Hour 2: ERP Modules

Historical development

Historical

• Initial Computer support to business – Easiest to automate – payroll & accounting – Precise rules for every case • Early 1970s – centralized mainframe computer systems – MIS systematic reports of financial performance – Variance analysis between budget and actual

MRP

• Material requirements planning • Inventory reordering tool • Evolved to support planning • MRPII extended to shop floor control

FINANCIAL R/3 INTERNAL

SAP Modules

SD MM PP QM PM HR FI CO AM PS WF IS

Sales & Distribution Materials Management MRP Production Planning MRPII (with others) Quality Management Plant Maintenance Human Resources Financial Accounting Controlling Asset Management Project System Workflow: prompt actions Industry solutions: best practices

Comparative Modules

SAP

SD MM PP QM PM HR FI CO AM PS WF

Oracle

Marketing, Sales Procurement Manufacturing Service Human Resources Financials Asset Management Projects Order Management Contracts

PeopleSoft

Supply chain Supplier relationship Enterprise perform Enterprise service Human capital mgmt Financial mgmt sol.

JDEdwards

Order management Inventory, procurement Manufacturing mgmt Technical foundation Workforce management Financial management Time & Expense mgmt Enterprise asset mgmt Project management Subcontract, real estate

Industry-Specific Focus

• Each vendor has turned to customized ERP products to serve industry-specific needs – Examples given from BAAN, PeopleSoft – Microsoft also has entered the fray

BAAN Industry-Specific Variants

Discrete Manufacturing Process Manufacturing

Aerospace & Defense Automobile Industrial Machinery Electronics Telecommunications Construction Logistics Chemicals Food & Beverage Pharmaceuticals Cable & Wire Pulp & Paper Metals

PeopleSoft Industry Solutions

Communications Financial Services Consumer Products Federal Government Healthcare Higher Education High Technology Industrial Products Public Sector Professional Services Utilities Staffing Wholesale Distribution

Microsoft Great Plains Business Solutions

Accounting & Finance Customer Relationship Management E-Business Human Resources & Payroll Manufacturing Project Accounting Supply Chain Management

Relative ERP Module Use

(Mabert et al. 2000; Olhager & Selldin, 2003)

Module

Financial & Accounting Materials Management Production Planning Order Entry Purchasing Financial Control Distribution/Logistics Asset Management Quality Management Personnel/HR Maintenance R&D Management

Use reported - US 91.5%

89.2% 88.5% 87.7% 86.9% 81.5% 75.4% 57.7%

44.6% 44.6% 40.8% 30.8%

Use reported – Sweden

87.3%

91.8% 90.5% 92.4% 93.0%

82.3% 84.8% 63.3%

47.5%

57.6%

44.3% 34.2%

Relative Module Use

• Mabert et al. (2000) surveyed Midwestern US manufacturers – Some modules had low reported use (below 50% in red) – Financial & Accounting most popular • Universal need • Most structured, thus easiest to implement – Sales & Marketing more problematic

Why Module Use?

• Cost: – Cheaper to implement part of system – Conflicts with concept of integration • Best-of-Breed concept: – Mabert et al. found only 40% installed system as vendor designed • 50% used single ERP package; 4% used best-of-breed – Different vendors do some things better – Conflicts with concept of integration

Middleware

• Third-party software – Integrate software applications from several vendors – Could be used for best-of-breed – Usually used to implement “add-ons” (specialty software such as customer relationship management, supply chain integration, etc.)

Customization

• Davenport (2000) choices: – Rewrite code internally – Use existing system with interfaces • Both add time & cost to implementation • The more customization, the less ability to seamlessly communication across systems

Federalization

• Davenport (2000) – Roll out different ERP versions by region – Each tailored to local needs • Core modules shared • some specialty modules unique – Used by: • Hewlett-Packard • Monsanto • Nestle

EXAMPLES

• Dell Computers – Chose to not adopt • Siemens Power Corporation – Implementation of selected modules

Dell Computers

Evaluation of SAP R/3

Need to continue project evaluation

• Initial project adoption – 1994 Dell began implementation of SAP R/3 enterprise software suite – Spent over 1 year selecting from 3,000 configuration tables • After 2 year effort ($200 million), revised plan – Dell business model shifted from global focus to segmented, regional focus

Rethinking

• In 1996 revised plan • Found SAP R/3 too inflexible for Dell’s new make-to-order operation • Dell chose to develop a more flexible system rather than rely on one integrated, centralized system

Best-of-Breed

• I2 Technologies software – Manage raw materials flow • Oracle software – Order management • Glovia software – Manufacturing control • Inventory control • Warehouse management • Materials management • SAP module – Human resources

Core Competencies

• Glovia system interfaced with – Dell’s own shop floor system – I2 supply chain planning software • This retained a Dell core competency – Would have lost if adopted publicly available system

Points

• Demonstrates the need for speed – Prolonged installation projects become outdated – Need to continue to evaluate project need after adoption • Tendency to stick with old decision • But sunk cost view needed • Demonstrates need to maintain core competitive advantage – Adopting vendor ERP doesn’t

Siemens ERP Implementation

Hirt & Swanson (2001) Nuclear fuel assembly manufacturer Engineering-oriented

Siemens Power Corporation

• 1994 Began major reengineering effort – Reduced employees by 30% • 1996 Adopted SAP R/3 system – Replacement of IS budgeted at $4 million • Some legacy systems retained

• FI • CO • AR • AP • MM • PP • QC

Siemens Modules

Finance Controlling Accounts receivable Accounts payable Materials management Production planning Quality control

Implementation

• To be led by users • Project manager from User community • Consultant hired for IT support – IS group only marginally involved

Project Progress

• Oct 1996 • Sep 1997 Installed • On time, within budget FI module Installed other modules

Permanent Team

• Made project team a permanent group • Project manager had been replaced – 2 nd PM retained • SAP steering committee • SAP project team formed

SAP steering committee

• 7 major user stakeholders – Guided operating policy – major expenditures – major design changes

SAP project team formed

• 15 members from key user groups • part-time – Trainer – User help – Advisors to middle management

Training

• End users became more proficient with time – Average of 3 months to learn what needed • Management training took longer – Management didn’t understand system well – Often made unrealistic requests

Operations

• During first year – Major errors in ERP configuration – Evident that users needed additional training – New opportunities to change system scope suggested • Two years after installation – R/3 system upgrade

Summary

• Core idea of ERP complete integration • In practice, modules used – More flexible, less risk – Can apply best-of-breed concept • Ideal, but costly – Related concepts • Middleware – integrate external software • Customization – tailor ERP to organization • Federalization – different versions of ERP in different organizational subelements