Enterprise Resource
Planning (ERP) Models
Dr. Merle Martin
Dr. Yan Xiong
College of Business
CSU Sacramento
10/06/03
Agenda
What is ERP?
 ERP Advantages and Disadvantages
 Application Service Providers (ASP)
 FHC – a Case Study

What is an ERP System?
“Packaged software designed
to process an organization’s
transactions and facilitate
integrated and real-time planning,
production and consumer response.”
Daniel O’Leary
ERP Definition

“ It attempts to integrate all
departments and functions across a
company onto a single computer
system that can serve all those
different departments’ particular
needs”
Koch, C 2002
ERP Suppliers
In order of $ sales
 SAP
 People Soft
 Oracle
 Baan
 J. D. Edwards

ERP Market
Info-Tech Consulting Group
 70% of Fortune 500 firms
 37% growth over next 5 years
 Global market projected
to $15 billion in 5 years

Functions
Integrated suite of software
application models
 Real-time database update
 Supports organizations with multiple
companies in multiple locations
 Supports any number of currencies

Functions (Cont.)
Supports multiple
languages
 Suitable to wide range of
industries and organizations
 Industry specific templates

SAP (R/3) Functions

Financial
 AM Asset Management
 CO Controlling
 FI Financial Accounting
 WF Work Flow
 IS Industry Solutions
SAP (R/3) Functions

Manufacturing
 PM Plant Management
 PP Production Planning
 QM Quality Management
 MM Materials Management
SAP (R/3) Functions

Other
 HR Human Resources
 PS Project System
 SD Sales and Distribution
SAP



Targets very large companies
Industry templates
“ Best Practices”
most efficient methods for doing business


Modular design – can choose
functions
SAP not just software
 “way of doing business”
People Soft
Pure Internet environment
 Entire CSU system converting over
next few years.
 Ease if use

Oracle
Has leveraged database dominance
 Emphasis on security
 Integration: linking applications,
data. Web services, users and
partners

BAAN

Unique vertical market capabilities
Chemicals
Food& Beverage
Pharmaceuticals
Cable & Wire
Pulp & Paper
Primary Metals
JD Edwards
Focus on mid-sized companies
 Easy integration with current
systems
 Open, scalable, and flexible

Agenda
What is ERP?
 ERP Disadvantage and Disadvantage
 Application Service Providers (ASP)
 FHC – a Case Study

Why ERP?
Highly competitive markets
 Continually changing business
environment
 Need for integration
 Within company
 Between dispersed operations
 Between alliance partners

Why ERP?
Reduce operating costs
 Integrate operations
(more control)
 Increase organization’s time
efficiency
 Encompass different types of
software

ERP Advantages
Integrates firm’s activities
 Uses “ Best Practices”
 Enables organizational standardization
 Eliminates information asymmetries
 Provides on-line/real-time information

ERP Advantages
Allows simultaneous access to
information for planning and control
 Facilities intra-organization
collaboration

ERP Advantages
Eliminates redundant efforts
and duplicated data
 33% of companies had sales
order cost savings
 34% significantly reduced
personnel needs
 Faster movement of goods, services
 more sales generated per month

ERP Intangible Advantages
Keeping up with competitors
 Save vendor, customer frustration
 Savings occur over several years
 Implementation takes years
 Some companies don’t make ROI
calculations
 too many intangibles
 cultural change (e.g., FHC)

ERP Disadvantages
High cost (particularly for
small business)
 Privacy and security
 Long implementation time
 Displaces clerical employees
 May have to change business to fit
software

ERP Costs

Total Costs:
 License
 Training
 Implementation
 Maintenance
 Customization
 Hardware required
ERP Cost Percentages

Norris et al. 2000
 Software 15%
 Hardware 12%
 Training 15%
 Data Conversion 15%
 Reengineering 43%
tailor to fit software
ERP Critical Success
Factors
Top management commitment
 Management of change
 Resistance to “over-customization”
 Heavy infrastructure difficult to
change
 Similar to battleship changing
course

Evaluating ERP Software
Functional fit into company’s
business
 Flexibility and scalability
 Complexity (Usability)
 Shortened ROI periods
 Ability to support multi-site planning
and control

Evaluating ERP Software
Technology:
 Client / server capabilities
 Database independence
 Availability of regular upgrades
 Local support infrastructure
 Availability of reference site

Agenda
What is ERP?
 ERP Advantages and Disadvantages
 Application Service Providers (ASP)
 FHC – a Case Study

Outsourcing ERP
High costs ERP maintenance
 ERP outsourcing?
 install upgrades
 maintain modules
 trouble-shoot problems
 police platforms

Why Outsource ERP?
Lack of specialized ERP
staff skills
 ERP specialists expensive
 cheaper to use ERP outsourcer if
don’t use skills on full-time basis
 ERP upgrade releases very frequent
 Firms want IT to focus on activities
that “add value to core processes”

Application Service Providers
ASP
 Lease expensive software packages
such as SAP
 Allow multiple users over internet
 Charge users by the transaction
 Provide startup services
 tailoring and training

Applications
Deloitte & Touche
 SAP
 “Hyper Deploy” over Web
 One change rather than many
 Prospective customers can
“play” with application

ASP Problem

Confusing array of
emerging ASPs:
 “Pure Play”: founded explicitly for
new ASP market
 Application Vendor (e.g., SAP)
 Telecommunications Carriers and
ISPs;
 add ASPs to existing networks
 e.g., AT&T, US West
ASP Problem
Info-Tech Research predicts
that, by year-end 2001, 60% of
today’s ASPs will fail due to:
 poor business models
 choice of partners
 failure to execute / consolidate
their offerings
 KEY DECISION: Gamble early or wait
for market to “shake out”?

Agenda
What is ERP?
 ERP Downsides
 Application Service Providers
 FHC – a Case Study

FHS
Foundation Health Systems
 Fortune 500 firm
 Was FHC (Corporation) before
merger with Health Net
 Created by merger of diverse heath
provider companies throughout
country

FHS
Needed to standardize
language, culture, and
“business rules”
 IT Department proposed complete
centralization of IT operations
 IT centralization attempted,
but met with severe resistance
from local units
 Abandoned shortly after merger

FHC ERP Goals
Main objective: to standardize “back
office” business rules
 Wanted to change organization
culture by means of software
 Back-end centralized using SAP
 Front-end decentralized by business
unit
 e.g., Dental Care in Texas

Sales
Offices
FHC ERP Model
Factory
Warehouse
Accounting
HQ
Foundation Network
Organization
Decentralized
Front-line Specialists
Field sales
and service
Local Offices
Front-line Support
Back-line
Specialists
Centralized (SAP)
Management
FHC SAP Implementation
Implementation took 4 years 19962000
 Hired specialized expensive, full-time
SAP analysts and programmers
 Ran into problems and had to
reimplement portions of systems

FHC ERP Problems
Problems integrating with existing
legacy applications
 Extensive upgrades

FHC ERP Issues
Why did they choose “ best practice”
approach?
 When didn’t they outsource ERP or
ASP?
 Why did they hire expensive SAP
specialists who would not be needed
in future?
 Should ERP be used for
organizational redesign?

Issue
Compare what is happening
in the E-Business arena and the
features of ERP. Is ERP compatible
with the future of business?
Why or why not?
Topics Discussed
What is ERP?
 ERP Advantages and Disadvantages
 Application Service Providers
 FHC – a Case Study
