Enterprise Resource Planning (ERP) Systems

Enterprise Resource
Planning (ERP) Systems

What is ERP?
 An ERP system is an attempt to integrate
all functions across a company to a single
computer system that can serve all those
functions’ specific needs.
 “Integration” is the key word for ERP
implementation.

What is ERP?
 It may also integrate key customers and
suppliers as part of the enterprise’s
operation.
 It provides integrated database and custom-
designed report systems.
 It adopts a set of “best practices” for
carrying out all business processes.

Major Reasons for Adopting ERP
 Integrate financial information
 Integrate customer order information
 Standardize and speed up operations
processes
 Reduce inventory
 Standardize Human Resources
information

Potential Benefits of ERP
 Internal Benefits
• Integration of a single source of data
• Common data definition
• A real-time system
• Increased productivity
• Reduced operating costs
• Improved internal communication
• Foundation for future improvement

Potential Benefits of ERP
 External Benefits
• Improved customer service and order
fulfillment
• Improved communication with suppliers and
customers
• Enhanced competitive position
• Increased sales and profits

ERP Implementation Approaches
 The big bang – install a single ERP system
across the entire organization
 Franchising – Independent ERP systems are
installed in different units linked by common
processes, e.g., bookkeeping.
 Slam dunk – install one or several ERP
modules for phased implementation of key
business processes.

Major Phases of ERP Implementation
(Kent Sandoe, Enterprise Integration)
 Initiation – develop business case, project
scope, and implementation strategy
 Planning – establish implementation team,
determine goals and objectives, establish
metrics
 Analysis and process design – analyze and
improve existing processes, map new
processes to be adopted by the system

Major Phases of ERP Implementation
(Kent Sandoe, Enterprise Integration)
 Realization – install a base system,
customization, and test the system
 Transition – replace the formal system with
the new system, data conversion
 Operation – monitor and improve system
performance, provide continued training and
technical support

Major Challenges to ERP Implementation
 Limitations of ERP technical capabilities
 Inconsistency with existing business
processes
 Costs - implementation (hardware, software,
training, consulting) and maintenance
 Impact on organizational structure (front
office vs. back office, product lines, etc.)
 Changes in employee responsibilities

Major Challenges to ERP Implementation
 Flexibility of software system upgrades
 Implementation timelines
 Availability of internal technical knowledge
and resources
 Education and training
 Implementation strategy and execution
 Resistance to change

Total Cost of ERP Ownership (in
millions of $) - META Group Survey
System Medium Average Smallest Largest
Baan 16.1 13.6 0.8 26.5
JD Edwards 3.9 5.7 0.8 21.6
Lawson 1.9 4.1 0.4 16.4
Oracle 5.4 11.2 1.4 42.8
PeopleSoft 7.4 15.5 1.3 58.6
SAP 13.9 52.2 0.8 308.2
SSA 1.7 7.6 0.7 29.6
From: “ Implementation Study Reveals Costs, Benefits,” The
Performance Advantage, APICS, October 1999, p.7

Benefits of ERP Implementation
(META Group Survey)
 Benefits are mostly in terms of cost containment rather
than revenue increase.
 53 companies (out of 63) reported annual savings of
over $5 millions with the median annual saving of $1.6
million. Nine companies account for 73.4% of the
reported savings.
 The study found that much of the ERP value is in
indirect, non-quantifiable benefits.
 A number of companies surveyed had a negative net
present value.

ERP Implementation - Key Enablers
(APQC Best-Practice Report)
 The organization is prepared for the change.
 The executive leaders are active and visible in their
support.
 The initiative is seen as a business imperative by the
organization.
 The resources are available to conduct the project
completely.
 A good packaged system is used and not
customized.
 The user group is trained to use the software before
it is implemented.

ERP Implementation Practices
 Project Management
• Organizations link implementation teams to both the
technical (IS) and functional departments.
• They tightly control implementation processes
• They appropriately use consultants throughout the
implementation process
• They manage turnover of key implementation employees
• They have basic business reasons for implementation
• They align implementation with organizational strategies

 Change Management
• Redesigned jobs call for higher levels of skills and
accountability
• Change management is viewed as more than just
increased training and communication
• Enterprise-wide systems drive redesigned changes.
• The executive sponsor is the change agent.
• Resistance from the work force (including
management) is the most significant obstacle.

 Technology Excellence
• Organizations rely heavily on the ERP
package as the majority of their application
configuration.
• Organizations implement ERP packages on
time and within budget
• Organizations centralize support groups
within their IT departments

New Developments In ERP
 Availability of web-based and wireless ERP
systems
 Adoption of easy-to-install ERP systems
 Linkage to other software systems, e.g.,
supply chain management system, e-
commerce, customer relationship
management system

Enterprise Resource Planning (ERP) Systems

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