Fajar Pradana S.ST., M.

Eng

ENTERPRISE RESOURCE
PLANNING

CHAPTER ONE

WHY STUDY ERP SYSTEMS?

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERP Affects Most Major Corporations

in the World
SAP is used by more than 60% of the major

firms.
Almost every company is more or less in its
hands. Arthur D. Littles Global Strategy
Leader.

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERP Impacts Small and

Medium Enterprises (SME)
In 1995 SAP generated 90% of their revenues

from global companies

But 1997, SAP expected 50% its revenue SME
In 1997, roughly 35% of SAPs revenues were
from customers with revenues less than $200
million

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERP Affects Competitor

Behavior
On June 24, 1996, Oracles Application Division
announced that Several companies went live
with their Oracle Applications implementations
during the quarter, including Silicon Graphics,
Inc. and Quantum Corporation, both of whom
successfully deployed large-scale
implementations. at the same time, Oracles
Application Division announced that among the
customers added that quarter included ...
Western Digital .... Western Digital was a direct
competitor of Quantum.
Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERP Affects Business Partner

Requirements
Adopting an ERP system makes firms more
information agile, able to more easily meet
the information demands made upon them
As they become more agile they expect more
from their customers, possibly integrating
across the supply chain

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERP Provides A Key Reengineering

Tool
In 1990 Hammers highly influential article on
reengineering, got the corporate world interested in
obliterating existing processes. Unfortunately, after
things were obliterated many firms had no idea what

to replace them with.

ERP provides perhaps the primary tool to guide those
efforts, so much so that Gendron (1996) called ERP
(particularly SAPs) the electronic embodiment of
reengineering and Hammer (1997) commented that
SAP equals forced reengineering.

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERP has Diffused Many Best

Practices
ERP systems are based on so-called best practices - the

best ways of doing processes. SAP has over 1,000 of

them! What this means is that any firm that installs has
access to a wide range of best practices. Further,
business practices are being added all of the time. As
new best practices are found and embedded in particular
applications, they can become available for inclusion in
new versions of SAP. As they become available, other
firms install them. As a result, there is this cycle of
finding best practices, building them into the software
and diffusing them out to new users.
Enterprise Resource Planning Systems, D. E. OLeary, 2000

Functional Area
Financial Accounting
General Ledger, Fixed Asset, Payables, Receivables, Cash

Management, Financial Consolidation

Management Accounting
Budgeting, Costing, Cost Management, Activity Based

Costing
Human Resources
Recruiting, Training, Payroll, Benefits, Diversity

Management, Retirement, Separation

Manufacturing Engineering
Bill of Materials, Work Orders, Scheduling, Capacity,

Workflow Management, Quality Control, Manufacturing

Process,

 Supply Chain Management

Supply Chain Planning, Supplier Scheduling, Order to Cash,

Purchasing, Inventory, Product Configurator, Claim Processing

Project Management
Project Planning, Resource Planning, Project Costing, Work Break

Down Structure, Billing, Time and Expense, Performance Units,

Activity Management
Customer Relationship Management
Sales and Marketing, Commissions, Service, Customer Contact,

Call Center Support - CRM systems are not always considered

part of ERP systems but rather BSS systems . Specifically in
Telecom scenario

ERP Facilitated Adoption of Client

Server Computing
In the early 1990s client server computing
was an available technology, that offered
many advantages over existing mainframe

solutions. Unfortunately, there was limited

software available to exploit the advantages.
ERP changed all that becoming one of the
dominant, initial corporate applications of
client server computing.

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERP Changed the Nature of the IS

and Accounting Functions
ERP systems are replacing major portions of
most firms software needs. This changes the
basic nature of the information systems function
from one where systems analysts and
programmers are needed, to one where
knowledge of existing software packages is
now critical.
Not only have needs changed, but personnel
have become more mobile.
Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERP has Changed the Nature of Jobs

in All Functional Areas
IT (information technology) professionals in

manufacturing say ERP systems are blurring the lines

between IT and users. There is a huge demand for users
or line-of-business personnel who also have professional
level IT skills. But traditional IT types who know only
about technology and nothing about the business are
not needed now as they once were. Understanding
the business is probably the most critical (aspect) Its
more important to understand how you want things to
flow through your factory than [to have] the skill of
programming -- except for the few places where SAP
doesnt do whats needed so you need coders.

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Cost is High
After cost of ownership is $15 million,
typically at a cost of $53,320 per user,
according to a Meta Study.
ERP costs can run 2-3% of revenues

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERP Systems Can Create Value

Integrates Firm Activities
Allows Use of Best Practices
Enables Organizational Standardization

Eliminates Information Asymmetries

Provides On-Line and Real-Time Information
Facilitates Intra and Inter Organization

Communication and Collaboration

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERPs Integrate Firm

Activities
As noted by Hammer, Integration is the
defining characteristic of SAP
ERP processes are cross functional, forcing

the firm out of traditional, functional and

locational silos.
Formerly diverse systems are integrated in
ERP systems

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERPs Employ Best Practices

ERPs employ processes that are known to

work and that integrate with each other

Those processes can be used to improve the
way that firms do business.

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERPs Enable Organizational

Standardization
The same best practices can be employed at
multiple locations.
This allows firms to bring those locations with

substandard processes in line with other more

efficient locations.

Now clients can see the corporation the

same way, even if a firm has multiple

locations.

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERPs Eliminate Information

Asymmetries

What is an information asymmetry?

Since all information goes into a single

database, accessible to many, means that

many information asymmetries disappear.
If you dont do your job, I can see that
something hasnt been done

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERPs Provide On-Line and Real Time

Information
Since data is widely available and available on-line

and in real time, all have access to the same

information
As a result,
information is available

Anytime!
Anywhere! to
Anyone!

which can facilitate more consistent planning.

Enterprise Resource Planning Systems, D. E. OLeary, 2000

ERPs Facilitate Inter/Intra

Organization Communication and
Collaboration
Increasingly firms are opening up their
databases to facilitate procurement and
other functions, thus ERP facilitates

collaboration
Since the ERP has all the transaction
processing information in it, communication
is facilitated.

Enterprise Resource Planning Systems, D. E. OLeary, 2000

CHAPTER 2
SYSTEMS AND TECHNOLOGY
BACKGROUND

Enterprise Resource Planning Systems, D. E. OLeary, 2000

What Technologies Are Of Direct

Interest?
Client Server Computing
Networks
Relational Databases

Software
Reengineering
Systems Analysis

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Client Server Computing

SAPs client server system has its root in its
mainframe system
SAP was one of the first client server

packages generally available

Nature of client differentiates some ERP
systems
E.g., Oracle is thin client oriented

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Client/Server Configuration
Distributed
Presentation
(Thin Client)

Remote
Presentation

Distributed
Application

Remote
Data Mgmt

Distributed
Presentation
(Fat Client)

Data
Management

Data
Management

Data
Management

Data
Management

Data
Management

Application
Function

Application
Function

Application
Function

Presentation

Presentation

Presentation

Data
Management

Application
Function

Application
Function

Application
Function

Presentation

Presentation

Presentation

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Networks
Local Area Networks (LAN) link computers
together over small geographical areas, such
as a building
Metropolitan Area Networks (MAN) link
computers together across a city.
Wide Area Networks (WAN) link computers
together over larger geographical areas, such

as across different states

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Bandwidth and TCP/IP

Bandwidth is a networks transmission capacity.
The greater the bandwidth, the greater the
capacity.
Capacity and availability are key issues

TCP/IP - Transmission Control Protocol and

Internet Protocol, are standards associated with
transmissions across networks.
SAP uses TCP/IP standards

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Relational Databases
ERP systems sit on top of a database
Currently, ERP software is organized based

on relational databases
A relational data base is a set of related tables
Related using key attributes
For examples ...

Enterprise Resource Planning Systems, D. E. OLeary, 2000

A Table

Salesperson #
0001

Last Name
Jones

Address
123 Sunnyvale

...
.

A row is a set of related attributes

Primary Key
attribute is a
unique identifier
for each row

Non-key
attribute represents a
unique characteristic
of the salesperson or
entity instance

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Customer Table

Sales Person Table

Customer # Customer
Lastname
0005

A set of
related tables

Salesperson # Last
Name

...

OLeary

0001

Sales Order # Customer # Salesperson # ...

0001

0005

0001

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Jones

Sales
Event
Table

...

Data Warehouse
Is a single place located across a corporation
where a user can get the latest data,
efficiently organized
They are large repositories of data
Typically, they include multiple years of data so

that trend analysis can be done

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Software
Legacy Software
Package Software
Versions of Software

Database Management Software

Operating Systems

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Legacy System
Typically refers to the software that is in use
prior to the new ERP software
Oftentimes, the legacy system is mainframe

software

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Package Software
In the same sense that personal computing
software has moved toward a standard set of
package options, corporate enterprise

computing also has moved toward packages.

Now, some argue that the primary problem is
one of choosing the right package

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Versions of Software
Software has different versions
Windows, 3.1, 95, 98, 2000, ME

SAPs R/3 has a number of different versions,

3.0, 3.1, 4.0, 4.5, 4.6

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Database Management Software

DBMS is designed to facilitate use of
database structures, e.g., relational database
systems.
SAP supports a number of database systems
Oracle is most frequently used
There is a cost associated with having a data base

work with an ERP system

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Operating Systems
ERP systems are designed to run under
different operating systems, e.g., Windows
and Unix
For some systems, the operating systems for
presentation, application and database can
be all different

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Software Layers

ERP Applications

Database Management System

Operating System(s)

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Reengineering
ERP can be used as a tool for reengineering
Technology Enabled

ERP contain many best practices

What is a best practice?

Reengineering provides one theory base

for viewing ERP

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Systems Analysis
Understanding and modeling flows of
information
Many different tools used to model different views

of enterprise models

Enterprise Resource Planning Systems, D. E. OLeary, 2000

Thank you