Chapter One

Why Study ERP Systems?

ERP Affects Most Major Corporations in the World

•         SAP is used by more than 60% of the major firms.

•         “Almost every company is more or less in its hands.” Arthur D. Little’s Global Strategy Leader.

ERP Impacts Small and

Medium Enterprises (SME)

•         In 1995 SAP generated 90% of their revenues from global companies

•         In 1997, roughly 35% of SAP’s revenues were from customers with revenues less than $200 million

ERP Affects Competitor Behavior

•          On June 24, 1996, Oracle’s Application Division announced that “Several companies went live with their Oracle Applications implementations during the quarter, including Silicon Graphics, Inc. and Quantum Corporation, both of whom successfully deployed large-scale implementations.” … at the same time, Oracle’s Application Division announced that “among the customers added that quarter included … Western Digital ….”  Western Digital was a direct competitor of Quantum.

ERP Affects Business Partner Requirements

•         Adopting an ERP system makes firms more “information agile,” able to more easily meet the information demands made upon them

•         As they become more agile they expect more from their customers, possibly integrating across the supply chain

ERP Provides A Key Reengineering Tool

•          In 1990 Hammer’s highly influential article on reengineering, got the corporate world interested in obliterating existing processes.  Unfortunately, after things were obliterated many firms had no idea what to replace them with.

•          ERP provides perhaps the primary tool to guide those efforts, so much so that Gendron (1996) called ERP (particularly SAP’s) the electronic embodiment of reengineering and Hammer (1997) commented that “SAP equals forced reengineering.”

ERP has Diffused Many Best Practices

•           ERP systems are based on so-called “best practices” – the best ways of doing processes.  SAP has over 1,000 of them!  What this means is that any firm that installs has access to a wide range of best practices.  Further, business practices are being added all of the time.  As new best practices are found and embedded in particular applications, they can become available for inclusion in new versions of SAP.  As they become available, other firms install them.  As a result, there is this cycle of finding best practices, building them into the software and diffusing them out to new users.

ERP Facilitated Adoption of Client Server Computing

•         In the early 1990’s client server computing was an available technology, that offered many advantages over existing mainframe solutions.  Unfortunately, there was limited software available to exploit the advantages.  ERP changed all that becoming one of the dominant, initial corporate applications of client server computing.

ERP Changed the Nature of the IS and Accounting Functions

•          ERP systems are replacing major portions of most firms’ software needs.  This changes the basic nature of the information systems function from one where systems analysts and programmers are needed, to one where knowledge of existing software packages is now critical.

•          Not only have needs changed, but personnel have become more mobile.

ERP has Changed the Nature of Jobs in All Functional Areas

•           IT (information technology) professionals in manufacturing say ERP systems are blurring the lines between IT and users.  There is a huge demand for users or line-of-business personnel who also have professional level IT skills.  But traditional IT types who know only about technology and nothing about the business are not needed now as they once were.  “Understanding the business is probably the most critical (aspect) … Its more important to understand how you want things to flow through your factory than [to have] the skill of programming — except for the few places where SAP doesn’t do what’s needed so you need coders.”

Cost is High

•         After cost of ownership is $15 million, typically at a cost of $53,320 per user, according to a Meta Study.

•         ERP costs can run 2-3% of revenues

ERP Systems Can Create Value

•         Integrates Firm Activities

•         Allows Use of Best Practices

•         Enables Organizational Standardization

•         Eliminates Information Asymmetries

•         Provides On-Line and Real-Time Information

•         Facilitates Intra and Inter Organization Communication and Collaboration

ERP’s Integrate Firm Activities

•         As noted by Hammer, “Integration is the defining characteristic of SAP”

•         ERP processes are cross functional, forcing the firm out of traditional, functional and locational silos.

•         Formerly diverse systems are integrated in ERP systems

ERP’s Employ Best Practices

•         ERP’s employ processes that are known to work and that integrate with each other

•         Those processes can be used to improve the way that firms do business.

ERP’s Enable Organizational Standardization

•         The same best practices can be employed at multiple locations.

–     This allows firms to bring those locations with substandard processes in line with other more efficient locations.

•         Now clients can “see” the corporation the same way, even if a firm has multiple locations.

ERP’s Eliminate Information Asymmetries

•         What is an “information asymmetry”?

•         Since all information goes into a single database, accessible to many, means that many information asymmetries disappear.

•         “If you don’t do your job, I can see that something hasn’t been done”

ERP’s Provide On-Line and Real Time Information

•          Since data is widely available and available on-line and in real time, all have access to the same information

•          As a result,

–     information is available

–  Anytime!

–  Anywhere! to

–  Anyone!

–     which can facilitate more consistent planning.

ERP’s Facilitate Inter/Intra Organization Communication and Collaboration

•         Increasingly firms are opening up their databases to facilitate procurement and other functions, thus ERP facilitates collaboration

•         Since the ERP has all the transaction processing information in it, communication is facilitated.

Chapter 2

Systems and Technology Background

What Technologies Are Of Direct Interest?

•         Client Server Computing

•         Networks

•         Relational Databases

•         Software

•         Reengineering

•         Systems Analysis

Client Server Computing

•         SAP’s client server system has its root in its mainframe system

•         SAP was one of the first client server packages generally available

•         Nature of client differentiates some ERP systems

–     E.g., Oracle is thin client oriented

Client/Server Configuration

Networks

•         Local Area Networks (LAN) link computers together over small geographical areas, such as a building

•         Metropolitan Area Networks (MAN) link computers together across a city.

•         Wide Area Networks (WAN) link computers together over larger geographical areas, such as across different states

Bandwidth and TCP/IP

•          Bandwidth is a network’s transmission capacity.  The greater the bandwidth, the greater the capacity.

–      Capacity and availability are key issues

•          TCP/IP – Transmission Control Protocol and Internet Protocol, are standards associated with transmissions across networks.

–      SAP uses TCP/IP standards

Relational Databases

•         ERP systems “sit on top of a database”

•         Currently, ERP software is organized based on relational databases

•         A relational data base is a set of related tables

–     Related using key attributes

–     For examples …

Data Warehouse

•         Is a single place located across a corporation where a user can get the latest data, efficiently organized

–     They are large repositories of data

–     Typically, they include multiple years of data so that trend analysis can be done

Software

•         Legacy Software

•         Package Software

•         Versions of Software

•         Database Management Software

•         Operating Systems

Legacy System

•         Typically refers to the software that is in use prior to the new ERP software

•         Oftentimes, the legacy system is mainframe software

Package Software

•         In the same sense that personal computing software has moved toward a standard set of package options, corporate enterprise computing also has moved toward packages.

•         Now, some argue that the primary problem is one of choosing the right package

Versions of Software

•         Software has different versions

–     Windows, 3.1, 95, 98, 2000, ME

•         SAP’s R/3 has a number of different versions, 3.0, 3.1, 4.0, 4.5, 4.6

Database Management Software

•         DBMS is designed to facilitate use of database structures, e.g., relational database systems.

•         SAP supports a number of database systems

–     Oracle is most frequently used

–     There is a cost associated with having a data base work with an ERP system

Operating Systems

•         ERP systems are designed to run under different operating systems, e.g., Windows and Unix

•         For some systems, the operating systems for presentation, application and database can be all different

Software Layers

Reengineering

•         ERP can be used as a tool for reengineering

–     “Technology Enabled”

•         ERP contain many “best practices”

–     What is a “best practice?”

•         Reengineering provides one theory base

    for viewing ERP

Systems Analysis

•         Understanding and modeling flows of information

–     Many different tools used to model different views of enterprise models

Chapter 3

Enterprise Resource Planning Systems: Background

Some Selected Questions …

•           What is an “Enterprise Resource Planning” (ERP) System?

•           What does it look like?

•           MAPs (Models, Artifacts and Processes)

•           What are some sample modules?

•           How Does An ERP System Work?

•           What does it mean to talk about “best of breed?”

•           What is the basic ERP Life Cycle?

•           Who are the ERP Companies?

•           Which Consultants Do ERP Systems?

•           Why the demand for ERP?

What is an “Enterprise Resource Planning” (ERP) System?

•         Ideally, ERP is seamlessly integrated software for the entire organization, including financials, human resources, operations and logistics and sales and marketing

–     Generally, all in the firm access portions of the same underlying relational database, where information is gathered once and the database has few redundancies

What does it look like?

•         Typically, screens look just like regular Windows applications

•         Reports look like reports …

How Does An ERP System Work?

•          Information is input one time and selected information cascades through the system, rather than requiring re-inputting

–      e.g., Sales call information, cascades to sales information, which cascades to billing info.

•          Business events are integrated into processes

–      Associated with order processing are a number of functions, including Sales and Distribution, Planning and Production, Materials Management, and Financials

Order Management Process

MAPS: Models

•         A number of models are embedded in ERP systems, e.g., Organizational Models.

–     Benefits, include ability to model substantial detail and capture “reality”

–     Costs, include development and maintenance of those models.  Firms with volatile models may find that keeping them up-to-date can be costly

•      Can force structures and accountability into organizations (e.g., Microsoft)

MAPS: Artifacts

•         Examples include documents

•         Formally, an interface between the computer program and the world in which the system functions.

•         Provide structure the unify the enterprise, e.g., chart of accounts, vendor lists, etc.

MAPS: Processes

•         Processes are flows of activity and information to accomplish a particular task or set of tasks.

–     Typically, there are multiple ways to do things.

–     Some will work better than others in particular organizations.

–     Typically, cut across functional areas.

What are Some Sample Modules?

•          Names of modules depend on the particular package, e.g., SAP

–      AM (fixed asset management)

–      CO (controlling), which includes CCA (cost center accounting), PC (product cost controlling) and ABC (activity-based accounting)

–      FI (financial accounting), which includes GL (general ledger), AR (accounts receivable) and AP (accounts payable)

–      HR (human resources), …

What does it mean to talk about “Best of Breed?”

•         “Mix and Match,” choose modules from multiple vendors in order to get the best of each module

–     HR from PeopleSoft, Accounting from SAP, …

•         Advantage: ideally maximal functionality

•         Disadvantages: search costs, interface costs, look and feel differences, need for a diversified implementation team, …

ERP Life Cycle

•         Deciding to go ERP

•         Choosing an ERP

•         Designing an ERP

•         Implementing ERP Systems

•         After Going Live (Stabilization Period)

Who Are The ERP Companies?

•         SAP is the dominant player, with 35% – 40% of the market

•         Big five (BOPSE) … Baan, Oracle (Applications) PeopleSoft, SAP and, J.D. Edwards

•         Additionally, other firms have generated interest, e.g., QAD and Lawson, Great Plains

Which Consultants Do ERP Systems?

•          You name them and they probably do something in the area!

•          Generally, Accenture and the Big 5 accounting/consulting firms each specialize in a few ERP systems.

•          However, some of them have consultants that deal with all of the ERP systems

Why The Demand For ERP?

•         Demand for tools to increase productivity

•         Reengineering gained headway, just when client server came on the scene at a time when many mainframes were due for replacement.

•         Change in to whom software is sold

•         Y2K was one of the big reasons

Chapter 4

ERP Data Input

Data Input

•         Sources of Benefits and Costs Due to Data Input

•         Too Many Screens, Too Much Time to Input Data?

•         ERP System Design

•         Data Input as Ease of Use Measure

Sources of Benefit and Costs Due to Data Inputs

•         How Much Data?

•         Gather Data Once!

•         Gather More Data!

•         Gather Data Straight into a Computer-based Environment!

•         Gather Data where it is generated!

•         Gather Data with a process focus!

How Much Data?

•         How much data?

–     Huge!  A sample system had over 40,000 tables in a relational database system

–     How many attributes in a table?

–     …

Gather Data Once

•         It generally is more cost effective to gather data once

–     All use the same data

–     In a relational environment only need it once

–     Gathering once may decrease the number of people required for data input

–     Have to make sure it is correct

Risks of Gathering Data Once

•          … pre ERP, warehouse clerks knew they could let a truck leave the loading dock without checking off the goods shipped on the packing slip; the slip would be there and if the clerks forgot about it, at some point, accounts receivable would call them up and yell.  Not anymore.  If the clerks don’t account for everything when the truck leaves, the customer will never get an invoice, because the ERP system has no record of the goods being shipped.  Accounts receivable won’t ever know that the customer received the goods and won’t be able to act as a sweeper upper anymore — no more wake up calls to the loading dock.

Gather More Data

•         What data is gathered?

–     Generally, a broader base of information

–     e.g., data can include time spent on a sales call

Gathering Data Straight to the Computer

•         How is data gathered?

–     “We are taking folks who have recorded some information on pieces of paper, and putting them on PC’s”

–     At the end of the day, many data input requirements are similar to legacy systems

•      “… To the average PC user (SAP’s) R/3 looks like any other database entry form.  Blank cells are labeled ‘quantity,’ ‘price’ or ‘description.’”

Where is data gathered?

•          Where it happens … e.g., on the loading dock

•          In some cases pushes data input out of accounting to operational departments

–      Gets rid of cleric accountants

•          “… workers can look in the new system and make certain decisions themselves — and record them straight from the shop floor.”

–      However, this may cause problems, e.g., “SAP’s user interface was confusing to loading dock workers who had to enter the quantity of chemicals coming in or going out.”

Gathering Data with a Process Focus

•         Sample triggers … Classic Events

–     Sales Activity from contact of customers

–     Goods receipts

–     Reservations of material for planned use

–     Goods Issues, i.e., withdrawal of material

–     Transfer postings (title change among departments)

–     Goods movements

Too Many Screens, Too Much Time?

•         ERP systems are general system structures, designed for implementation across a broad number of system requirements

–     Not surprisingly, many firms do not need all the capabilities

–     Configuration may expand the number of screens required to input data.  For example, prior to SAP’s R/3 4.0, it was not possible to move data fields to a single screen.

Too Many Screens, Too Much Time?

•         At one firm, the legacy system took about 20 seconds to process each order, with all the data on a single screen.  When the SAP system was adopted, the processing time increased to 90 seconds, with data on six screens.  Since the firm had ~ 1,500 per day, there was a substantial change in order processing time

Process Change and Data Personnel Change

•         ERP system changes can lead to changes in processes and who does data gathering

•         There is a double edge sword between benefit in shifting data gathering and change from legacy systems

•         See next slide

Too Many Screens and Too Much Time to Input

Why did the Number of Screens and Time Increase?

•         Change from a functional approach to a process approach can change the number of screens.

•         In some cases legacy systems may be developed to exploit functional information specialization.

ERP System Design

•         There have been at least two criticisms leveled at ERP system builders and there why their system designs are not easy to use

–     Insufficient focus on user interface

–     Design focus is from the database outward, rather than the user inward.

Insufficient Focus on User Interface

•         “The developers of these (ERP) packages, without exception, approach things from a system point of view, not a user point of view. … (The system forces the users to decrease productivity by requiring “window thrashing”) … The software drives people back and forth, and it is driving them nuts.”

Design is “Database Out”

•         “(ERP developers) … generally have designed from the database out, and not the user interface in.

•         As a result, the screens have been the last part of the whole process.”

Data Input as Ease of Use

•         ERP Vendors have incentive to make systems easier to use

–     If not as easy to use as other ERP systems, then that might lead to lost sales

–     Systems are sold based on “number of seats.”  If users find the system difficult then they may not sell as many seats, since firms may try to get information out in other venues (e.g., intranets)

Data Input as Ease of Use

•         Some ERP systems are easier to use

–     “PeopleSoft is very appealing when you look at the screens, while R/3 looked rigid”

–     However, PeopleSoft is not necessarily easier to use than legacy systems

•      “Workers have to contend with a dozen PeopleSoft screens compared to just two or three with the old system.”

Data Input as Ease of Use

•         ERP Developers are Trying to Make ERP systems easier to use

–     “I want people to be able to use parts of SAP with zero training”

–     Has led to the “EnjoySAP” designed to make the system easier to use

Data Input as Ease of Use

•         Is Ease of Use in Eye of Beholder?

–     “I didn’t know how the old system worked … in my mind that’s an advantage.”

•         Either way, perception is reality, hence, if users believe that a system is difficult to use – then it is!!!

Chapter 5

Output: ERP Reports, Data Warehouses and Intranets

ERP Input Issues and Tools

•         Value Creating ERP Information Capabilities

•         ERP reporting capabilities

•         ERP query capabilities

•         Data Warehouses

•         Intranets

•         Integrating ERP and Knowledge Management Capabilities

Value Creating ERP Information Capabilities

•         Information drives the processes

–     “If the information breaks down, we break down”

–     In contrast to classic accounting systems, where in some cases, reports are generated and never used

•         Information is available faster

–     Firms cut end of year closing time from three weeks to four or five days to 6 hours (Cisco)!

Value Creating ERP Information Capabilities

•         Information is available providing empowerment

–     “Workers can look in the new system and make certain decisions for themselves — and record them straight from the floor.”

•         Information is integrated

–     Systems are based relational database systems so data can be made made available in an integrated form

Value Creating ERP Information Capabilities

•         Information is Transparent

–     If you don’t do your job, I can see that something hasn’t been done

–     Accordingly, ERP systems facilitate elimination of asymmetries of information

ERP Reporting Capabilities

•          ERP systems have a wide range of standard reporting capabilities.

•          However, use of ERP systems can be hard to use for anyone other than expert users and firms may incur costs as a function of number of “seats.”

•          As a result, firms have pursued other alternatives, such as database queries, data warehouses and intranets

ERP Database Query Capabilities

•         Database Queries

–     ERP systems sit on top of a relational database system, so queries can be built to provide report capabilities

–     ERP systems have database query capabilities so that the database can be bypassed

Downside of Queries

•      reports are taking a heavy toll on ERP systems everywhere because for the first time hundreds, even thousands of employees are going to ERP’s single, integrated database and pulling out huge piles of data … This is the number one technology fire that ERP project teams have to put out after the new system goes in.

What if reporting and query capabilities are not enough?

•         Intranets

•         Data Warehouses

Intranets

•         A number of firms, basically differentiate expert and casual user groups, allowing experts to have direct access to ERP systems and casual users intranet access to reports.

•         Can be facilitated through Lotus Notes or Web technology.

–     Typically, reports are updated each day

Data Warehouses

•         Data warehouses provide a way of facilitating generation of non-standard reports

–     “We needed something that would allow an inventory manager to track inventory without running a report request through the IS department.”

•         Typically on another computer so they don’t put strain on transaction processing systems

Data Warehouses

•         Data warehouses can serve as a meeting point between ERP and other applications

–     “… the impacts of the (ERP) project were so much greater than expected …. Before the systems had tended to communicate directly with one another (i.e., point to point), a new approach would now be employed in which all data communication would take place via a data warehouse.”

Integrating Reporting and Knowledge Management

•         As firms have begun to employ database queries, data warehouses and intranets, ERP firms have pushed to maintain control

•         The approach is to integrate knowledge management and some electronic commerce with the ERP systems

Knowledge Management and ERP — “Portals”

•         Portals have many definitions, but generally are jumping off points for information and knowledge, aimed at specific users

•         Can make a range of information available, including “discovered” knowledge

Electronic Commerce and ERP

•         Some ERP firms see portals as an opportunity to make information about related product information available to users through the portals

•         E.g., mySAP.com has forms that vendors can fill in to make information about them available through the portals

Chapter 6

Technology Enabled vs. Clean Sheet Reengineering

ERP and Reengineering

•         “SAP implementation equals forced reengineering”

•         “it’s rare when you don’t have to do some kind of reengineering”

•         ERP is the “electronic embodiment of reengineering”

Reengineering Tools and Technologies in 1994 (CSC Index 1994)

•         Tool                 USA         Europe

•         None                 41%       36%

•         Process Value Analysis       36         27

•         Benchmarking                34      36

•         Competitive Analysis    25      28

•         Activity-Based Costing      20         17

•         Other                 16           17

Technology Enabled (Constrained) Reengineering

•         “Enabled” vs. “Constrained” …

–     Which term?  Why?

•         A particular technology (or portfolio of technologies) is chosen as a tool to facilitate reengineering.

–     Thus, reengineering choices are a function of the technologies chosen.

–     The technology drives the reengineering.

Clean Slate Reengineering

•         Process design starts with a clean slate

•         Also referred to as “starting from scratch”

•         Theoretically, no limits

Somewhere Between the Two

•         In actuality, there are few projects that are “purely” clean slate or technology enabled

•         More of a spectrum

Advantages of Technology Enabled

•          ERP provides a tool to facilitate change

•          ERP helps structure complex reengineering efforts

•          Tools help explain and rationalize efforts

•          ERP bounds the design, limiting overload

•          Design is feasible

•          There is Evidence that the design will work

•          Designs likely are cost effective

•          Designs likely can be implemented in a timely manner

•          There is software available

Advantages of Clean Slate

•          Not constrained by a particular tool

•          Not constrained to a limited set of processes

•          Evolution is not limited by a particular technology

•          Can develop a design that others cannot access

•          There is evidence that firms think they should reengineer and then implement

•          May be the only option

Which Firm Should Use Which Approach?

              Depends on

•         Firms Size

•         Available Resources

•         Time Pressure

•         Strategic Gain

•         Uniqueness of solution

Large Firms

•         Have the resources to do clean slate

•         Are often industry leaders and thus, generally have time

•         Are likely to use processes as a competitive advantage

•         Are more likely to need a unique solution

Firms with Deep Pockets

•         Clean slate requires substantial resources

•         In some cases, clean slate will lead to many starts and stops before the “final” design is found

Firms with Time

•         Clean slate takes longer so only firms that have the time can really do clean slate approaches.

Firms for which Processes are a Strategic Advantage

•         The more unique a firm in terms of its industry, processes, customers or other factors, the more likely that they see their specific processes as a competitive advantage, and thus use some clean slate approach.

Firms that Seek a Unique Solution

•         Technology enabled approaches are easily copied and diffused

•         Clean slate approaches are not as rapidly or as easily copied.

Which Approach is Used the Most? (Original Implementation Strategy)

     Approach             Original   After

•          BPR and SAP Simultaneously 48%      51%

•          BPR before SAP               16    35

•          BPR after SAP                    3    33

•          BPR before and after SAP            1      1

•          No BPR Needed                    33    10

Chapter 7

Deciding to Go ERP

Business Case Rationales

•         Business case rationales typically fall into four categories

–     Technology

–     Business Process

–     Strategic

–     Competitive

Why is the Rationale or business case important?

•         Want to make the “right’ decision, so develop a good business case

•         Business case can facilitate choice of processes or evaluative measures

–     Gives guidance to the design team

•         Business case can provide a basis for the evaluation of the quality of the design/implementation

Technology Motivations

     Motivation                     No. of Firms        Percent

•            Systems not Y2K Compliant       42             27%

•            Disparate Systems         37                  24

•            Poor Quality Systems           26                  17

      /Visibility of Information

•            Business Processes or          19                  12

      Systems Not Integrated

•            Difficult to Integrate             12                    8

      Acquisitions

•            Obsolete Systems          11                     7

•            Unable to Support Growth     8                    5

Technology Rationales: Y2K

•           We really sold (ERP) on the Year 2000. … If you have systems that are 20, 25 or 30 years old, the Gartner Group …  has indicated that it will cost you anywhere from $1.10 to $1.65 per line of code to change for year 2K. If you have 4,000,000 lines of code you are talking about a lot of money.  Additionally, the legacy systems are not there, there is nobody there to maintain them and there is nobody who understands them.  So if you had to fix it up for the year 2K it would take you millions and millions of dollars, with a terrific risk.  In essence we sold this system on a year 2 K basis.

Technology Rationales: Disparate Systems

•         Disparate systems limit the ability of firms to integrate different business units.  Recall Geneva Steel

•           we have … a mainframe … (and)… a primitive accounting system … we have lots and lots and lots of different kinds of computers.  They have a hard time talking to each other.  We have a large number of mini computers out there that are different kinds, that have different software ….  Our system is a road map from hell.  ..

Technology Rationales:

Poor Quality Existing Systems

•          We (Microsoft) had just had a very bad budget process.  ITG (the Information Technology Group) and Finance had developed a new budget tool and it didn’t work.  ….  It was not fun.  … I was just back from vacation, and Steve Ballmer was just back from Wal-Mart.  Steve knocked and opened my door.  I knew it was Steve, he has a really distinctive knock.  He walked in and said, “You guys [expletive deleted]!”  I got the message.

Technology Rationales:

Difficult to Integrate Acquisitions

•         We wanted more insight into how our processes were doing.  … Your processes have to change.  As a company that acquired so many companies, [Brown Ferris] didn’t have uniform processes.  Part of our challenge was to get 500 places using standard procedures.

Technology Rationales:

Measurement

•          Oftentimes technology rationales are measured on a “yes-no” basis

–      Is the new system Y2K compliant?

–      Does the new system allow us to eliminate this road map from hell?

–      Can we get rid of our existing budgeting system with this new software?

•          Typically can specify particular measurement goals.

Business Benefits

     Benefit              Number of Firms  Percent

•            Personnel Reductions                  44           20%

•            Inventory Reductions                  42           19

•            IT Cost Reduction                27           13

•            Productivity Improvements         23           11

•            Order Management Cycle Time         19             9

•            Cash Management                16             7

•            Revenue/Profit                      15             7

•            Procurement                          12             6

•            Financial Cycle Close                  10             5

•            Maintenance                           8             4

Business Process Rationales

•         Designed to aim at specific improvements in efficiencies or cost savings or revenue enhancements.

•         Typically include a specific number

–     For example, “decrease inventory by 40%”

•         Can provide guidance regarding design

Business Process Rationales:

Personnel Reduction

•         “We will have fewer accountants and probably have fewer information systems people.  Because one of the things we are considering is contracting out a chunk of that function.  A great deal of what we do, we have cost accountants do, lots of things, not just by hand, it is not that primitive, they do a lot of work that won’t need to be done once SAP is implemented.”

Business Process Rationales:

Productivity Improvements

•          “To get the project (cost) justified we intentionally focused on the tangible items the board would understand and that we could clearly articulate and make commitments to deliver.” (Owens Corning)

·     A one percentage point cost reduction deriving from global economies of scale in raw material purchases

·     A one percentage point cost reduction deriving from fewer warehouses and lower freight cost

·     Improvement in reliability-oriented maintenance generating lower plant maintenance costs

Business Process Rationales:

Financial Close

•         Firms often specify speeding the closing process as a goal

–     One firm wanted to cut their closing time from 24 days to 6 days.

Strategic Rationale

•         Choose ERP to implement a specific strategy

–     As part of an E-business strategy, a firm could implement an ERP system

–     As part of a strategy to focus on the consumer, a firm could implement “Available to Promise” (ATP)

Competitive Rationale

•         “A lot of ERP purchases are premised on the need to just stay in business.”

•         The competition has it can take two approaches

–     Implement because the competition has it

–     Focus on why the competition has it and see if it fits your company and what benefits can be gathered

Competitive Rationale

•          On June 24, 1996, Oracle’s Application Division announced that “Several companies went live with their Oracle Applications implementations during the quarter, including Silicon Graphics, Inc. and Quantum Corporation, both of whom successfully deployed large-scale implementations.”  In addition, at the same time, Oracle’s Application Division announced that “among the customers added this quarter included … Western Digital ….” (Quantum’s Competitor)

Business Case Rationale

•         Can be used as a guide to help design and evaluate success.

•         Why is it being implemented?  Use this as a basis to assess the quality of the implementation

How Does a Firm Decide Whether or Not to Go ERP?

•         Hard vs. Soft Data

•         Use of the Measurement Criteria

•         Organization Culture

Role of Top Management

•         What is the role of top management in deciding to go ERP?

–     Only a few executives in a firm can make such a big decision

–     Voice of Change must include domain area since processes will change

Hard vs. Soft Data

•         Whether the data is ‘hard’ or ‘soft’ can influence the decision

•      The Y2K data was hard data. They (top management) believed that data.

Measure Costs Throughout the Life Cycle

•         Measurement of project costs is necessary to provide a budget and actual for the project

•         Costs start in the decision to go ERP and move in thru the rest of the life cycle, through the stabilization period

Organization Culture

•         Some organizations use detailed analysis, whereas others do not

–     In some cases it is a matter of the organization’s culture

Cost Benefit Analysis

•         Use it, but keep in mind …

•         Costs can be disguised or hidden or inaccurate

•         Benefits can be fuzzy or unanticipated

Chapter 8

Choosing an ERP System

Two Basic Approaches

•         There are two basic approaches that are used as bases of choosing ERP software

–     Requirements Analysis (“As Is”)

–     Best Practices Analysis (“To Be”)

“As Is” Analysis

•         As is refers to the current system and its current capabilities

•         The system “as it is” right now

Requirements Analysis (“As Is”)

•         “As Is” the ways things are.

•         Organization determines what their processes and artifacts currently are and use that “as is” model to establish requirements that software is judged against.

•         Typically, the software that best meets the requirements is the one chosen by the firm

Requirements Analysis – Evaluating Features

•          Typically, requirements are features that the software “must have”

–      In addition, sometimes “would like to have” also is gathered.

–      Likely to use a numeric scale of say 1-5 for each feature, based on how important the feature is

•          For missing features, typically changes to the software are seen as a gradation of change, e.g., “enhancement” or “customization”

How many requirements?

•         Timberjack’s requirement analysis took six months and generated > 1,000 requirements

•         Another firm took eight months and generated 1,500 requirements

•         If it takes a long time, then requirements can (will?) change

How long will it take?

•         Can be a substantial effort and take a while!

•         Typically 1 – 3 months

Who Should Be Doing Analysis?

•         Trade-off between current employees who know how work is done, and managers, who see work from a different perspective. …

•         Which processes should be captured:

–     Past

–     Current, or

–     New?

Help for Doing Requirements Analysis

•         Consultants specialize in requirements analysis, e.g., Big 5

•         There are existing packages that facilitate requirements analysis, e.g., “The Requirements Analyst”

Requirements Analysis – Granularity

•         Requirements are not equal granularity.

•         Some are whole best practices, while others are fields (e.g., date)

–     Able to manage orders following best practice methods of placement, control and expediting

–     Able to Use EDI with Certain Vendors

–     Able to set up vendor schedules

–     Able to track actual date

Advantages of Requirements Analysis

•         Classic System Choice Process, so it is generally understood

•         Establishes a bench mark that can be used to judge fit of software

•         Provides a document that can be used for communication and to generate buy-in

Disadvantages of Requirements Analysis

•         “As Is” analysis can be very

–     time consuming, slowing the implementation

–     costly (e.g., one firm spent $100,000)

•         May (will) be impossible to specify all software requirements

•         If there are too many requirements then vendors may not fully respond to the RFP

Disadvantages of Requirements Analysis

•         Lose chance to reengineer by focusing on the ‘‘As Is” model

–     Cements existing processes without evaluation as to their quality

•         Requirements are not stable, so it is likely that requirements can only chase reality

–     Requirements are only a snap shot

Format

•         Typically a list, along with a relative ranking of the importance (1,2,3,4,5)

•         Scripted

–     Loosely Scripted — “show me what you have”

–     Tightly Scripted — “can you handle this data?”

“To Be” Analysis

•          Process of determining which best practices should be used by a particular organization, i.e., how should the organization process information, and choose the software on that basis

•          Focuses, not on where the organization is, but where it wants to be.

•          Search often includes Big 5 best practices, and ERP best practice capabilities

Gap Analysis

•         Match “AS IS” and “TO BE” to determine if any gaps.

•         How do we evaluate gaps?

–     Count them?

–     Rate importance?

–     …

Both Requirements Analysis and Gap Analysis Ignore Important Issues

•         Cost

•         Installation time

•         Flexibility

•         User interface

•         Upgradability

•         Implementation Personnel

•         Reliability  …

Cost Factors – Mini Case:

Which Do You Choose?

                  Upgrade   Oracle SAP

Implementation          $3-5 M   $4-8 M   $6-10 M

Software Development   $2-4 M $1-3 M   minimal

No. of Users (Seats)   15-20      10-15       8-10

Both approaches …

•         basically assume that majority wins.  How do you choose, the software that has the most requested features or the most valuable features or ..?

•         can focus on artifacts (e.g., invoice) rather than processes

Emerging Approach

•         Increasingly, consultants are promulgating the approach where no “as is” model is developed, no gap model is developed …

•         Go straight to the “to be” model, since that is what really counts

•         Typically, with this approach the consultant knows both your organization and the software

Emerging Approach

•         Instead, just choose one of the better ERP packages and choose the best practices available within that package.

–     Systems are so good that any of the systems will have processes that are “good enough”

How do firms choose?

A Case Study

•          Company: Chesapeake Display and Packaging (CDP)

•          They used a five step approach, including a vote as to which everyone preferred.

–      Form Blue Ribbon Committee

–      Contact Vendors to Arrange Demos

–      Ask Vendor for Proof of Rapid Implementation

–      Vote

–      Make Choice

1. Form Blue Ribbon Team

•         A Blue Ribbon Team (BRT) was chosen for their knowledge of the business and business processes

•         There were some big picture people

•         The committee was limited to no more than ten people

2. Contact Vendors to Arrange Demo’s

•         A limited number of first tier vendors were chosen, contacted and asked to prepare a demo for the BRT

•         Vendors were given unlimited access to the BRT for three weeks.

•         Demos lasted 1-2 days

•         Vendors choose the hardware and software that they preferred

3. Ask the Vendor for Proof of Rapid Implementation Ability

•         Vendors were asked …

–     Show your software can handle our business

–     Show you can implement in the time required

–     Show expertise in understanding the industry

4. Vote

•         After the demos, there were three candidates, Baan, J.D. Edwards and SSA.

•         In order to choose, the BRT was asked to rank 1 to 3 based on “Best functional fit” and “Best implementation personnel”

5. Software Recommendation

•         J.D. Edwards was seen as offering

–     Superior financial capabilities

–     One integrated solution

–     Human resources and payroll

–     Advanced object oriented tool set

–     A planning module that allowed for scheduling on a cost basis

So, What do you …

•         Like about the way they selected their system?

•         Not like about the way that they selected their system?

Chapter 9

Designing ERP Systems

Part I

Customize Applications or Change Business to Fit Software?

Choose Application to fit                    37%

business and customize a bit

Customize Applications to fit business        5%

Reengineer Business to fit application       41%

No Policy                                17%

On the Relevance of “As Is” and “To Be” Modeling

•         Since “As Is” analysis generates models of existing processes, the relevance of “As Is” modeling is dependent on the extent to which processes stay the same

•         Since “To Be” analysis generates models of processes chosen to be implemented, its relevance depends on the extent of change to be made in existing processes.

“As Is”

•         If a firm is planning extensive reengineering (>40%) from survey were, then the “As Is” model is not very important.  Instead the “to be” model drives the process.

•         However, if minimal reengineering is planned then it can be critical to do an “As Is” model so that the proper software can be chosen.

“As Is”

•          Consider a firm that performs an “as is” analysis and finds a loose fit between existing processes and the ERP software they choose.

–      If minimal reengineering is planned, then there may be a lost chance to choose software that matches their processes

–      If extensive reengineering is planned and there is a tight fit with existing processes, then that close match can limit their ability to do reengineering and may result in backsliding.

“To Be”

•         If there is only limited change of the software planned then the “To Be” model is basically constrained to the processes available in the software

•         If the software is to be modified, then the “to be” model becomes more like a clean slate analysis, since the choices are beyond the software.

Two Dimensions …

•         There are two dimensions of change …

–     Change in Software

–     Change in Organizational Processes

•         Resulting in reengineering ranging from “little r” to “big R” reengineering.

Minimal Organization and Software Change

•         Small r reengineering offers fast and cheaper implementation

•         However, with small r, you miss the chance to be a champion

Extensive Organizational and Minimal Software

•         “SAP customers often have to change their businesses to use the software, but the cost and the change is worth it because the software lets the company operate more efficiently.”

Extensive Organizational and Minimal Software

•          Trash Hauler industry taking SAP software to the dump. Allied Waste and Waste Management have abandoned their SAP initiatives because

    “SAP expects you to change

     your business to go with

     the way the software

     works.”

Minimal Organizational and Extensive Software

•           A project manager at Nestles indicated that their choice of processes for their SAP implementations included best practices beyond those included in the software.

–       Some of their existing processes

and best practices from their consultants’

database of best practices

were chosen, forcing a

change in the software.

Disadvantages

•           We have learned the hard way, if you modify the software there will be a cost.  The cost comes when you do the modification initially, when you do an upgrade, and when you support the software over time.  …

•           Customization to different divisional requirements also can make it difficult to implement the software in other divisions.  Although the manager of SAP services at Deere Co. indicated that for their ERP project, the customizations went well, it was also noted (Lamonica 1998)

–       …  what hasn’t worked well is establishing standards and templates that can be rolled out to other divisions.

Extensive Organization and Extensive Software

•          Boeing and BAAN … What was the payoff?

•          As noted by one Boeing

consultant (Busse 1998),

“Prior to … (the new system)

… people had tunnel vision,

now people see up and

downstream …”

Extensive Organization and Extensive Software

•         Advantages: First mover advantages for the adopter; development of a package that can be sold to similar firms to the ERP firm; costs and risks are shared by both

•         Disadvantages: Changing software is expensive and inhibits ability to get to next version.  Adopters are likely large firms with market power.

Evolution from Big R to Small r Reengineering

•         In some cases, ERP firms partner with implementing firm in an effort to expand the product capabilities.

–     Extensive software changes can result in industry specific versions of the software

–     As the software is made to conform with unique industry requirements, it becomes “small r” for those on the third or fourth wave.

Implementation Failure and Success Factors

•         The highest probability of a successful implementation is when there is minimal change to both organization and software.

–     This does not mean all organizations should pursue that approach.

•         Change to organization processes can mean resistance to change, choice of the wrong best practices, etc.

Implementation Failure and Success Factors

•         Extensive change to software draws heavily on the organization to implement large IT projects and IT change management

•         See diagram …

•         Bottom line, firms must assess what will make their implementation successful?

Which Quadrant … Which Approach?

•         Depends …which is best for your firm?

Chapter 10

Designing ERP Systems

Part II

What are MAPs?

•          Models

–     Organization models (e.g., B2C, B2B, Auctions, Centralized, Decentralized…)

•          Artifacts

–     (e.g., Charts of accounts and Vendor numbering schemes…)

•          Processes

–     (Sales order, Customer management, Procurement…)

Why are MAPs important?

•          MAPs (Models, Artifacts and Processes)

•          The quality of the MAPs will have a huge impact on the overall success of the ERP implementation.

–      MAPs that are not efficient or effective for a particular firm can drag down the overall performance of that firm.

–      Similarly, MAPs that meet the needs of a firm can push it to better performance, giving it a competitive edge.

Where do MAPs come from?

•           Nestles’ decided that it would implement common MAPs in all three of its United States divisions.

•           Each of the three division’s existing MAPs became candidates, that would be evaluated.

•           Both SAP and the advising consultant’s best practices databases were used to generate candidates MAPs.

•           In some cases, hybrid MAPs were developed, based on multiple sources of information.

•           A multifunctional team used both sets of inputs to decide on company standard artifacts and business processes.

Why didn’t firms have common MAPs prior to ERP systems?

•          There are at least three reasons:

•          1) technology,

•          2) exploitation of local differences, and

•          3) divisional control.

–      Technology limitations meant each division made their own decisions

–      Since each made their own decisions they exploited local phenomena (e.g., few vendors)

–      Even common software and computing was hard to integrate.

Why do firms need common MAPs for ERP?

•         Basically, the software requires it

•         Improved customer response

•         To get control of an out of control process

•         Generate a common view of the data

•         Create value and reduce costs

Software Requires it

•          Owens-Corning traditionally had operated as a collection of autonomous fiefs.  “Each plant had its own product lines,” says Domenico Cecere, president of the roofing and asphalt units.  Each plant also had its own pricing schedules, built up over the years of cutting unique deals with customers.  … (SAP’s) R/3, however, effectively demanded that Mr. Cecere’s staff come up with a single product list and a single price list.

Improved Customer Response

•          Up until now, customers called an Owens – Corning shingle plant to get a load of shingles, placed a separate call to order siding, and another call to order the company’s well-known pink insulation.

•          (The company’s new vision was that) Owens – Corning should offer one stop shopping for all the exterior siding, insulation, pipes and roofing material that builders need.

•          (SAP’s) R/3 will give Owens-Corning the ability to make that happen by allowing sales people to see what is available at any plant or warehouse  and quickly assemble orders for customers.

Get Control of Out of Control Processes

•           Vandelay’s sites’ operations practices were as varied as their information systems.  There was no uniformly recognized “best” way to invoice customers, close the accounts at month end, reserve warehouse inventory for a customer order or carry out an of the hundreds of other activities in the production process that required computer usage or input. …To alleviate … problems with systems and practices, Vandelay decided to purchase and install a single ERP system, which would incorporate the functions of all the previously fragmented software.  The company would also standardize practices across sites.

Common View of the Data

•         Elf Atochem North America Inc., Philadelphia … is moving 13 business units over to SAP software. … he came to SAP because its various companies had been reorganized to work as one.  (As a result, the company) … had inherited “a lot of different computer systems, a lot of different ways of doing business, and a lot of hand-offs.”  A common view of diverse data was important …

Value Creation and Cost Reduction

•          As noted by Pirelli’s director of information technology “The more standardization there is, the easier it is to implement new ideas and respond to new opportunities.”  In addition, Andreoni notes that standardization can reduce costs.  As an example, before standardization, Pirelli had a full service back office and customized software in each of five countries.  ERP software was used to replace the multiple back office staffs with a single back office staff in Switzerland, cutting costs by 25%.

Why is it difficult to choose common standards?

•          A Vice President of Red Pepper Software, who admits that standard ERP artifacts are “… useful where financial viewers want to consolidate information across diverse operating units, but … the common view may not be optimum for individual divisions.”

•          Although standardization coming from implementation of enterprise software by standardizing processes and artifacts has global benefits, it comes from sacrificing local customized capabilities.

How seriously do divisions take the choice process?

•         SAP, however, effectively demanded that Mr. Cecere’s staff come up with a single product list and a single price list.  The staff initially fought ceding control over pricing and marketing to a computer-wielding central command.  “My team would have killed if we’d let them,” he says.

What are some choice motivations?

•         Maximize corporate benefits (global good)

•         Minimize divisional change costs (self interest)

–     Rather than maximizing corporate benefits, a division may work to minimize its change costs, such as training or hiring.

–     Divisions unsuccessful in getting their MAPs adopted can still work to get the MAPs closest to their’s adopted

Choosing Standard Artifacts and Processes

•           Within an ERP, virtually the same processes and artifacts are used in all locations, i.e., processes and artifacts are standardized

–      As a result, potentially this can lead to conflicts between different business units regarding the choice of processes & artifacts

–      Firms refer to this choice as “common … and global”

–      Firms make the choices to facilitate communication and coordination

Chapter 11

Implementation:

Big Bang vs. Phased

Big Bang vs. Phased Implementation

•         “Big Bang” and “Phased” are two primary ways of implementing ERP systems

–     What do these terms mean?

–     What are properties of each?

–     What are the advantages and disadvantages of each?

–     How do we take into account organizational factors with respect to ‘big bang’ or ‘phased’?

–     What are some additional terms?

Big Bang

•         In a full big bang, an entire suite of ERP applications is implemented in all locations in a matter of days.

–     Big Bang employs a three step process.

•      Virtually all processes and artifacts are chosen and implemented in the software (e.g., 8 months)

•      System is tested by process and then by interfaces between processes (e.g., 8 months)

•      Old system is turned off. New system is then implemented and minor changes made.

Phased

•          At the extreme, modules are implemented one at a time, possibly one location at a time

–      For example, one implementation did the following:

•       Phase 1 – Finance, controlling, accounts receivable, accounts payable, and purchasing (12 months)

•       Phase 2 – Materials management, production planning and quality planning (7 months)

•       Phase 3 – Remainder (5 months)

–      Using a phased approach, the new system is implemented in a structure of legacy systems.

Advantages of Big Bang

•          No Temporary User Interfaces

•          Limited Need to Maintain and Revise Legacy Software

•          Some Risk is Lower

•          Functionality Linkage

•          Shorter Implementation Time

•          Continuity of Personnel

•          Cost

No Temporary User Interface

•         Temporary interfaces must be developed and maintained for the duration of the multiple systems with a phased approach, however, with a big bang approach, there is no need to build legacy system interfaces and there is  no need to change legacy systems

Limited Need to Maintain and Revise Legacy Software

•         With Big Bang there is limited need to maintain and revise legacy software.

•         As a result, all resources can be spent on the development and testing of the new system.

Some Risk is Lower

•         “The phased approach is riskier, because you won’t get everyone involved.”

–     Since people are not involved they can lose interest

•         There is no back-up system with big bang, so there is little risk of the attitude, “Oh, let’s just forget it.”

•         Attrition of critical personnel is lower

Functionality Linkage

•         ERP systems modules are tightly linked.

•         Some capabilities require multiple modules be implemented

•         As a result, in some cases the fastest way to get full functionality is a big bang approach.

Shorter Engagement Implementation Time

•         Since there is no time spent on temporary interfaces, the engagement duration time can be shorter

–     As a result, there is less time for legacy system maintenance is required

–     First Movers advantage is more rapidly attained

–     Catch-up can be facilitated

Continuity of Personnel

•         Since engagement duration time is shorter there is less likelihood of workers leaving in the middle of the engagement

•         Also, since experience is not “whole” till implementation, there is likely to be less turnover, during the actual implementation

Cost

•         Which approach is least costly?

•         If all goes well the big bang approach is least costly since there are fewer costs for interfaces, etc.

Advantages of Phased

•          Peak Resources are Lower

•          More resources can be devoted to a particular module

•          Some risk is lower

•          Legacy System Fallback

•          Personnel gain knowledge in each phase

•          Project managers can show the system works

•          Time between development and use is small

Peak Resources are Lower

•         If a firm has limited resources, then a big bang approach may not be feasible.

•         With a phased approach resource requirements can be spread across multiple time periods.

More Resources can be Devoted to a Particular Module

•         If the organization is resource constrained then a big bang approach may not be possible because of those resource constraints

•         However, with Phased, the resource requirements can also be phased.

Some Risk is Lower

•         One malfunctioning module in a big bang can make the implementation fail. Since the phased approach puts in one module at a time, that risk is mitigated

•         If the implementation fails, the phased approach always has the legacy system in place until the very end.

Legacy System Fallback

•         In a big bang, the legacy system is turned off, there is no alternative if things don’t go well.

•         With a phased approach an organization can see if the system works and then turn it off, or it can run the systems in parallel in order to check the results.

Personnel gain Knowledge in Each Phase

•         In a phased approach, workers gain knowledge with each phase.

•         They can use knowledge gained in phase i, in phase i+1.

Project Managers can show the System Works

•         With a phased approach, managers have a chance to show that the implementation is working and/or being accepted.  As a result, they can use these results to demonstrate the quality of the investment to top management.

Time Between Use and Development is Small

•         The linkage between doing the work and when the module goes live is much tighter with phased than big bang.

–     As a result, developers can more easily see the linkages and the results of their work.

When should you use Big Bang?

•         When you have top management’s support

•         When there are sufficient peak resources available

•         When capabilities are needed ASAP.

•         When there is limited time to implement the system, e.g., first mover or catch up.

When should you use Phased?

•         When you need to generate support from top management

•         When there are insufficient peak resources

•         When the all or nothing risk of Big Bang is too high

•         When there is plenty of time

Organization Characteristics and Implementation Approach

•         Size vs. Complexity

–     Complexity derives from a number of sources including an organization’s products and customers.  Large customers can dictate processes, artifacts, etc.

–     Size of a firm can relate to a number of factors, such as revenues, number of offices, geographic regions, number of products or number of customers.

Large and Complex Organizations

•         Its too difficult–especially for large (and complex) companies–to run a big project …  and the risks in terms of project management are huge. … Huge do-it-all at once deals are quite tough, and most people are looking for smaller piece-by-piece implementations.

Organization Characteristics and Implementation Approach

•          Both Organization Structure vs. Organization Controls influence whether a big bang or phased would work better.

–      Organization structure can be very flat or tall and hierarchical

–      Organizational controls can be loose or tight

–      “If a company has a flat organization that is not tightly controlled, it’s very difficult to sustain commitment throughout a phased implementation. …”

System Change and Reengineering

•         Number of Modules

–     Firms don’t always put in all the modules.  With few modules, they can almost guarantee the ability to go big bang

•         Extent of Reengineering, e.g., “System Fit”

–     To what extent does the system meet the needs of the company as is?

Alternative Implementation Issues

•         Waved Approach

•         Aggressive Implementation

•         Running in Parallel

•         Many “big bangs”

Waved Approach

•         Each “wave” delivers functionality to a different business unit or geographical area

•         Example:

–     Year One – implement G/L

–     Year Two – Convert A/R and cost management

Waved Approach

•         Advantages of Waves

–     Waves provide feedback as to how the implementation is proceeding

–     Employees learn in the beginning of the wave and leverage that learning

–     Each successful wave keeps momentum going

–     Waves are flexible.  If new releases occur then they can be embedded in the waves

Aggressive Implementation

•         Not big bang, but more aggressive than phased

•         Temporary links really are temporary.

•         Aggressive plans are made to release legacy system

Run in Parallel

•         If the legacy system is allowed to run at the same time as the new system then the two systems can run in parallel.

•         There are some advantages and disadvantages of this approach

–     Advantages: can go back, can check results

–     Disadvantages: costly, may inhibit new system

Multiple Big Bangs

•         Increasingly, firms are beginning to say that they are doing a big bang implementation, in phases.

•         This is a break from the classic big bang and phases, basically ‘big banging’ around the world, from one division to another.

Chapter 12

Post-Implementation

The Stabilization Period

•          Lasts from 3 to 9 months

•          “Most companies should expect some dip in performance at the time they go live and should expect that they’ll need to manage through that dip.”

•          Why?

–      New software and processes for users

–      System ‘bugs’

–      Technical issues…

Post-Support from ERP Team

•         Detecting and responding to system bugs

•         Answering user questions

•         Changing system parameters

•         Responding to changing reporting needs

•         Upgrading the software/hardware

What Remains to be Done?

•         Data conversion (migration of data from legacy to ERP system)

–     Cleansing data

–     Reconciling data

•         Process Bottlenecks

–     Talk to users about problems

–     Analyze error and complaint logs

•         Documentation and Training

Linkages, Upgrades & Extensions

•         Creating interfaces and linkages to other systems

•         Upgrading to different system versions must be made so that additional features can be implemented

•         Building-in new features and functions beyond upgrades

Evaluate Success

•         Timing

–     When benefits could be realized and measured

–     During the 1^st or 2^nd year AFTER going live

•         Determining if the system meets the criteria set out for it in the beginning (choice rationale)

•         Independent measures or a weighted portfolio of measures?

Weighted Portfolio

   Attribute                    Rating          Weighting          Product

•           Ease of use             4          .10       .40

•           Speed of closing           3          .20   .60

•           Internal Integration       5          .15   .75

•           Customer Satisfaction  4          .20   .80

•           Duration                 4          .10       .40

•           Cost                  2          .15       .30

•           Benefit              3          .10       .30

•           Total (Possible 5.0 points)                  1.00       3.65

Actual vs Expected Project Factors

(Austin and Cotteleer 1999)

                                      Duration        Cost              Benefit

•            < 50%                       0.0          0.0          6.0

•            50% – 100%                   25.0        13.5         65.5

•            100% – 124%  5             27.5        43.0        8.5

•            125% – 149% 4             25.0        24.5        14.5

•            150% – 174%                   3.0          8.0          0.0

•            175% – 199%                 16.5          2.5          3.0

•            > 200%                     3.0          8.0          3.0

Balance Scorecard

Post-Implementation Budget

•         There must be a budget and corresponding plan to support the complete project.

•         Complete project management means managing through the entire project life cycle.

Chapter 13

Training

Importance of Training

•          “The easiest mistake to make is underestimating the time and cost of training end users.”

•          An implementation will be a failure if the software runs perfectly, but employees don’t know how to use it.

•          Despite the importance associated with the need for ERP training, a recent survey found that in a Benchmarking Partners survey of 150 sites, 43% indicated that the amount of training was the biggest surprise encountered.

FAQ Regarding Training

•           How should user training be timed?

•           How much training should users get?

•           How do you make up time spent on training?

•           When should you do training?

•           How do you get employees to do training?

•           How much should training cost?

•           What is in the training material: information technology or business materials?

•           How should you structure training?

•           Can you develop faster training?

How Should Training Be Timed?

•         Training that occurs too early before the go live date will be forgotten.

•         Training that occurs too late, will not be done in time, and can cause a lengthy stabilization period.

•         As one example of trying to find the right time, Purina Mills started to train users four months in advance on SAP’s R/3.

How Much Training Should Users Get?

•          The amount of training required is a function of the particular module for which users are being trained.

–      In some cases it can take up to six months for users to get comfortable and proficient with the ERP software.

–      As another example, at Purina Mills during their SAP R/3 implementation, a group of finance workers spent seven hours per day during the last month before the system went live.

How Do You Make Up Time Spent on Training?

•          Time spent on training is time not spent on day-to-day activities.

•          Not surprisingly there have been a number of different solutions used to ensure that workers get enough time off for training.

–      At Purina Mills managers put in extra hours in order to accommodate training hours.

–      At Microsoft users were expected to do both jobs by putting in extra hours.

–      Still other firms have made use of temporary employees.

When Should You Do Training?

•          Training scheduled during working hours indicates the importance of the training.  Training scheduled outside working hours suggests training is not as important as day-to-day responsibilities.

–      A CIO was told by corporate that eighty hours of education was necessary.  However, he felt that the eighty hours of education would not be necessary for his employees and that the training could not be done during normal working hours.  As a result, he was planning for his employees come in on Saturday and Sunday’s on three successive weekends in order to the training.

How Do You Get Employees to Do Training?

•          User ERP training might get pushed aside if firms do not ensure that users take it seriously.  As a result, firms have introduced different penalties and incentives.

–      For example, during Microsoft’s SAP implementation, training was deemed mandatory for certain critical users.  Users that did not attend training were threatened with having their computer accounts turned off.  As noted by a senior accounting manager (Bashein et al. 1997, p. 71), “We only had to turn of 20 or so accounts.”

How Much Should Training Cost?

•          How close was the cost of user training and other ERP deployment expenses to your original estimate?

•          More than 50% above expectations         8%

•          10% to 50% above expectations 26%

•          Within 10% of expectations       58%

•          More than 10% below expectations         6%

•          Don’t Know                       2%

•            Based on 50 large United States Companies surveyed in August 1998.

•            Source Forrester Research. Inc., Cambridge Massachusetts.

What is in the Training Materials: IT or Business?

•          Training users on how to use an ERP system is a mix of technology, processes and domain area content in order to provide a context for the system.

–      “ERP Hokey Pokey,” where users are advised, “you put your right hand on the …,

–      As part of the Microsoft SAP implementation, a senior accounting manager noted (Bashein et al. 1997, p. 71), “I’ve taught a six hour course on entering journal entries into SAP 20 times now.  It was as much a general ledger course as a system tool course.”

How Should You Structure Training?

•          One approach that consistently is well accepted is when a member or a group of members of the client organization are chosen as “super users,” who then can be responsible for training others.

–      This approach has been found to facilitate buy-in from the users, because the people doing the training are people that the users know.

–      Because there are super users, the other users see that learning about the system can be important.

–      Developing super users develops an important understanding at the user level.

Can You Develop Faster Training?

•          Because ERP engagements often are behind schedule, firms try to speed their training.

–      The ability of firms to speed up training depends on the firm’s needs, personnel and previous training.  Some personnel are likely to be quicker learners or able to spend more time than other personnel.  Further, in some cases if system use is similar to other systems that have been used then training is likely to be able to go faster.  However, trying to speed training is potentially dangerous, with a high cost of failure.

Chapter 14

ERP: The Backbone of Electronic Commerce

Purpose of this Talk

•         The purpose of this talk is to discuss how “… ERP is a building block of E-business” (Director of E Business Applications-3Com)

•         Outline

–     Building Blocks of E-commerce

–     ERP and Customer Ordering

–     ERP and Vendor Managed Inventories

–     Integrating with Resellers

Building Blocks of E-Commerce

•         E-commerce functions best if there is

–     Real Time Information

–     Ability to Communicate System to System

–     System Use is Widely Available

•         Can ERP meet those demands?

Real Time Information

•         ERP provides a clearing house of real time up-to-date information necessary for          e-commerce

–     Inventory Information (so they know what is available to sell)

–     Pricing Information

–     Configuration Information (necessary for requirements planning)

Communication Between Systems

•         Historically, EDI (electronic data interchange) has been the source of communication of information

•         Increasingly, WFT (web forms technology) is the source of communication of information

EDI

•          EDI uses data in standard chunks, sequence and format (e.g., invoices)

–      EDI is typically done using a VAN (value added network)

•          EDI is so important that in one survey it was found to be the added on to ERP systems more than any other additional solution.

•          Large-scale business-to-business customers will integrate their purchasing and ERP systems with our systems, so it will be completely computer-to-computer.  (Dell Computer)

Problems with EDI

•          “Since EDI is really a serial process and basically dictates certain times that you do things, we will eventually have to migrate to an Internet/web-based type of transaction with our suppliers and our customers.” (Compaq)

•          “Midsize and small businesses won’t have elaborate hookups …, so they’ll use Premier Pages (WFT) as one of their predominant methods.” (Dell)

•          Traditional EDI is too costly. Increasingly firms are using EDI over the Internet.

WFT

•         WFT is typically used in an Internet/ Intranet/Extranet environment

•         WFT may not be directly interfaced with other applications and databases

•         WFT use has exploded

Problems with WFT

•          WFT is primarily useful in those settings were the originator has only a few orders, but the receiving firm has many orders.

•          If the originator firm has many transactions then the WFT ordering process may be too costly and time consuming.

–      Not only must the order be made using WFT to the vendor by the customer, but then the originator must update their own system.

–      Thus, using WFT can cause double the data entry time, and require a larger number of people.

Widely Available and Easy to Access

•         Ideally, users can access the ERP system over the Internet in order to place orders.

–     Fujitsu PC Corporation uses its ERP and other configuration software to allow the user (either a Fujitsu sales representative, a reseller or end user) to order over the web.

•         Cambridge Partners recently commented that “at the moment you need to be in the office to use ERP.”

Emerging Environment

•          One approach has been to provide a different kind of access to client server in an environment where the user only needs a browser and Internet access.

•          The user has Internet access to a time shared client, that interacts directly with a server in an appropriate standard environment.

–      Using this approach, eliminates much of the standardization that can be required at the user level in client server computing.  This approach also extends classic client server to a timesharing model that is analogous to mainframe computing.

ERP and Customer Ordering

•         Facilitating commerce is one of the most important tasks in commerce

•         Unfortunately, it often is filled with errors.

–     For example, Cisco found that 25%  to 33% of the orders made by faxes had errors in them.

•         How could e-commerce solve the problem?

•         What was the problem?

What is the Impact of Errors?

•          Errors ultimately can delay the shipment or cause an error in the pricing.

•          As customers found out about errors in the orders, they found it necessary to contact Cisco about their orders to make sure that orders got in the system correctly

–      These requests required increases in Cisco’s personnel in order to respond to customer inquiries, raising costs and slowing down the process of getting goods to the customer.

One of Cisco’s first E-Commerce Applications

•          Using the web, customers were able to gather information from Cisco’s ERP system that would allow them to track and price their orders to see if they were correct and to see what the status was

–      Information was available seven days a week and twenty-four hours per day.

–      This reduced Cisco’s need to have personnel available to help track the orders and answer customer questions.  Customer support had been shifted to the customer.

What was the next step?

Should it have been first?

•         Perhaps a more important question was “How can you eliminate errors to begin with?”  In Cisco’s second year, their goal was to eliminate the errors and allow the customer to make anytime anywhere ordering over the Internet

•         Accessing information from the ERP customers were permitted to originate, configure, price and place the order.

How did they get customers to use it?

•         Cisco guaranteed that pricing and configuration would be accurate, if the customer used the web application.  Within only four months in 1996, 10% of the orders were done over the Internet.  By 1999, 85% of the orders came in over the Internet

How did they do it?

•         The system’s accuracy derives from the “configuration engine” (CE).  The CE examines orders to find common errors.  If errors are found then the engine won’t let the customer make the order.  The CE examines all available account information and purchase information, in order to find, e.g., incorrect part numbers.

•         What else can be done to facilitate orders?

Problem

•         Purchasing is done using Cisco’s system and not the customer’s system so the customer needs to put the same information in their own ERP system.

Solution: Eliminate Need for Duplicate Entry

•          Cisco began working with their biggest customers to integrate order information into the customer’s purchasing system, e.g., the customer’s ERP system.

•          Once a day, new configuration, order and pricing information is made available to those special customers.

•          Now those customers can place orders from the familiar systems that they use every day.

ERP and Vendor Managed Inventories (VMI)

•         Under Cisco’s model, the customer does the ordering.

•         However, in many settings, the order process has been shifted from the customer to the vendor.

–     For example, in the case of Procter & Gamble (P&G), P&G ultimately monitored demand and took responsibility for keeping its products on the shelves

How is VMI Accomplished?

•          VMI is accomplished by providing vendors real time access to necessary information.

–      Access must be electronic and the information must be up-to-date or else the quality of the inventory decisions can be limited, a particularly important limitation when the vendor is managing the inventory.

•          In an ERP-based world there are two solutions designed to facilitate VMI:

–      Integrating through access to ordering data

–      Direct ERP to ERP connection.

Provide Vendor with Direct Access to Data Warehouse

•         “We’ve also custom-developed some tools that sit on top of the SAP … system to give us a data warehouse capability.  … We developed an EDI capability that feeds into our data warehouse.  Every week our suppliers use EDI to report on their delivery capability and status” (Compaq)

ERP to ERP Connections

•         Colgate’s plan is to use its network to get a peek at customer’s stockpiles, while allowing its supplier to look at Colgate’s inventory as well.  The company is even supplying its most critical suppliers with computers loaded with R/3 system and plugged directly into the Colgate system.

BTF or BTI vs. BTO

•         BTF–Build to Forecast; BTI–Build to Inventory

•         BTO — Build to Order

–     Wait till there is an order before the goods are built, e.g., computers.

–     BTO replaces inventory with information systems technology

BTO and ERP

•          A critical part of BTO is the configuration engine, that provides the detailed inventory items in the product that is being built.  For example, if a computer is being built the configuration engine would detail the processes, hard drive, etc.

•          “The new configuration model links to Compaq’s SAP model with information on capacity to build and components on hand.” On-line real time capability of ERP is necessary to provide the information needed for BTO.

ERP to ERP BTO

•          Now picture an integrated world, where essentially the … customer’s ERP system automatically creates an order.  It is by definition correct.  The order can’t be technically incorrect because the systems are talking to each other — there’s no human element.  The order goes straight down to the production line and, potentially 20 seconds later, the machine starts getting built, so you’ve eliminated a terrific amount of cycle time.

ERP to ERP BTO

•         On the back end of that, the moment the machine is finished being built, it gets shipped to the customer.  The invoices get electronically transmitted right back into the customer’s system, so the credit collection period starts immediately.  The only limit is how long it takes to physically build the machine. (Dell)

Integrating with Outsourcers or Resellers

•         Rather than forwarding resellers’ orders directly to the plants, orders can be routed to a distributor’s ERP system.  That way a distributor can add features, such as offering the reseller a discount if it purchases a certain number of products. (Cisco)

E-Commerce

•         Effective e-commerce happens because of information availability

•         ERP provides a wide range of information availability in real time

•         ERP is the backbone of E-commerce

Chapter 15

ERP Risk

Types of Risk

•         Risk occurs throughout the ERP life cycle

–     Types of risk and extent of their impact vary as we move through the ERP life cycle

•         Three basic types of risk

–     Technical

–     Business

–     Organizational

Risk Definitions

–     Technical risk – risks arising due to information processing technology, sensor technology, and telecommunication technology

–     Business risk – risks deriving from models, artifacts and processes adopted as part of ERP

•      Do they match? Are they consistent?  Do partners processes match up?

–     Organizational risk – risks deriving from the environment in which the system is placed – including personnel and organization structure

What is the perceived risk of ERP projects? (%’s)

•          Risk       Technical     Business     Organizational

•          Very Low      10.5          4.5          1.5

•          Low         22.5        23.0          8.5

•          Moderate      39.5        32.5   18.5

•          High        15.0        26.0        37.5

•          Very High     11.5        14.5   35.0

Summary of Survey Findings

•         Organization risk is the “biggest” risk — the most likely to be seen as “high” or “very high”

•         Business risk is the next biggest risk

•         Technical risk is the smallest of the bunch, with 72.5% rated very low to moderate.

–     Technical risk is also the easiest to fix, e.g., just choose more power.

Technical Risks

•         As the firm adopts new technologies, there are a number of risks that are common to each phase of the life cycle

–     Operating Systems

–     Client Server Computing

–     Network Capabilities

–     Database

–     Links to other systems

Operating Systems

•         Operating systems include Unix, Linux, Windows NT, Windows 2000

•         Different systems require different knowledge

–     Need to employ people who understand that operating system

•         Microsoft’s SAP implementation was the first to use NT as an operating system

Client Server

•          Dominant form of computing used in ERP

•          However, firm’s expertise may be with mainframe computing

–      As a result, there may be a limited set of personnel for the new computing environment

•          Mainframes are typically bullet-proof, whereas client servers are frequently at the opposite end of the spectrum in terms of controls.

Client/Server Configuration

Network Capabilities

•         Issues include security and capacity of the network to facilitate use of the ERP system

Technical Risks and

ERP Life Cycle

•          Deciding to go ERP

–      Firms that have kept up with technology are likely to better understand the risks associated with ERP systems.

–      Try to see what has worked in the past

Technical Risks and

ERP Life Cycle

•          Choosing an ERP system

–      Virtually all software choice can be manipulated, since it is a political process

–      Requirements change as new technology becomes available.

Technical Risks

and ERP Life Cycle

•         Designing

–     One company designed an ERP contract based on computing capacity, so the vendor had to fix any problems with insufficient capacity

Technical Risks

and ERP Life Cycle

•         Implementing and Going-Live

–     Upon implementation and going-live, capacity … six transactions a minute … 360 per hour … or 3600 for a ten hour day … was not enough

–     Needed more network capacity

Technical Risks

and ERP Life Cycle

•         Training

–     Risk that mainframe IS personnel might have to be re-tooled to client-server technology

–     ERP system may require different technical people with different skills

Business Risks

•         Deciding whether or not to do ERP

–     Must have the resources to do the project

•      Firms get going on ERP and then find that they don’t have the resources.

•      This typically means that either the organization fails or the project fails.

–     Must meet needs of the business

•      What is needed by the firm’s partners?

Business Risks

•         Choosing an ERP System

–     Determine specific requirements, e.g., transaction handling capabilities

•      Fox Meyer – system could do 10,000 invoice lines, but they needed 420,000

–     The business risk is that the ERP Vendor can not meet the company’s needs

Business Risks

•          ERP Design

–      Design is a political process.  As a result, there is a risk that the design is sub-optimal.

–      There is also the risk that processes designed by one group in the organization will not interface well with processes designed by other groups.

–      There is the risk of project stopping

•       This project would have changed how people work and reduced staffing by half.  It was the easiest thing to cut because people did not have the stomach for it

Business Risks

•         Implementing

–     The project will take longer than expected

–     The project will cost more than expected

Business Risks

•         Going Live

–     If the ERP is not working properly, there could be problems with customers and suppliers.

–     Hershey Foods Inc. lost most of their Halloween, Thanksgiving and Christmas sales due to a poorly functioning ERP system.

Business Risks

•         Training

–     Training should provide users with process and system information

–     The main business risk is that timing is too short and too late.

Organizational Risks

•         Deciding whether or not to do ERP

–     Reportedly, one of the biggest risks is that top management is not involved.

–     Another risk is that the domain areas are not involved and committed (Microsoft)

Organizational Risks

•         Choosing an ERP System

–     Choosing the right consultant is the biggest challenge (Risk)

Organizational Risks

•         ERP Design and Implementation

–     Models of organizations are built into the software, as a result, there are risks that the models do not match (e.g., Microsoft)

Organizational Risks

•         Going Live

–     Cultural issues that relate to “big R” reengineering create organizational risk.

•      One firm went from compensation based on number of units sold to salary to accommodate the ERP system

Organizational Risks

•         Training

–     Employees not accustomed to data input will take on the task.

–     If users don’t know how to use the system, it will fail.

–     There may be inadequately trained personnel after implementation due to poor training or attrition.