Transcript ERP, IS/IT Outsourcing, and Cloud Computing

An Introduction
7/7/2015
Compiled by Lemma Lessa, AAU
1
Enterprise resource planning (ERP) systems
 ERP systems integrate internal and
external management of information
across an entire organization—
embracing finance/accounting,
manufacturing, sales and service,
customer relationship management,
etc.
7/7/2015
Compiled by Lemma Lessa, AAU
2
ERP …
 ERP systems automate these activities
with an integrated software application.
 The purpose of ERP is to facilitate the
flow of information between all
business functions inside the
boundaries of the organization and
manage the connections to outside
stakeholders.
7/7/2015
Compiled by Lemma Lessa, AAU
3
ERP …
 ERP systems can run on a variety of computer
hardware and network configurations, typically
employing a database as a repository for information.
 Implementing an ERP system often constitutes a
company's largest-ever IS investment, and in
many cases the largest-ever corporate project.
7/7/2015
Compiled by Lemma Lessa, AAU
4
ERP …
 An integrated system that operates in real time (or
next to real time), without relying on periodic updates.
 A common database, which supports all applications.
 Organizations implementing ERP expect
transactional, informational and strategic
benefits.
7/7/2015
Compiled by Lemma Lessa, AAU
5
ERP …
 Transactional benefits include reduction in IT
operations costs, inventory-carrying costs, business
process costs and operating labor costs.
 Informational benefits include the extent to which
ERP increases the quality, accessibility and flexibility
of information, and improves managerial decision.
 Strategic benefits include improvements in
competitiveness and customer service.
7/7/2015
Compiled by Lemma Lessa, AAU
6
Issues to consider in selecting and
implementing ERP systems
 Define measurements of success
 Understand existing business process and seek






opportunities for business process success
Don’t be ambiguous in the definition of requirements
Prioritize
Manage budget, scope, and timing
Get employee involvement
Manage the risks
Ensure management buy-in.
7/7/2015
Compiled by Lemma Lessa, AAU
7
Configuration
 Configuring an ERP system is largely a matter of
balancing the way the customer wants the system
to work with the way it was designed to work.
 ERP systems typically build many changeable
parameters that modify system operation. For
example, an organization can select the type of
inventory accounting— FIFO or LIFO—to employ,
whether to recognize revenue by geographical unit,
product line, or distribution channel and whether to
pay for shipping costs when a customer returns a
purchase.
7/7/2015
Compiled by Lemma Lessa, AAU
8
Customization
 ERP systems are theoretically based on industry best
practices, and are intended to be deployed as is.
 ERP vendors do offer customers configuration options
that allow organizations to incorporate their own
business rules but there are often functionality
gaps remaining even after the configuration is
complete.
7/7/2015
Compiled by Lemma Lessa, AAU
9
Configuration Vs. Customization
 Customization is always optional, whereas the
software must always be configured before use.
 The effect of configuration changes on system
behavior and performance is predictable and is the
responsibility of the ERP vendor.
 The effect of customization is less predictable, is the
customer's responsibility and increases testing
activities.
7/7/2015
Compiled by Lemma Lessa, AAU
10
planning
Data migration
 Data migration is the process of moving/copying
and restructuring data from an existing system to
the ERP system.
 Migration is critical to implementation success
and requires significant planning.
 Unfortunately, since migration is one of the final
activities before the production phase, it often
receives insufficient attention.
7/7/2015
Compiled by Lemma Lessa, AAU
11
Advantages of ERP System:
 Complete visibility into all the important processes across




various departments of an organization (especially for
senior management personnel).
Automatic and coherent work-flow from one department
/ function to another to ensure smooth transition/
completion of processes.
A unified and single reporting system to analyze the
statistics/ numbers/ status etc in real-time, across all the
functions / departments.
Since same software is used across all departments – this
can avoid individual departments having to buy and
maintain their own software systems.
Certain ERP vendors can extend their ERP systems to
provide Business Intelligence functionalities as well
7/7/2015
Compiled by Lemma Lessa, AAU
12
Advantages of ERP System…
 Advanced e-commerce integration is possible with ERP
systems that can handle web-based order tracking/
processing.
 There are various modules in an ERP system like Finance/
Accounts, Human Resource Management, Manufacturing,
Marketing / Sales, Supply Chain / Warehouse
Management, CRM, Project Management, etc.
 Since ERP is a modular software system, its possible to
implement either a few modules (or) many modules based
on the requirements of an organization. If more modules
implemented, the integration between various
departments might be better.
 Single Database is implemented on the back-end to store
all the information required by the ERP system and that
enables centralized storage / back-up of all enterprise
data
7/7/2015
Compiled by Lemma Lessa, AAU
13
Advantages of ERP System…
 ERP systems are more secure as centralized security




policies can be applied to them and all the transactions
happening via the ERP systems can be tracked.
ERP systems provide visibility and hence enable better/
faster collaboration across all the departments.
It is possible to integrate other systems (like bar-code
reader, for example) to the ERP system through an API
(Application Programming Interface).
ERP systems make it easier for order tracking, inventory
tracking, revenue tracking, sales forecasting and related
activities.
ERP systems are a advantage for managing globally
dispersed enterprise companies.
7/7/2015
Compiled by Lemma Lessa, AAU
14
Disadvantages of ERP Systems:
 The cost of ERP Software, planning, customization,
configuration, testing, implementation, etc is too high.
 ERP deployments take 1-3 years (even more) to get
completed and fully functional.
 Too little customization may not integrate the ERP
system with the business process & too much
customization may slow down the project and make it
difficult to upgrade.
 The cost savings/ payback may not be realized
immediately after the ERP implementation & it is
quite difficult to measure the same.
7/7/2015
Compiled by Lemma Lessa, AAU
15
Disadvantages of ERP System…
 There may be additional indirect costs like new IT
infrastructure, upgrading the WAN links, etc.
 Migration of existing data to the new ERP systems is
always difficult to achieve as with integrating ERP
systems with other stand alone software systems.
 ERP implementations are difficult to achieve in
decentralized organizations with disparate business
processes and systems.
 Once an ERP system is implemented it becomes a
single vendor lock-in for further upgrades,
customizations etc.
7/7/2015
Compiled by Lemma Lessa, AAU
16
Cloud computing
 Cloud computing is the use of computing
resources (hardware and software) that are
delivered as a service over a network
(typically the Internet).
 The name comes from the use of a cloudshaped symbol as an abstraction for the
complex infrastructure it contains in system
diagrams.
 Cloud computing entrusts remote services
with a user's data, software and
computation.
7/7/2015
Compiled by Lemma Lessa, AAU
17
7/7/2015
Compiled by Lemma Lessa, AAU
18
Cloud computing …
 allows a business the potential to reduce IT
operational costs by outsourcing hardware and
software maintenance and support to the cloud
provider.
 This enables the business to reallocate IT operations
costs away from hardware/software spending and
personnel expenses, towards meeting other IT goals.
 In addition, with applications hosted centrally,
updates can be released without the need for
users to install new software.
 One drawback is that the users' data are stored on
the cloud provider’s server. As a result, there could
be unauthorized access to the data.
7/7/2015
Compiled by Lemma Lessa, AAU
19
Service models
 Cloud computing providers offer their services
according to several fundamental models:
 infrastructure as a service (IaaS),
 platform as a service (PaaS),
 software as a service (SaaS),
 network as a service (NaaS), and
 communication as a service (CaaS).
7/7/2015
Compiled by Lemma Lessa, AAU
20
Infrastructure as a service (IaaS)
 Is the most basic cloud-service model, providers of
IaaS offer computers - physical or (more often)
virtual machines - and other resources.
 To deploy their applications, cloud users install
operating-system images and their application
software on the cloud infrastructure.
 In this model, the cloud user patches and maintains
the operating systems and the application software.
 Cloud providers typically bill IaaS services on a utility
computing basis: cost reflects the amount of resources
allocated and consumed.
7/7/2015
Compiled by Lemma Lessa, AAU
21
Platform as a service (PaaS)
 In the PaaS model, cloud providers deliver a
computing platform typically including
operating system, programming language
execution environment, database, and web
server.
 Application developers can develop and run
their software solutions on a cloud platform
without the cost and complexity of buying
and managing the underlying hardware and
software.
7/7/2015
Compiled by Lemma Lessa, AAU
22
Software as a service (SaaS)
 In the SaaS model, cloud providers install and operate




application software in the cloud and cloud users access
the software from cloud clients.
The cloud users do not manage the cloud infrastructure
and platform on which the application is running.
This eliminates the need to install and run the application
on the cloud user's own computers simplifying
maintenance and support.
What makes a cloud application different from other
applications is its scalability.
The pricing model for SaaS applications is typically a
monthly or yearly flat fee per user, so price is scalable and
adjustable if users are added or removed at any point.
7/7/2015
Compiled by Lemma Lessa, AAU
23
Network as a service (NaaS)
 A category of cloud services where the
capability provided to the cloud service
user is to use network/transport
connectivity services and/or inter-cloud
network connectivity services.
 NaaS involves the optimization of resource
allocations by considering network and
computing resources as a unified whole.
 Traditional NaaS services include flexible
and extended VPN, and bandwidth on
demand.
7/7/2015
Compiled by Lemma Lessa, AAU
24
Cloud Computing vs. Outsourcing
 IT outsourcing service providers have drawn large
profits by managing the highly complex IT assets
of their clients in a more efficient way than their
customers are able to, and offering them IT
services.
 The essence of cloud computing is to move
towards extremely standardized racks of
commodity servers and a software environment
that come together to ensure efficient use of
resources.
7/7/2015
Compiled by Lemma Lessa, AAU
25
Cloud computing …
7/7/2015
Compiled by Lemma Lessa, AAU
26
Scenario
 You are able to implement an ERP solution without
spending money on 5-year upgrade cycles and
decreasing your capability to change your processes,
your culture, and your people. You will no longer
need to think and bear all these. Rather, you can
simply purchase subscriptions to a cloud service, the
price of which is based on what you actually use. In
other words, cloud computing lets you enjoy
technology without the limitations of traditional
IT outsourcing.
7/7/2015
Compiled by Lemma Lessa, AAU
27
Points that differentiate cloud computing from outsourcing:
 Active agents vs. self service: In traditional
outsourcing, service providers are commissioned to
process the data, programming codes, or other jobs
actively for the user according to the latter’s mandate.
 However, cloud computing has a self-service nature,
where users pay for pre-packaged IT resources made
available by the cloud providers, using which they
process data or other jobs on their own in a self-service
fashion.
7/7/2015
Compiled by Lemma Lessa, AAU
28
Differentiate cloud computing from outsourcing …
 Shared resources/infrastructure: Shared
infrastructure/environments are what drive the public
cloud computing providers, and they often use
comparatively low-priced commodity hardware,
instead of using tailor-made ones to fit the needs of
every customer.
 Greater control and customization can be enjoyed on
private clouds, especially if it’s managed by the user
and employs his own infrastructure.
 Though some traditional outsourced processes too
may use standardized infrastructure, it’s unlikely that
they will be shared to such a large extent as
happens in the cloud.
7/7/2015
Compiled by Lemma Lessa, AAU
29
Differentiate cloud computing from outsourcing …
 Degree of control: The user exercises better control
over the processor in traditional outsourcing.
 Since a lot depends on the exact nature and type of
service in the cloud, it’s often seen that users lose
control on the cloud providers and struggle with the
use of resources on the cloud.
7/7/2015
Compiled by Lemma Lessa, AAU
30
Differentiate cloud computing from outsourcing …
 In the cloud, a ‘one size fits all’ approach is common.
However, you should make sure that your chosen
services address your needs and give you the scope to
bring changes as your business grows with time.
 Treating different cloud services differently is also
crucial as treating them all the same way or equating
them with traditional outsourcing may pose risks to
security and privacy.
7/7/2015
Compiled by Lemma Lessa, AAU
31