates
•
•
•
•
•
•
•
•
•
•
•
•
Project Kickoff
Prototype Setup Complete
Implementation Team Training
Process, Key Data, Modification
Designs Complete
Functional Process Approval
Hardware Benchmark and Capacity
Plan Validated
Critical Interfaces, Modifications
and Reports Complete
Procedures and End-User
Documentation Complete
CRP Pilot Complete-Go/No Go
End-User Training Begins
Data Conversion Complete
Go Live!
•
•
•
•
•
•
June 2, 1994
July 22, 1994
July 31, 1994
August 31, 1994
September 30, 1994
October 15, 1994
•
December 1, 1994
•
•
•
•
•
December 16, 1994
December 22, 1994
January 3, 1995
January 27, 1995
January 30, 1995
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business
School Online Case Study #9-699-022 (Rev: May 6, 2002)
61
Lessons Learned
Why was Cisco’s ERP Implementation a
Success?
• Recognized the problem & developed a realistic
plan of attack
• Project was a high priority in the company
• Upper management supported the project
• All areas of the company were involved
• Diligent vendor/consultant selection
• Limited customization
• Meet target implementation dates
• Stayed within the initial project budget
62
“Projects Do Fail. They
Fail for Many Different
Reasons.”
Source: Thompson, Olin, “Who to Blame for Project Failure?”, www.Technologyevaluation.com,
Sept 20, 2002
63
ERP Best Practices
Let’s analyze what can
increase our chances of a
successful ERP
implementation
64
Characteristics of IT Best
Practices
• Knowledge of business process and ERP is
essential to becoming an informed buyer
• Effectively Communicate company goals to the
Software Providers
• Multiple Bids/Proposals
• Effectively Evaluate and Compare Bids
• Active Leadership Role in Project
65
Knowledge is Power
• Thorough knowledge and
understanding of the entire business
process being effected
• Understand which (or all) business
divisions are to be incorporated into
your new ERP system
• Distinguish between Customized
vs. Standard ERP Software
Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”,
Harvard Business Review, July-Aug 1998.
66
Multiple Bids
• Unlike most IT
functions an Inhouse bid is not
normally an option
• Provide each
potential provider
with identical
information
67
Comparing Bids
• Make sure that you are
comparing Apples to Apples
• Decide which system will
best fit your company’s
needs
• Hire a third party consultant
Source: P.J. Jakovljevic, “The ‘Joy’ Of Enterprise Systems Implementations”,
www.TechnologyEvaluation.com, July 8, 2002
68
Customization vs.
Standard Application
• Decision depends on multiple factors
– Company Goals
• Happy with Current Productivity?
• Desiring Change?
– Employee Willingness to Change
– “Implementing/Upgrading a enterprise system
offers a good opportunity for enterprises to review
their key business processes and resources.”
Source: P.J. Jakovljevic, “The ‘Joy’ Of Enterprise Systems Implementations”,
www.TechnologyEvaluation.com, July 8, 2002
69
Standard Application
• Cheaper
• Requires Company Operational Processes
to Change
• Constantly requires Employees to Change
• “Vendors try to structure the systems to
reflect best practices”
Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business
Review, July-Aug 1998.
70
Customization
• Already an Industry Leader – No Major
Changes Needed
• Adapt the Software to Business Functions
– Unique Business Operations
• Less Change for Employees
• More Expensive and Complex Implementation
Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business
Review, July-Aug 1998.
71
Contract Negotiations
• Detailed
– Time Frame
– Price
• “Users are strongly
advised to require fixed
time and cost contract
commitments”
Source: P.J. Jakovljevic, “The ‘Joy’ Of Enterprise Systems Implementations”,
www.TechnologyEvaluation.com, July 8, 2002
72
Implementation:
Big Bang vs. Phased
Approach
• Big bang has attributed to
a number of failures
• “Once and its done”
theory - False
• Phased approach-new
parts are introduced
incrementally.
• Start with mature parts
that need the least
customization
• Builds momentum,
support and enthusiasm
Source: P.J. Jakovljevic, “The ‘Joy’ Of Enterprise Systems Implementations”,
www.TechnologyEvaluation.com, July 8, 2002
73
All the previous factors
discussed can effect the
implementation of an
ERP system, however one
factor has the ability to
outweigh all other
circumstances….
74
Employees
• Top Management
• Project Leader
• Project Champion
75
Top Management
• “The person at the top of the
organization can stop or fix
most of these problems
before they derail the
project.”
• Enthusiasm “Trickles Down”
• Top Management, “If they
know I care, they care.”
Source: Thompson, Olin, “Who to Blame for Project Failure?”,
www.Technologyevaluation.com, Sept 20, 2002
76
Project Manager
• “The best person for the job . .
Cannot be spared from their
current role.”
• Relieved of all previous job
duties.
• Understand the whole
business process.
Source: Thompson, Olin, “Who to Blame for Project Failure?”,
www.Technologyevaluation.com Sept 20, 2002
77
Project Champion
• Typically an influential
employee-not a member of the
management team.
• Created in the Phased In
approach after seeing positive
results.
78
Strategies for ERP
Implementation
• Background Research
• Use consultant to:
– Review Business Process
– Narrow down vendors
– Evaluate proposals
•
•
•
•
Standard Application
Strict Contract
Phased Implementation
Employee Support – Starting at the Top
79
Questions?
80