Transcript The Use of IT in Schools in Egypt

Enterprise Resource
Planning (ERP)
Sherif Kamel
The American University in Cairo
Copyright © 2004 Sherif Kamel
Outline
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Define enterprise resource planning
Evolution of ERP
Usefulness of ERP
Advantages of ERP
ERP feasibility
Copyright © 2004 Sherif Kamel
Definition
Enterprise resource planning (ERP)
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System purpose is to collect and disseminate data to all
processes of the organization
Enables management of all the firm’s resources on an
organization wide basis
Known as back office systems, traditionally focused on
internal entities
Copyright © 2004 Sherif Kamel
Copyright © 2001 McLeod and Schell
Copyright © 2001 Prentice-Hall Inc
ERP combines all business area
information systems
Information Systems
Manufacturing
Systems
Financial Information
Information Systems
Marketing Information
Systems
Planning
and control
Information Resources
Executive Information System
Transaction
recording
Aggregation
of data
Data details
Enterprise Resource Planning
Copyright © 2004 Sherif Kamel
Copyright © 2001 McLeod and Schell
Copyright © 2001 Prentice-Hall Inc
What can ERP do?
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Forget about planning it does not do planning
Forget about resource – it does not create any
Focus is on the enterprise
ERPs attempt to integrate all departments and functions
across a firm to create a single software program that
runs off one database
o
Each of those departments (finance or human resources), has
its own computer system, each optimized for the particular
department. Typically, when a customer places an order, the
order begins a mostly paper-based journey (delays and lost
orders)
Copyright © 2004 Sherif Kamel
Copyright © 2001 Koch
What can ERP do?
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ERP automates the tasks necessary to perform a business
process—such as order fulfillment, which involves taking an order
from a customer, shipping it and billing for it
With ERP, everyone in the organization can view the same
information and has access to the single database that holds the
order. When one department finishes with the order, it is
automatically routed via the ERP system to the next department
ERP requires changing the way companies do business
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Software applications
Changing processes
Teaching users
Data warehouse integration
Copyright © 2004 Sherif Kamel
Facts of the past
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In 1943, Thomas Watson (founder of IBM) thought that
the worldwide market for computers would be about five
In 1977, Ken Olson (founder of DEC) believed that there
was no reason for anyone to want a computer in their
home
Copyright © 2004 Sherif Kamel
Evolution of ERP
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First information systems in 1960’s were transaction processing
systems (TPS)
o Recording and accounting of the paperwork in the organization
Management information systems (MIS)
o Control the operation and plan for the future
o Accounting data to generate the required information
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Management reporting
Mathematical models
Manufacturing requirements planning (MRP)
o Developed to deal with complex issues of inventory control
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Scheduling
Locating materials in a warehouse (easy in small operations)
Copyright © 2004 Sherif Kamel
Copyright © 2001 McLeod and Schell
Copyright © 2001 Prentice-Hall Inc
Evolution of ERP
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MRP II
o Information systems that encompass the flow of
material from vendors, through manufacturing, and to
the firm’s customers
o It was tied to business functions, not necessarily more
sophisticated computer applications
o Need to tie all processes and integrate them into one
system
Then came ERP (the next logical step where all
information processes within the boundaries of the firm
are consolidated)
Copyright © 2004 Sherif Kamel
Copyright © 2001 McLeod and Schell
Copyright © 2001 Prentice-Hall Inc
Evolution of ERP
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Enterprise resource planning
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Requiring a number of important elements
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Large computer hardware resources
Sophisticated software
Database management systems
Well trained users
Continuous management support
Copyright © 2004 Sherif Kamel
Copyright © 2001 McLeod and Schell
Copyright © 2001 Prentice-Hall Inc
ERP growth
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An expected increase in information technology
spending over the next five years (2004-2005) should
help the enterprise resource planning applications
market to grow
The ERP applications industry will generate revenues of
US$26.7 billion in 2004 which is about $1.7 billion more
than 2003, this figure should reach $36 billion by the end
of 2008
Copyright © 2004 Sherif Kamel
Copyright © 2004 Lopez
ERP drivers
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Customer satisfaction
Business development
Increasing competition
More efficient processes
Other software applications do not meet business needs
Complete information infrastructure integration
Better project management support
Copyright © 2004 Sherif Kamel
Issues tackled by ERP
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Resources shortages
Productivity enhancement
Customer service
Inventory problems
Quality and efficiency problems
Copyright © 2004 Sherif Kamel
ERP core systems
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Sales and marketing
Materials requirement planning
Capacity requirement planning
Purchasing
Logistics
Accounts payable/receivable
Copyright © 2004 Sherif Kamel
ERP integration
Headquarters
Information Systems
Project management
Inventory
Manufacturing
Location purchasing
Invoice verification
Inventory management
Internal sales, shipping
and billing
Profit/loss
Capacity utilization
Copyright © 2004 Sherif Kamel
Purchasing
Sales
Budget
Cash collection
Marketing and Sales
Sales, shipping and
billing
Purchasing of trading
goods
Inventory management
Customer service
ERP players
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Only limited number of vendors
Largest vendor is SAP (www.sap.com)
Training and consulting is a booming market
Copyright © 2004 Sherif Kamel
ERP feasibility
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ERP is a large investment and must be treated as such
Investment entails more than cash outlays
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Commitment to focus on interacting business processes
Benefits are not always economic (intangibles)
Feasibility includes
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Economic
Technical
Organizational
Copyright © 2004 Sherif Kamel
Economic feasibility
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Concerned with justifying an expenditure by considering
both costs and benefits in monetary terms
Investment costs for ERP
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Very high: 10 million US dollars for a moderate sized
application
High likelihood of negative ROI
Tangible and intangible benefits must be considered
Opportunity costs of NOT implementing ERP
Copyright © 2004 Sherif Kamel
Technical feasibility
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ERP are technically complex systems reflecting
organizational database management systems
ERP could be centralized or distributed
Usually requires latest technology particularly in larger
organizations
Staff preparations and capacity building is a must
Copyright © 2004 Sherif Kamel
Organizational feasibility
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Persons in the organization must be willing and able to
achieve the change from current IS to ERP
Is business process standardization desirable?
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Loss of personalization of customer data
Cultural changes
Management support is essential
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Person or group who serves as driving force
Lead the organization to a fundamental revamping of core
business processes
Copyright © 2004 Sherif Kamel
ERP advantages
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ERP is a commercial software package that integrates the
information flow within a firm including…
o Financial, accounting, human resources, supply chain and
customer information
Online/real-time information throughout all functional areas
Data standardization and accuracy across the enterprise (ease of
use and multi-purpose)
Increased efficiency enforced by enterprise-wide information sharing
Analysis and reporting can be used for long term planning
Allows customization and tools for ad-hoc inquiries
Provides a competitive advantage for the business
Enables business re-engineering
Suppliers and customers could be digitally connected
Knowledge transfer between industries contributes to innovation
Copyright © 2004 Sherif Kamel
Minimizing ERP failures
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Understand the organization’s span of complexity
Recognize processes where value cannot be maintained
if standardization is imposed
Achieve a consensus in the organization before deciding
to implement an enterprise information system
ERP failure is frequently caused by lack of support by
management especially in not taking the time to
structure the organization to take advantage from it
Copyright © 2004 Sherif Kamel
Important ERP Qs
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What business problems need to be solved?
Do you know and understand the priorities?
Do you comprehend the current as-is condition versus
the could-be/should be processes in place?
What tasks will be accomplished and when?
What are the missing links in the organizational
processes?
What are the real costs, benefits and timetable?
Do you have an executive-level champion to provide
necessary management support?
Who will implement ERP once in place?
Copyright © 2004 Sherif Kamel
Case of Nestle
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In 2000, Nestlé SA signed a 280 million US dollars contract with
SAP to install an ERP system for its global enterprise
The Switzerland-based consumer goods giant intends to use the
SAP system to help centralize a conglomerate that owns 200
operating companies and subsidiaries in 80 countries
Speculation focused on how the process will affect the corporate
culture, which is decentralized, and tries to centralize it which was
risky (how to manage change?)
Nestlé learned the hard way that an enterprise wide resource
planning involves much more than simply installing software, it is
more changing the way people work (planning and implementation)
Copyright © 2004 Sherif Kamel
Case of Nestle
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Initially, Nestlé was a collection of independently operating brands,
however in 1991, the brands were unified and reorganized into
Nestlé
SAP Proposal - One Nestlé, Under SAP (1997)
One Nestlé was to reflect the goal of transforming the separate
brands into one highly integrated company with a set of best
practices that would become common work procedures for every
Nestlé division (all divisions would give up their old approaches and
accept the new One Nestlé way)
Data was an important factor to be complied from each division in
order to implement a common structure across the company. SAP
system would be customized around uniform business processes
Copyright © 2004 Sherif Kamel
Case of Nestle
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Initial SAP would include 5 modules: purchasing, financial, sales
and distribution, accounts payable and accounts receivable and the
supply chain. Each would be deployed across every Nestlé division
It is important to note that the process installation was faced with
resistance at all levels and chaos was diffused across the company.
The problem was the lack of involvement of direct supervisory levels
Workers did not understand the new system, could not use it and did
not even understand the new processes. The case also applied to
divisional executive. No one was interested anymore to know how
the new processes will function (turnover among employees
reached 77%)
Upon ERP implementation technical problems start to emerge
(integration not complete among divisions)
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Example: A salesperson giving a valuable customer a
discount rate and entering into the new system will not be
identified by the accounts receivable department.
Copyright © 2004 Sherif Kamel
Case of Nestle
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Change of project management in 2000
Working on integration points and improving system based on initial
feedback and internal testing (employees feedback)
Decision made was to start all over and re-visit all new processes
starting with the business requirements rather than trying to fit the
project into the desired shape; this time supervisory levels and
management involvement was key
Employees involvement and feedback was also a determining factor
in processes development
To date, SAP system has allowed Nestlé to reduce inventory
and save on supply chain cost; time and money saved was an
advantage
Copyright © 2004 Sherif Kamel
Case of Nestle
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Nestlé has already achieved significant ROI with the largest chunk
of savings from better demand forecasting. "The old process
involved a sales guy giving a number to the demand planner who
turns the number over to factory, and the factory not convinced with
the number would change it….
With SAP in place, common databases and business processes
lead to more trustworthy demand forecasts for the various Nestlé
products. Furthermore, because Nestlé is using the same data, it
can forecast down to the distribution center level allowing the
company to reduce inventory and the redistribution expenses that
occur when too much of a product is sent to one place and not
enough to another. Savings are estimated to be in the order of
325 million US Dollars per year through SAP
Lesson learnt: “there is a big difference between installing software
and implementing a solution”
Copyright © 2004 Sherif Kamel
Success factors for ERP
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Only 20% of current companies have these factors in
place
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Down with decentralization
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Establish and communicate a vision among business units
ERP only improves a business competitive position if it allows
the business to use standardized processes to deal with
customers, suppliers and materials
Companies that are highly decentralized and base businessunit performance on profit-and-loss measurements are only
50% likely to get a better-than-expected return on their ERP
software investments than their more centralized counterparts
Copyright © 2004 Sherif Kamel
Copyright © 2004 Hill
Success factors for ERP
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Send in specialists
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Enterprises must establish a team whose job is to document,
study and improve business processes (40% success factor)
Management support is key (60% believe that a chief process
improvement officer is a must)
Monitor the progress
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Companies must give the task of evaluating and measuring
the benefits of technology expenditures to a financial analyst
Establish the ERP business case with concerned managers
and setting the terms for proper implementation and
assessment
Copyright © 2004 Sherif Kamel
Copyright © 2004 Hill
Conclusion
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Integrates all organizational units
ERP enables the management of an organization’s
resources to be used more effectively and more
efficiently
ERP enables both internal and external processes in
today’s internetworked and extended enterprise
Copyright © 2004 Sherif Kamel