Enterprise Resource Planning (ERP)Rev: Feb, 2012

Euiho (David) Suh, Ph.D.

POSTECH Strategic Management of Information and Technology Laboratory(POSMIT: http://posmit.postech.ac.kr)

Dept. of Industrial & Management EngineeringPOSTECH

Contents※ Discussion Questions

1 Introductions of ERP

1) Fundamental Introductions of ERP

2) Development of ERP

3) Functions of ERP

4) Structure of ERP System

5) Characteristics of ERP

2 ERP Selection Criteria

1) Phases of ERP Selection

2) ERP Selection Criteria

3) Market Share

4) ERP Vendors with Their Characteristics

3 Case Study

3

Discussion Questions (1/2)

■ What do you think is the main function of ERP?

■ Give a definition of ERP system by your own words

■ How can we meet the challenges that ERP brings to us?

■ Which ERP selection criteria do you think is the most important, and why?

■ What are the pros & cons of ERP vendors (SAP and Oracle)?

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Discussion Questions (2/2)

■ Case 2 in textbook (pp. 290~291, Chapter 7)

– What are some of the business benefits of the technologies described in the case? Pro-vide several examples beyond the mere automation of transaction-oriented processes

– What are some of the challenges and obstacles in developing and implementing HRM systems? Are these unique to this type of systems? What strategies would you recom-mend for companies to meet those challenges? Provide several specific recommenda-tions

■ Discussion Questions in textbook (p. 305, Chapter 7)– Why is there a strong trend toward cross-functional integrated enterprise systems in

the business use of information technology?

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What is ERP?

■ Definition of ERP (Enterprise Resource Planning)– A set of applications designed to bring business functions into balance and repre-

sents the next generation of business systems – by Gartner Group– An accounting oriented information system for identifying and planning the en-

terprise wide resource – by APICS

1. Introductions of ERP1) Fundamental Introductions of ERP

Advanced Process

Information Technology

Process Innovation

BPR

ERP

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Why ERP ?

■ Roles of ERP (Enterprise Resource Planning)– The backbone of business processes– A cross-functional enterprise system– An integrated suite of software modules– A system supports basic internal business processes– A system facilitates business, supplier, and customer information flows

1. Introductions of ERP1) Fundamental Introductions of ERP

7

ERP Application Components 1. Introductions of ERP1) Fundamental Introductions of ERP

8

Benefits and Challenges of ERP

ERP Business Benefits

1. Quality & efficiency

2. Decreased costs

3. Decision support

4. Enterprise agility

ERP Costs

1. High risk & cost

2. Hardware and software are a small part of overall project

3. Failure can cripple or kill a business

1. Introductions of ERP1) Fundamental Introductions of ERP

9

Costs of Implementing a New ERP 1. Introductions of ERP1) Fundamental Introductions of ERP

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Causes of ERP Failures

Insufficienttraining

Insufficient data conversion and

testing

Trying to do too much, too fast

Failure to involve affected

employees in planning and development

Under-estimating the complexity of

planning, development,

training

Over-reliance on ERP vendor or

consultants

Common Causes of ERP Failure

ERP Selection Criteria

1. Introductions of ERP1) Fundamental Introductions of ERP

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Development of ERP

1970’s 1980’s 1990’s 2000’s

Material Plan-ning

Minimum Inven-tory

Closed Loop MRP

Capacity Plan-ning

Cost Reduction

Enterprise-wide Planning

Management Inno-vation

Inter-company Opti-mization

Win-Win-Win

MRP (Material

Requirement Planning)

MRPII (Manufacturing

Resource Planning)

ERP (Enterprise Resource Planning)

SCM (Supply Chain Management)

1. Introductions of ERP2) Development of ERP

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Functions of ERP

ERP

Finance/Accounting

Engineer-ing

Sales/Mktg

Supplier

Production

Logistics

Customer

Product Development Process

CAD/CAMPDM

Drawing/Docu Mgmt EC Mgmt

Configuration ControlRelease Control

Order Fulfilment Process

Manufacturing Process

Management ProcessEmployee

MES

Finite Scheduling

Data Collection/POP

Facility Management

Quality Management

FA

1. Introductions of ERP3) Functions of ERP

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Structure of ERP System

Supplier

AR

Planning

AP GL

Receiving ShippingInventory

AR

Planning

AP GL

Receiving ShippingInventory

Manufacturing PlantsDistribution Centers

Product Life cycleEngineering Purchasing Planning Order Admin Finance

OrderEntryOrder

Shop Floor Control

OrderEntryOrder

PDM

EDI.

Web

EDI.

Web

FA

Customer

1. Introductions of ERP4) Structures of ERP System

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Characteristics of ERP

EnterpriseReal-time

Integration

•BPR Tool•BPR Infrastructure

BPR Enabler

•Data Integration•Single View of Distributed Systems•Communication Tool

Integra-tion

•Configuration Function•No Programming•Supporting Multi-language

Global-ization

1. Introductions of ERP5) Characteristics of ERP

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Phases of ERP Selection

Acquirement Phase 0

• Studies the business(mission, strat-egy, etc.), business processes

• Decide if the company has to ac-quire an ERP

Phase 1• Conduct a market research initia-

tive looking for ERPs• Reduce the number of candidates

Phase 2

• Obtain one or more interviews with the providers

• Get as many fact sheets, catalogs, articles, ect., as possible

• Select 2 or 3 ERP candidate solu-tions

Phase 3• Analyze the demonstration of can-

didates • Visit the providers

Phase 4• Make final decisions• Negotiate and plan

First filter

Second filter

Analysis

Final decision

2. ERP Selection Criteria1) Phases of ERP Selection

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ERP Selection Criteria (1/3)

■ Functionality criteria

Criteria Definition

Included functionality• Areas or functions of the company that the ERP has to

serve• It is described how the ERP covers each function

Main target • Functional area or areas for which the ERP is specially oriented or strong

Adaptability • Possible level of customization in general and for the specific company

Openness for1) custom development2) working with other systems

• Level of openness to additional bespoke development (internal or external) and to other existing applications

• E.g. API, CRM, SCM, etc.

Specifics supports • E.g. Y2K, euro, ISO-9000, etc.

2. ERP Selection Criteria2) ERP Selection Criteria

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ERP Selection Criteria (2/3)

■ Technical criteria

Criteria Definition

Platforms • Information technology platforms supported

Database management systems • DBMS or DBMSs used as base for the ERP

Languages and development tools • Languages and development tools used to customize the ERP

User management tools • Management capabilities: users, user groups, access levels, roles, authorizations, etc.

User documentation1) Printed manual2) Online help3) Tutorials

• Type of user documentation for training and helping to use the ERP

Technical documentation1) Database schema2) Source code3) Design

• Technical documentation provided about internal structure of ERP master programs and databases

User documentation1) Internet/Web2) Remote3) EDI

• Types of external connectivity supported

2. ERP Selection Criteria2) ERP Selection Criteria

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ERP Selection Criteria (3/3)

■ Others

– Cost• Are the license costs justified given the functionality offering?• Are annual maintenance charges reasonable?• How quickly can payback be received?

– Service & Support• Can the supplier provide a complete turn-key solution?• How quick are non-critical software bugs fixed?• Does the vendor offer business process reengineering as part of the implementation process?• Does the supplier have industry experience?

– Vendor longevity• How many years has the company been actively engaged?• When was the product’s first release? What is the current release version being quoted?

2. ERP Selection Criteria2) ERP Selection Criteria

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Market Share

39%

25%

36% SAP

Oracle

Others

200531%

25%

30%

15% SAP

Oracle

Others

MS Dynamic

2010

2. ERP Selection Criteria3) Market Share

■ Market share of ERP vendors in 2005 and 2010

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■ Logistics & Workflow

■ System Administration

■ Integration of Modules

SAP • Workflow-oriented• Excellence in outbound logistics

Oracle • Effective in e-commerce

SAP • Offering tools to simplify system administration• users cannot utilize sufficiently

Oracle • Ease of system administration (basis of Oracle Database)

SAP • Excellence in interface bet. Modules• Lack of 3rd party vendors

Oracle • Following OLE, ODBC, DDE standard

ERP Vendors with Their Characteristics (1/2) 2. ERP Selection Criteria4) ERP Vendors with Their Characteristics

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■ Usability

■ Ease of implementation

SAP Complex to use

Oracle Good in usability

2. ERP Selection Criteria4) ERP Vendors with Their Characteristics

ERP Vendors with Their Characteristics (2/2)

SAP Very complex to implement

Oracle AIM (Application Implementation Methodology)Ease of configuration

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Case Study

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■ MIT PPT materials (MRP/ERP) – http://ocw.mit.edu/courses/sloan-school-of-management/15-761-operations-manage

ment-summer-2002/lecture-notes/lec13xrp.pdf

Note

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Reference

■ Euiho Suh, “BPR/ERP(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)

■ Euiho Suh, “ERP Selection Criteria (PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)

■ O’Brien & Marakas, “Introduction to Information Systems – Fifteenth Edition”, McGraw – Hill, Chapter 7, pp. 271~276