Enterprise Resource Planning -ERP

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 ERP: What Is It?

Enterprise resource planning software, or ERP, doesn't

live up to its acronym. Forget about planning— it
doesn't do that, and forget about resource, a
throwaway term.

But remember the Enterprise part. This is ERP's true

ambition. It attempts to integrate All departments and
functions across a company onto a single computer
system.
 WHAT DOES ERP DO

ERP helps to integrate the DATA in

an organization under one common
platform. The purpose behind is not
only to ensure transparency but also
to facilitate tracking down of any
information required in the
organization’s business process.
The practice of consolidating an enterprise’s
planning, manufacturing, sales and marketing
efforts into one management system.
Combines all databases across departments into a
single database that can be accessed by all
employees.
ERP automates the tasks involved in performing a
business process.

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 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.

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 ERP Business Process Concepts

The difference between the traditional approach and the ERP

structure
Traditional ERP
 Accounting Customer Support
 Finance Procurement
 Marketing Production
 Human resources Quality

Authority flows through Authority flows

Functional areas to directly to Business
achieve Corporate goals processes.
Evolution of ERP

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 The Relationship Among Three
Components of ERP
Information
Technology integrates
with your company's
Business core business
management processes
practice
Specific
business
objectives

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 How Do ERP Systems Work?
Managers and
Stakeholders
Financial
Reporting Applications
Human
Sales and
Resource Applications
Delivery
Management
Applications
Applications
Sales Force Central
Manufacturing Back-office
Customers And Customer Database
Service Reps Applications Administrators Suppliers
And Workers

Service Human
Applications Resource Inventory
Management And Supply
Applications Applications

Employees

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 ERP Components
Finance: modules for bookeeping Manufacturing and Logistics: A
and making sure the bills are paid group of applications for planning
on time. Examples: production, taking orders and
– General ledger delivering products to the
– Accounts receivable customer. Examples:
– Accounts payable
– Production planning
HR: software for handling – Materials management
personnel-related tasks for
corporate managers and individual – Order entry and processing
employees. Examples: – Warehouse management
– HR administration
– Payroll
– Self-service HR

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 An ERP Example: Before ERP

Orders
Parts
Sends report Customer
Demographic
Sales Dept. Files Customers

Checks for Parts

Calls back “Not in stock”
Accounting “We ordered the parts”
Files

Accounting
Sends report
Invoices
Sends report
accounting
Ships parts
Vendor
Warehouse
Order is placed
“We Need parts #XX”
with Vendor
Inventory
Purchasing Files
Files “We ordered the parts”
Purchasing 11
 Orders
Parts Inventory Data
If no parts,
order is placed
Customers Sales Dept. through DB Accounting

Financial Data exchange;

Books invoice against PO

Order is submitted
to Purchasing. Database
Purchasing record Books inventory
order in DB against PO

Order is placed
with Vendor

Warehouse
Vendor Purchasing

Ships parts
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And invoices accounting
 Why ERP?

3 Major Reasons:
To integrate financial data.
To standardize manufacturing processes.
To standardize HR information.

Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002. 13

 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 purchasing only a few modules.

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 Designing and developing
Enterprise applications’ aim is to satisfy various
different requirements of a business.
What’s more, every development decision you
make to satisfy each requirement affects many
other requirements, often in ways that are difficult to
understand or predict.
The failure to meet any of the requirements can
mean the failure of the entire project!
Aim is to look at the enterprise application "whole cloth,"
to bring some order out of this complexity.
Try to organize an application’s requirements into a small
set of distinct but interdependent categories, and shows
how each requirement interacts with the others.
By balancing the effects of each design choice against all
the other requirements, you can avoid the nasty shock of
discovering too late that you’ve overlooked or
underestimated some important design consideration.
Is Business Oriented : Its purpose is to meet specific
business requirements. It encodes business policies,
processes, rules, and entities, is developed in a business
organization, and is deployed in a manner responsive to
business needs.

Is Mission Critical: An enterprise application must be robust

enough to sustain continuous operation. It must be
extremely flexible for scalability and deployment, and allow
for efficient maintenance, monitoring, and administration.
 Enterprise Application Requirements
An enterprise application must be reliable, perform
well, provide an intuitive and efficient user interface.
It is Large : A multi-user, multi-developer, multi-
machine, multi-component application that can
manipulate massive data and utilize extensive
parallel processing, network distributed resources,
and complex logic. It can be deployed across
multiple platforms and inter-operate with many
other applications, and it has to be long lived.
These qualities clearly make the task of enterprise
development extraordinarily challenging.
The trend is toward rapidly increasing demands.
The rapid improvement of computer hardware and
software, combined with global economic competition —
and opportunities — have created an environment in which
business systems must respond quickly and deliver
unparalleled levels of performance.
As these demands continue, developers must automate
even more of their businesses, build their software even
faster, serve more and more users, and process a rapidly
growing mass of data.
 To design an enterprise application you must consider and balance
an enormous array of application requirements, such as:

Its business goals.

How many concurrent users it must support.
The importance of performance and ease of use.
The hardware it must run on.
Where it will be deployed.
What security is required.
How long you expect to use it.
 ERP Implementation Procedure
Steps for ERP implementation

Cost analysis
Blueprinting of Business Processes
Staff Training
Integration
Data Conversion
“Going Live” with ERP

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 Who are the main ERP vendors?

Baan
JD Edwards
Oracle
PeopleSoft
SAP

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ERP Vendors and Industries They Serve

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Goo

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De fe e /

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nse
spac

moti

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tron
Cons

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Ae ro

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Man
Baan
Baan
J.D. Series& Co.
Edwards
One World, One World
Software
Oracle Corp.
Applications
PeopleSoft, Inc.
PeopleSoft 7.5
SAP
R/3
% Planned Penetration 10-15 5-10 35+ 40+ 35 30 20
Source: Benchmarking Partners Inc.

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Market Share for ERP Suppliers

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Worldwide Enterprise Applications Market Forecast 2015-2020, By Functional
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Market, $M
 ERP Project and Time
Real transformational ERP efforts will usually run between 1
to 3 years, on average.
Short implementations (3 to 6 months):
– small companies,
– implementation limited to a small area of the company, or
– the company only used the financial pieces of the ERP system.
The important thing is not to focus on how long it will take
but to understand why you need ERP and how you will use
it to improve your business.

Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002. 26

 Hidden Costs of ERP
Training
Integration and testing
Data conversion
Data analysis
Consultants
Replacing best and brightest staff after implementation
Implementation teams can never stop
Waiting for ROI
Post-ERP depression

Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002. 27

 Benefits of ERP Systems
Improving integration, flexibility
Fewer errors
Improved speed and efficiency
More complete access to information
Lower total costs in the complete supply chain
Shorten throughput times
Sustained involvement and commitment of the top
management
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 Benefits of ERP Systems (cont’d)

Reduce stock to a minimum

Enlarge product assortment
Improve product quality
Provide more reliable delivery dates and higher
service to the customer
Efficiently coordinate global demand, supply and
production
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 Risks with ERP Implementation

Expensive (can costs 100 thousands to millions

of dollars)
Time-consuming (can take months to years)
Great risk for the organization
Transfer of Knowledge
Acceptance with the company

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Case Study

Nestlé USA

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 Nestlé Background
Found in 1866, Switzerland.
World's largest food company, # 50 in Fortune magazine’s
Globe 500
Nestlé USA was incorporated in 1990; Home Office in Glendale,
CA.
33 manufacturing facilities, 6 distribution centers and 17sales
offices around the country, 17,300 employees nationwide.
$ 11.1 billion in Sales (2001)
“…America's most admired Food Company for the fourth
consecutive year” - Fortune Magazine, February 2001

Source: http://www.nestle.com/all_about/at_a_glance/index.html , viewed October 14, 2002, and

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http://www.ir.nestle.com/4_publications/pdf/financial_report/final_2001/consolidated_accounts_2001.pdf, viewed October 14, 2002.
 Nestlé's products and brands

Milk products, dietetic

foods, infant foods,
chocolate and
confections,
refrigerated and frozen
items, ice cream, and
pet foods

Source: Weller, Joe, “Introduction to Nestle in the USA”, 33

http://www.ir.nestle.com/home-frameset.asp?largeur=1024, viewed October 14,2002.
 Competitive Market
USA Food Market in 2001

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 Organizational Chart
 

Joe Weller
Chairman & CEO

Jeri Dunn Other Board

CIO members

Tom James Jose Iglesias Dick Ramage

Dir. of Process change Dir. of IS VP of supply chain

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 Business Challenges
After the brands were unified and reorganized into Nestle USA
in 1991,. Divisions still had geographically dispersed.
– For example, Nestle USA’s brands were paying 29 different prices
for vanilla - to the same vendor.¹
– Nine different general ledgers and 28 points of customers entry.
Years of autonomous operation provided an almost “insurmountable
hurdle”.
“… Nestle was the world’s NO. 1 food and beverage company– but one
of the least efficient ”²

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 Project Scope – “BEST”
Five SAP Modules – purchasing, financials,
sales and distribution, accounts payable and accounts
receivable and Manugistics’ supply chain module
From October 1997 to 1st Quarter of 2000.
$210 million budget
50 top business executives and 10 senior IT professionals

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 Project Objectives -
“One Nestle, under SAP”
Transforming the separate brands into
one highly integrated company.
Internal aligned and united, establishing a
common business process architecture
Standardizing master data

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 Process of SAP Implementation

The new business process confused

most of employees, then resistance grew into
rebellion in 2000.

Reconstructed in June 2000 and completed in

2001.

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 Conclusion of Nestlé Case
Changes and success
Common database and business processes lead to
more trustworthy demand forecast.
– A comprehensive account planning tool.
– Nestle can now forecast down to the redistribution center level.
– Nestle has improved forecast accuracy by 2%
Higher factories utilization
– fewer factories = big gains in factories Utilization
– Reduce inventory level
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 Conclusion of Nestlé Case
Saved $$$
- With ERP in practice , $ 371 million has been saved until 2001.
The favorable evolution of COGS continues
$USD m in
700

600
3 5
500 7 8
400
1 6

300

200

10 0

0
19 9 7 19 9 8 19 9 9 200 2001 2002 2003 20 0 4

Annual Incremental Saving Cummulative Annual Savings

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 Conclusion of Nestlé Case
Lessons learned by Nestlé
Don’t start a project with a deadline in mind.
Update your budget projection at regular intervals.
ERP isn’t only about the software.
“No major software implementation is really about the
software.” Former Nestlé CIO Jeri Dunn says, “You are
challenging their principles, their beliefs and the way have done
things for many many years”
Keep the communication lines open.
Remember the integration points.
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 Nestlé in the Future

The Global Business Excellence Program

Supported by SAP, contracted in June 2000 and
by IBM in July 2002.
– To be completed by the end of 2005
– To save cost around CHF 3 billion, with benefits
realized from 2003.

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Case Study

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 What is Agilent Technologies?

Agilent Technologies is the world's leading

designer, developer, and manufacturer of
electronic and optical test, measurement and
monitoring systems.
Separated from Hewlett Packard and became a
public company in 1999
World HQ in Palo Alto, CA

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 Around the World

Agilent has facilities in more than 40 countries

and develops products at manufacturing sites in
the U.S., China, Germany, Japan, Malaysia,
Singapore, Australia and the U.K.
Approximately 37,000 employees throughout the
world

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 Products and Services

Agilent operates in three business groups:

Test and Measurement
– Test instruments and systems, automated test equipment.
Semiconductor Products
– Semiconductor solutions for wired and wireless
communications, information processing.
Chemical Analysis
– Life sciences and analytical instrument systems.

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 Agilent revenue for 2001

Test and Measurement: $5.4 billion

Semiconductor Products: $1.9 billion
Chemical Analysis: $1.1 billion
Total revenue: $8.4 billion

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 Agilent’s Customers

Served customers in more than120

countries around the world1
Electronic component manufacturers
Pharmaceutical companies
Chemical companies
Communication companies2
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 Project Scope

Oracle’s li E-Business Suite software

Started September 2000 till 2004
Budget
roughly 100 Oracle consultants to install the
program

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 ERP Project Objective

“One IT” organization

Supply chain capability; for example,
- Suppliers
- Customers
Migrating 2,200 legacy applications that it
inherited from HP to Oracle

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 One IT Project (Before)

IT spend was 8-10% of sales

• 80% for business operations
• 20% maint. & upgrading legacy systems
Further autonomy over the IT portfolio would
have led to 50% cost increase

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 One IT Project

Marty Chuck, CIO, developed a Vision for One

IT organization in August 2000
Moved more than 2,500 IT professionals in the
different site, regional and divisional IT
organizations

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 One IT Project Objective

To consolidate a large number of independent

operating groups into a single worldwide IT
function
To share information quickly and efficiently
To drive the operational costs down by more
than 20%
To combine all IT budgets
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 Changes in Supply Chain Process: Supplier

Migrating from all existing ERP systems to a

single Oracle-based infrastructure system
The use of bar code for materials received from
suppliers
The use of Evaluated Receipt Settlement (ERS)

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The process of migrating ERP
systems to Oracle

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 Evaluated Receipt Settlement (ERS)

An automated invoice and payment system

How does ERS work?

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 Changes in Supply Chain Process: Customers

Real-time information about inventory and order

status
Easier to understand invoicing and pricing
Improved visibility on product delivery lead time

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 Troubles with Project Everest
Because of the consolidation of its 2,200 software
systems to under 20, confusion meant lost order
and revenue.
An $88 million reduction in third-quarter orders
Of that, $38 million was lost and $50 million will
be pulled through the fourth quarter.
$105 million in lost revenue and $70 million in
operating profit
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 Troubles with Project Everest

CFO Adrian Dillon said the problem was twofold:

Software bug
“As we began to hit sort of a 50 percent ramp of normal
capacity, we began to get conflicts in priorities of
systems instructions. When we had those conflicts that
inevitably shut the system down.”

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 Troubles with Project Everest

Mistakes converting backlog.

“The other problem we had was converting backlog
from legacy to new systems, especially for our highly
configured products in our test and measurement
operation.”
Extra $35 million to cover costs of ERP and
CRM rollout.

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 Lessons Learned by Agilent

ERP implementations are a lot more than

software packages.
People, processes, policies and culture are all
factors that should be taken into consideration
when implementing a major enterprise system.
ERP disasters are often caused by a user
company itself.

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 Lessons Learned by Agilent

Study ERP well before implementation

“The disruptions after going live were more extensive
than we expected” –CEO Ned Barnholt

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Best Practices and what ERP
holds for the Future

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 ERP Implementation

Biggest IT project that most companies ever handle,

Changes the entire company, and
Has repercussions in all departments and divisions
of the organization.
It is essential that all the key players understand the
scope of the project.
This is an IT-Related Project.

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 Best Practices of ERP Implementation

A Business Strategy aligned with Business Processes

Top-Down Project Support and commitment
Change Management
Extensive Education and Training
Data Clean up and Data Integrity
Implementation is viewed as an ongoing process

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 Best Practices of ERP Implementation

A Business Strategy aligned with Business

Processes
– Business strategy that will give you a competitive advantage
– Analyze and map your current business processes
– Develop your objectives
– Evaluate your business strategy and ERP plan before you
commit to software acquisition and installation.

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 Best Practices of ERP Implementation

Top-Down Project Support and commitment

– CEO1
• support implementation costs
• champion the project, and
• demand full integration and cooperation.
– Most knowledgeable and valuable staff2

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 Best Practices of ERP Implementation

Change Management
– Changes in business procedures, responsibilities,
work load.1
– As a result, ERP implementations are times of high stress,
long hours, and uncertainty.1
– Mid-level managers must2
• facilitate continual feedback from employees,
• provide honest answers to their questions, and
• help resolve their problems.

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 Best Practices of ERP Implementation

Extensive Education and Training

– General education about the ERP system for everyone.
– Massive amount of end users training before and during
implementation.
– Follow-up training after the implementation.
– 10 to 15% of total ERP implementation budget for training will
give an organization an 80% chance of a successful
implementation.

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 Best Practices of ERP Implementation

Data Clean up and Data Integrity

– Clean-up data before cut-over.1
– “Near enough is no longer good enough.”2
– To command trust, the data in the system must be
sufficiently available and accurate.3
– Eliminate the old systems, including all informal
systems.3

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 Best Practices of ERP Implementation

Implementation is viewed as an ongoing process

– Ongoing need for training and software support after
implementation.
– Ongoing need to keep in contact with all system
users and monitor the use of the new system.
– Ongoing process of learning and adaptation that
continually evolves over time.

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 ERP Implementation Phases
4 Major Phases:
Concept/initiation
Development
Implementation
Closeout/Operation and maintenance

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 Conclusion

The benefits of a properly selected and implemented

ERP system can be significant.
– An average, 25 to 30% reduction on inventory costs; 25%
reduction on raw material costs.
– Lead-time for customers, production time, and production
costs can be reduced.
BUT cost of implementing can be quite high and risks
are great.

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The Future of ERP

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ERP II Architecture

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ERP II: A Revolutionary Change

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 ERP II: A Revolutionary Change
Technology
– Technology goals aligned with internal
business processes and those of diverse partners,
customers, suppliers, and distributors.
Business Process
– Implementation cannot be made without a change of business processes.
People
– ERP II implementation success depends on the business community’s
cultural acceptance of the system.

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 Conclusion

To achieve competitive advantage in the global

economy, organizations are extending their ERP system
beyond the firm.
Future growth of the industry lies in adding extensions.
Integration, scalability and flexibility issues.

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End

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