Transcript Lecture #2 ERP - George Mason University

George Mason University
The School of Public Policy
Flattening the Organization
and Integrating the Supply
Chain
Lecture 4
How Freidman’s “Flatteners” work
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George Mason University
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“New Model – 2015”
Customer Relationship
Management (CRM)
EDI
Translator
Flat
File
Message
Handling
Call
Center
Integrated Business
Applications
EDI
Processor
Catalog
Management
Systems
Exchange
Application
Server
Environment
A
P
I
Business Intelligence
Web
Server
Transaction
Monitor
Supplier
Relationship
Management
(SRM)
“BIG DATA”
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Why Process Management?
• Organizations in general are not
engineered for business process
management
• Organizational Structures are:
– Hierarchical: (a.ka. “Stovepipes”,
Functionally structured, etc.)
– Islands of Automation: Information systems
were designed to support hierarchical
structures
– Culturally Diverse: Over time the
differences cause isolation and mistrust
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Why Process Management?
• Hierarchical Management:
– Creates artificial barriers between
organizational units which impedes
• Information flow,
• Cooperation, and most of all
• Customer satisfaction
– Creates a larger bureaucracy to support the
isolated management model
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The Traditional Vertically Integrated
Organization w/ Check Stations
Sales Dept.
Production Dept.
Distribution Dept.
Check
Station
Check
Station
Sales
Prod.
Dist.
System
System
System
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Important Consequences
• During the latter half of the 1990’s there
were some very important negative
consequences associated with the vertical
hierarchical management models
– What single group within the private sector
labor force suffered the most layoffs during
the mid to late 1990’s?
– Why the layoffs?
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Important Consequences
• Private sector organizations were
streamlining operations by:
– flattening organizational structures,
– managing across organizational boundaries
(cross-functional process management),
– eliminating redundant “check stations”,
– and outsourcing non-core activities.
• What does that mean?
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The Organizational Plan & CA
• For most of the 20th century a company’s
competitive advantage (CA) was heavily
dependent on a combination of one or
more measurable factors such as:
–
–
–
–
product demand,
R&D capabilities,
quality and experience of employees, and/or
managerial capabilities.
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The Organizational Plan & CA
• In the new century, business and markets exist
on a global scale, and competition is steadily
increasing from abroad.
• Global competition has forced many
organizations to look for ever smaller and more
sophisticated areas of CA.
• In response to these global pressures many
companies have redefined CA in terms of their
organizational learning capability.
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The Organizational Plan & CA
• 21st Century companies must measure
CA as a function of how well their
organizational cultures initiate, and/or
adapt to change (e.g., change in market
conditions, competition, new product
development, etc.).
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Horizontally Integrated Processes
Domain “B”
Production
Domain “A”
Sales
Input
Customer
Order
Process # 1
Functions
A
Output
A
B
C
E
A
B
C
D
Customer
Order
Process # 2
Domain “C”
Shipping
B
C
D
E
D
E
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Horizontal Processes
• Most all management “experts” agree
that managing processes horizontally is
much more efficient than the old vertical
model
• However, the actual implementation of
horizontal process management has been
VERY difficult
• Why?
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Horizontal Processes
• Organizational culture is entrenched
• Technologically difficult to support
• Managerial tradition (remnant “guild”
influence) requires “control” through:
–
–
–
–
Isolated/Filtered Information Flow,
Islands of Automation,
Intolerance for Power Sharing
Isolationist (in-sourced) supply chain view
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21st Century “Killer” Organizational
Management Application
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Traditional Process-Oriented
Management
• In many cases companies spent millions
of dollars on the process re-engineering
effort, then gave up on the project
because the enabling IT costs were
significantly higher than the reengineering costs
– Realigning IT with new organizational
process structures is the most costly (not the
hardest) aspect of process-oriented change
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Traditional Process-Oriented
Management
• After many failures, industry as a whole,
stopped proprietary development of “systems”
and purchased “management solutions” from
vendors
• These solutions are called Enterprise Resource
Planning (ERP)
• Although sold/marketed as an IT solution, in
reality ERP is a high-level management
concept
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Process-Oriented Management
through ERP
• Enterprise Resource Planning systems are the
antithesis of process re-engineering
• Organizations purchase cross-functional
(horizontal) processes and the integrated enabling
IT in a “pre-packaged” format
• The organization will have to adapt to the
processes that are implied in the ERP software
• ERP is customized for industry verticals
(automotive, pharmaceuticals, aerospace, petrochemical, and more recently ---public sector)
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Pre-packaged ERP Solutions
• Most Fortune 1000 CEO’s have abandoned
traditional re-engineering and IT
development in favor of ERP
• ERP forces IT enabled cross functional
process integration on the organization
• This reduces the risk of political tampering
and stalling that is associated with
traditional re-engineering efforts
• No proprietary legacy systems need be
maintained
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Achieving Organizational
Alignment
• Ether…
Reengineer the process, and then develop an integrated
information system that aligns with the business process.
• Or…
Adopt an off-the-shelf ERP software solution and
reengineer internal business processes to align with the
solution.
– SAP, PeopleSoft, Oracle, etc.
• Most larger US/International companies have selected
the second option.
• Why?
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Achieving Alignment
• The Drivers:
– Globalization
•
•
•
•
Out-sourcing
Off-shoring
Mergers & Acquisitions
Strategic Partnering
• The Enablers:
– Telecom Infrastructure
• High/Cheap Bandwidth
• Reliable Platforms and Networks
• Large Stores of Integrated Data
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Extended Enterprise Integration
Enables Friedman’s “Flat” World
Purchase
Sell
Create Value
Suppliers
Back
Office
(ERP)
Supply Chain
Front
Office
Customers
Demand Chain
The Extended Enterprise
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How to Implement
ERP
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In-house Development
• Most large U.S. and International
companies have discounted this option.
• New proprietary developments are risky
and costly.
• There are many new options for “Mixing
and Matching” commercial off-the-shelf
components
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ERP Solutions
• These are pre-engineered and integrated
solutions that connect the complete scope of the
business applications.
• The solutions are usually modular; e.g.,
– Financial and Accounting
– Human Resources,
– Sales and Distribution,
– Manufacturing and Logistics.
• Full implementations are called Enterprise
Resource Planning (ERP) Systems, but are in
reality process-based management solutions,
packaged as a complete system.
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The Antithesis of Reengineering
• Reengineering calls for process redesign
prior to searching for technology
solutions.
• A ERP software solution is implemented
in an opposite fashion:
– A set of “reference” process, data, and
function models are purchased.
– Then, the organizational processes are
aligned with the standard software solution.
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Process Oriented Implementation
(Cont.)
• The ERP software modules are
designed so that they explicitly
execute a best practice business
process.
• This process is called the Reference
Business Process or Reference
Model.
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Reference Models
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Reference Models
• A reference model is a set of preengineered and integrated organizational
views.
– For example one type of reference model might be a
business process (one view of an organization) and a
depiction of the data flows (another view of an
organization) that are aligned with the business
process.
– ERP Software either implicitly or explicitly executes
pre-defined business processes; hence, by definition
it is based on the reference model concept.
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Reference Models
– The main benefit of a reference model is that certain
tedious views (e.g, the data view as realized in a data
model) do not have to be individually developed for
every implementation.
– The idea is to design and develop once, and then
replicate many times.
– The reference model may have to be tailored for
individual organizations, but this effort is
significantly less than approaching each
implementation as a new software project.
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Reference Models
Progress number
concept
PN concept
to be introduced/
modified
IDS Reference model
Car Industry Subcontractors
Implementation/
Mod. of PN concept
Customer order
Customer order
processing
processing
new parts
serial parts
PN concept
Delivery call
of part
Delivery call
Individual order
Exact call-off
is introduced/
received
received
received
modified
XOR
XOR
Sales
Individual
prognosis
customer order
performed
released
Delivery call
Exact call-off
Release
Determining
is OK
is OK
customer order
target PN
XOR
Target PN
are determined
Primary req.
Registering
planning, Materials
Special demands
occurred
Part passes
PPC basic data
planning
Production
Demand for
program planning
sample parts
is created
occurred
Part passes
Part passes
Part passes
exit check point
exit check point
exit check point of
exit check point of
of Acquisition CB
of Production CB
prel. assembly CB
final assembly CB
Acquisition
Production
Preliminary assembly
Final assembly
PN processing
PN processing
PN processing
PN processing
Requirements
explosion
XOR
XOR
No
Order
Order
No
deficient cover
request is
request is
acquisition
determined
created
created
required
Acquisition PN
are determined
XOR
No
production
required
XOR
No
Production PN
preliminary assembly
are determined
required
Preliminary assembly PN
are determined
No
final assembly
required
Final assembly PN
are determined
X OR
Monitor
order
Acquisition
handling
Production
Parts are
order
distributed to
is created
warehouse
Production
planning
Production
order data
transmitted
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Industry Specific Reference
Model
• Complete ERP Business Implementation
– Function Model
– Process Model
– Information Flow Model
– Communication Model
– Organization Model
– Distribution Model
– Data Model
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Developing the Integrated IS Reference Model
from the Integrated Enterprise Model
custo
mer
order
eERM Customer
Order
custo
mer
Domain Specific
Customer
added
extensions
order
header
tim
e
order
item
Strategic
Bus ines s
Unit for
Produc t X
Order
Department
Industry Specific
IS Reference
Model
Order
Proc es s ing
Contrac ting
prod
uct
SBU
Manager
Produc tion
Department
Dis tribution
Department
Tec hnic al
Support
Produc tion
Planning
Shipping
Cus tomer
Serv ic e
Des ign
Planning
Pac k ing
Doc umentation
Ac c ounting
Department
Pay ables
Rec eiv ables
Manufac turing
Proc es s
Management
Team
function 1
(i.e. Aerospace)
function 1.1
function 1.2
function 1.3
function 1.1.1
function 1.1.2
Integrated Process Engineering Model (Business Process Analysis/Business Process Engineering)
Basic
Reference
Model
Strategic
Bus ines s
Unit for
Produc t X
Order
Department
custom
er
order
SBU
Manager
Produc tion
Department
Dis tribution
Department
Tec hnic al
Support
Ac c ounting
Department
Order
Proc es s ing
Produc tion
Planning
Shipping
Cus tomer
Serv ic e
Pay ables
Contrac ting
Des ign
Planning
Pac k ing
Doc umentation
function 1
Schedule From ERP
Internet-Based
EDI Transaction
Rec eiv ables
Product
Accounting Notified
Manufacturing
Complete
Manufacture
Production
Plan
Process Order
order
header
Updated ERP
With Production
Plan
eERM Customer Order
custom
er
Updated ERP
For Completed
Resource, Capacity and
Order
Arrives
Provide
Accounting
Product
Support
function 1.1
function 1.2
function 1.3
Accounting Notified
Distribution Complete
Submitted
Engineer
tim
e
Completed
Plan
Notification
Engineering
Completed
Product
Provide
Technical
Support
Distribution
Distribute
Notified
Product
Technical Documentation
Initial ERP
(SGML Tagged)
Existing Product
PDM Vault
Data
function 1.1.1
Manufac turing
Legacy Text
Data
Proc es s
Management
Team
order
item
produ
ct
function 1.1.2
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The Value of Reference Modelbased ERP Systems
• ERP reference models define an explicit and
optimized link between business processes and
the supporting IT infrastructure.
• Management has complete visibility into these
linkages.
• Updates to processes or to IT are managed
through a centralized object repository that
functions as a configuration management
facility for these linkages.
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Why Do Projects Get in
Trouble?
• The ERP software executes the functions in a
business process.
– The business process could be explicit; e.g., as in the
SAP or Oracle business process reference model.
– The business process could be implied; e.g.,
Microsoft or PeopleSoft.
• The implementing organization has a target
business process; i.e., the way that they desire
to execute their business functions.
• The difference is called the “gap.”
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Gap Analysis
Material master is to
be created
Internet-Based
Submitted
Notification
Resource, Capacity and
Plan
Production
Engineer
Product
Existing Product
Schedule From ERP
The Gap
Data
Specify
industry sector
EDI Transaction
Process Order
Material type is
specified
Specify
material
number
Order
Arrives
Initial ERP
Specify material
type
XOR
Updated ERP
With Production
Plan
Completed
Plan
Industry sector is
specified
Engineering
Completed
Material number is assigned
internally
PDM Vault
Material number is
assigned externally
XOR
Manufacture
Product
Create valuation types
Product
Distribute
Accounting Notified
Distribution Complete
Provide
Support
Accounting
Target Business Process
Reference Business Process
Can You Adapt to the Difference?
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Updated ERP
For Completed
Product
Accounting Notified
Manufacturing
Complete
Notified
Distribution
Mat. master purchasing
view is maintained
Provide
split valuation is not
specified
Technical
Mat. master warehouse
view is maintained
XOR
split valuation is
specified
Technical Documentation
Mat. master classification
view is maintained
Support
Maintain material master
warehouse view
(SGML Tagged)
Maintain material master
classification view
Legacy Text
Maintain material
master purchasing
view
Data
Maintain material master
accounting view
George Mason University
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The Gap
• If the target business process aligns with
the business process that is implied by the
software, then implementation is only
difficult.
• If there is a large gap, then extreme
implementation difficulty is encountered.
– Customization is required, or
– Business process change is required
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ERP Summary
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What is the Importance
of ERP Software?
• ERP software is more reliable than
proprietary software.
– Its functionality has been tested extensively
by the developers.
– It has been used in other enterprises, so
problems have been discovered and
corrected.
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What is the Importance
of ERP Software?
• ERP software provides efficient
operations, because it is designed around
industry “best practices.”
• Reports on corporate information are
produced on schedule or by request,
without special computing skills.
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What is the Importance
of ERP Software?
• ERP software provides the means for
enterprise-wide access to real-time
information.
– ERP software provides the ability to manage
product flows and allocations with real-time data.
– Managers and workers can use data to plan and
program projects, monitor the progress of projects,
and manage resource allocations.
– Customers receive better service and information on
their products.
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