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What is ERP?
• Enterprise resource planning (ERP) system
– Set of core software modules that enables
organizations to share data across the entire
enterprise
– Common database and management reporting tools
– Enables people in various organizational units to
access and update the same information
• Based on permission levels assigned within the
system
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What is ERP? (continued)
• Best practices
– Most efficient and effective way of accomplishing a
task
– Based on procedures that have proven themselves
repeatedly over a long period of time
• Each industry has different business practices
• ERP vendors offer specially tailored software
modules
– Designed to meet the needs of specific industries
– Companies can pick and choose which modules to
install
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ERP and Customer Relationship
Management (CRM)
• Customer relationship management (CRM)
system
– Supports the processes performed by entities
involved in creating or increasing the demand for an
organization’s products and services
– Often part of the offering from an ERP software
provider
• CRM system must effectively capture and present
customer information
– So that employees can successfully use that data
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ERP and Supply Chain Management
(SCM)
• Supply chain
– Flow of materials, information, and dollars as they
move from supplier to manufacturer to wholesaler to
retailer to supplier
• Major processes
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Demand planning
Sourcing
Manufacturing
Logistics
Customer Service
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ERP and Supply Chain Management
(SCM) (continued)
• Supply chain management (SCM)
– Planning, executing, monitoring, and controlling of
this set of processes
• Goal
– Lower costs and inventory levels while still providing
timely delivery of high-quality products
• Major ERP software suppliers
– Include software modules to handle many of these
tasks
– No one supplier has a single, all encompassing
software package that meets all of the SCM needs
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ERP and Supply Chain Management
(SCM) (continued)
• Many companies elect to implement “best of breed”
solutions for specific tasks
• SCM applications
– Frequently draw on the data captured and stored in
an ERP system
– Some sort of interface must be built to allow standalone SCM applications to access data from the
ERP system database
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Benefits of Implementing ERP
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Standardized business processes
Lowering cost of doing business
Improving the overall customer experience
Facilitating consolidation of financial data
Supporting global expansion
Providing a compliant system
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Establish Standardized Business
Processes
• Standardized streamlined business and workflow
processes
– Ensure that workers are performing their work in an
efficient manner
– Provide a consistent interface between the
organization and its customers and suppliers
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Lower Cost of Doing Business
• Reduced inventory costs
– Resulting from better planning, tracking, and
forecasting of customer demand and inventory levels
• Faster collection of receivables
– Based on better visibility into accounts and fewer
billing and delivery errors
• Lower vendor costs
– By taking better advantage of quantity discounts
– Tracking vendor performance to use as leverage in
negotiating prices
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Improve Overall Customer Experience
• Improved inventory management
• Shorten the lead time from receipt of order to
delivery of product
• Improve overall product quality
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Facilitate Consolidation of Financial
Data
• ERP system enables rapid consolidation of
financial data across multiple organizational units
and countries
– Every business unit is using the same system and
same database
– Designed to deal with differences in currencies and
fluctuating currency exchange rates
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Support Global Expansion
• Nearly 80 percent of U.S. companies view
expansion into global markets as a growth
opportunity
• ERP systems
– Support global expansion
– Designed to monitor supply chains thousands of
miles long
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Provide Fully Compliant Systems
• Side benefit of ERP implementations is increased
compliance with many state and federal laws
– Sarbanes-Oxley Act
– Health Insurance Portability and Accountability Act,
or HIPAA
– Public Health Security and Bioterrorism
Preparedness and Response Act (Bioterrorism Act)
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ERP Issues
• Potential issues associated with the
implementation of ERP systems
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Post start-up problems
High costs
Lengthy implementation
Organizational resistance
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Post Start-Up Problems
• Deloitte Consulting survey
– One in four firms confessed to an actual drop in
performance for some period of time after their ERP
system went live
• Early ERP efforts in the 1990s and early 2000s
– Less than glowing successes
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Post Start-Up Problems (continued)
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Post Start-Up Problems (continued)
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High Costs
• Several hundred thousand dollars to hundreds of
millions of dollars
• Cost depends on a number of factors
• Best to set a realistic budget rather than an
optimistic one
• Recent surveys
– 38 percent said organization’s ERP total project
costs were 10 to 30 percent above original budget
– 17 percent say total costs exceeded the original
budget by 30 percent or more
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High Costs (continued)
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High Costs (continued)
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High Costs (continued)
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High Costs (continued)
• Costs commonly overlooked or underestimated in
setting the budget for an ERP project
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Hardware upgrades
Training
Testing
Customization
Data conversion
Consultants
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Lengthy Implementation
• Organizational changes of great magnitude do not
come easily or quickly
• Time frame for full implementation
– One to four years
• Faster ERP implementations are possible
– When the scope of the effort is limited
• Small and medium businesses (SMBs)
– Usually achieve less than the full potential of
business benefits possible from the implementation
of ERP systems
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Difficulty in Measuring a Return on an
ERP Investment
• Simple return on investment
• Decision makers would like to have an accurate
estimate of the return on investment for an ERP
project
– Before beginning
• Difficult to put an exact dollar figure on the benefits
and costs associated with an ERP project
• Difficult to measure the return on investment
– Because the project frequently takes years to
implement
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Organizational Resistance
• Considerable changes to an organization’s
business processes
– Includes modification in the way employees do their
work and interact with others
• Organizational resistance manifests itself in many
ways
• Many ERP projects take much longer than
expected and/or fail to deliver hoped for enterprise
improvements
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ERP System Implementation Process
• Major ERP vendors
– Developed a recommended implementation process
– Process divides the effort into well-defined stages
with associated tasks
• Organizations typically will try to assign employees
who have previous ERP implementation
experience to the project
• Common factors associated with failed ERP
implementation projects
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Best Practices to Ensure Successful
ERP Implementation
• Achieving ERP project success can be a very
difficult challenge
• Set of best practices
– Ensuring senior management commitment and
involvement
– Choosing the right business partners to help
– Assessing the level of ERP customization that may
be needed
– Avoiding increases in project scope
– Planning for effective knowledge transfer
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Ensure Senior Management
Commitment and Involvement
• Requires the commitment of senior management to
achieve the necessary organizational buy-in
• Senior management must:
– Define a vision for the ERP system with supporting
goals and visible, measurable success criteria
– Provide leadership and take action to ensure that the
goals of the project are met
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Choose the Right Business Partners
• Three key business partners
– ERP system integrator
– ERP software provider
– ERP software support providers
• Chosen business partners should have a solid,
verifiable track record of successful engagements
– With other organizations in your industry
• First step
– Develop a solid understanding of your business
needs and processes as they are now
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Assess Level of Customization
Needed
• Determine if your organization’s fundamental ways
of doing business can be supported by an ERP
solution
• If not, the options are:
– Change the inconsistent business processes to
accommodate the software
– Modify the software to fit the process
– Select a different ERP solution
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Avoid Increases in Project Scope
• As an organization implements an ERP system, it
learns that there is much more that could be done
than was included in the original project scope
• Strong temptation to expand the ERP project scope
– Potential increases in scope should be rejected
– When original project scope is complete, new ideas
can be further evaluated and implemented if justified
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Plan for Effective Knowledge Transfer
• Employees need to understand the rationale of why
ERP is being implemented
– Should be given the big picture on the extent of
change
• Training should not be considered a one-time event
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Test Thoroughly
• Thorough testing
– Key to a smooth start-up
• Key business processes must be tested from start
to finish
• Tests and test data must be set up carefully
– Execute a wide range of possible scenarios
• Considerable time is required to plan and prepare
the necessary test data
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Plan for a High Level of Initial Support
• Anticipate a heavy need for support
• Contract for a heavy level of coverage during at
least the first three months following
implementation
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A Manager Takes Charge: ERP – The
Arizona State University Way
• William Lewis, Vice Provost and Chief Information
Officer of Arizona State University (ASU)
• Oracle PeopleSoft Student Administration and
HR/Payroll ERP system
• Estimated cost $23 million
• Targeted for completion in fall of 2006
– HR/Payroll portion of the project to be delivered no
later than the end of 2007
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A Manager Takes Charge: ERP – The
Arizona State University Way
(continued)
• Unconventional approach to installing its ERP
software
– Problems would be fixed on the fly as they arose
• Final cost of the project was a total of $30 million
– $7 million over the Feb 2006 budget request
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ERP Trends
• ERP solutions targeted for SMBs
– Growth is expected to come as SMBs begin using
ERP systems
– Large, well-established ERP vendors are creating
software for this market
• ERP as a service
– Software as a service (SaaS) model for the delivery
of ERP solutions
– Considerable work to be done to reap the full
benefits of an ERP implementation
– Security implications
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Open Source ERP Software
• Open source ERP solution advantages
– Lower initial acquisition cost
– User has access to the source code
– Wide range of resources that can make
modifications to the software
• Popular open source vendors
• Organizations will not get the same level of support
that they would receive from commercial software
providers
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Summary
• Effective ERP system implementation can bring
many benefits to an organization
• A number of potential issues are associated with
the implementation of ERP systems
• Organizations should follow their ERP vendor’s
recommended ERP implementation process
• Achieving ERP project success is a very difficult
challenge
• Rapid growth is expected in the use of ERP
systems within SMBs
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