Directions for an ERP-based DSS

Stanislaw Stanek*
Henryk Sroka**
Zbigniew Twardowski***
Katowice University of Economics
Katowice, Poland
*Email: stanek@radzionkow.net
**Email: sroka@ae.katowice.pl
***Email: twardy@consorg.com.pl

Abstract
ERP packages are not sufficient from a decision making point of view (cf. e.g. Adam 2001) . Organizations that
have implemented such systems are now facing the challenge of incorporating new resources and experiences
for decision support purposes. The paper presents the findings of research on the construction of a hybrid
decision support system consisting of three components: analyzer, simulator, and communicator (Stanek, Sroka
Twardowski 2003) within an organization which already had a functioning ERP system. The differences
between the idea of ERP and the DSS concept are discussed. Attention is brought to additional benefits and
opportunities arising from the combination of these two.
Keywords
ERP, DSS, architecture for hybrid systems components integration, business models, interface agent, expert
systems

1. INTRODUCTION.
Many of the observations made several years ago on the relationships between Enterprise Resource Planning
(ERP) systems and decision support systems (DSS) remain fundamentally true and just as relevant today as
they were at the time. One such comment came from Adam (2001):
But ERP packages are not sufficient from a decision making point of view. They
constitute vast repositories of data that provide a perfect basis for decision making, but
based on empirical research carried out recently, it seems that the reporting capabilities of
many of the ERP packages available is not sufficient for the organizations that implement
them. Despite vendors claims that their software includes leading-edge reporting
capabilities, many organizations find themselves purchasing additional software to fully
exploit the large volumes of data contained in their newly-acquired systems. In one case we
studied, managers initially tried to make use of the functionality provided by their ERP
package, but became disillusioned with the lack of flexibility of the reporting tools and the
excessive time needed for staff to become fluent in developing additional reports or
amending existing ones.
Recent research reveals many cases of successful system implementations, by different providers and in
different application areas, on top of existing technologies, where combining a DSS with a previously
implemented information system has resulted in increased automation of processes within the organization.
The research aim of this paper is to contribute to the evolution of the concept of a hybrid system within which
are seamlessly integrated an operational and an analytical component (cf. Turban 1993; Chamoni, Gluchowski
1999). Within such a hybrid system, the operational component, such as e.g. an Enterprise Resource Planning
(ERP) system, may be looked upon as a data source supplying a body of data which are then processed by the
decision support system (DSS). The paper attempts to face the challenge of integrating these two components
into a homogeneous whole in such a way as to achieve the effect of synergy (Verandat 1996).
It is assumed that each of the two components already represents a degree of integration. Our hybrid solution is
based on an original DSS architecture where the decision support system itself consists of three components: an
analyzer, a simulator and a communicator. One of the ways in which an existing ERP system may be combined
with such a DSS is by feeding the ERP data into the analyzer component. The original architecture is thus
enhanced by mounting it on top of an ERP system in a way which would justify relabelling its analytical
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component as an ERP-fed analyzer. In the following chapters, the resulting system architecture is not only
discussed theoretically but also practically illustrated with a case study showing how a hybrid ERP-fed
information system works at three operating levels. Given the overall complexity of the solution, the case study
will focus on the interaction of the ERP and the expert system technology.

2. THE RESEARCH MODEL.

An analysis of the development dynamics of the computer-based decision support concept and application has
led us to adopting the following assumptions or theses:

Integrating different information technologies within a hybrid approach creates new opportunities such
as: strengthening the best qualities of each component technology while at the same time minimizing
its weaknesses; producing entirely new qualities, as is the case in e.g. combining quantitative and
qualitative technologies within a decision support system; extending the autonomy of the computer
system by entrusting it with a wider range of tasks in the human-computer dialog; creating tools that
suit the needs of both systematic and intuitive decision makers (cf. also Lenard et al. 1995).

Decision makers need more than information they need understanding at many levels of abstraction
(Briggs et al. 2002).

In view of the above and other considerations, research (Stanek, Sroka, Twardowski 2003) was initiated on the
A-S-C architecture where the decision support systems consists of the following three components (see Fig. 1):

Figure 1: The architecture of the Web-based decision support system under discussion (Stanek, Sroka,
Twardowski 2003).

Analyzer (A) operating in continuous mode, scanning the environment for emergent patters which
may indicate that a decision making situation occurs and which therefore are relevant from the
viewpoint of tasks that the decision maker performs (traceable to earlier research of the early warning
concept),

Simulator (S) the discrete element whose operation relies on the current understanding of the
relationships between the patterns identified (the decision makers wisdom is part and parcel of the
system), and which is capable of supporting ad hoc decisions (traceable to the findings of previous
research on simulation and modeling),

Communicator (C) the component which is a repository of meta-knowledge of the subject area, as
well as of the system which supports the users creativity in utilizing support systems within the
subject area (traceable to prior research on communication in strategy games and on interface agents).

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The Analyzer is activated via the Communicator, where the analyzers basic functionality is defined through
control parameters. Input data, depending on the required degree of generalization of observation (operational
1
or strategic level) come from :

transaction systems directly from the data bases and/or from alarms generated by procedures which
monitor changes taking place in the data bases the so-called triggering subsystem (cf. Bassiliades,
Vlahavas 2000);

data warehouses where pre-defined quantitative data aggregates stored within OLAP cubes, as well
as qualitative data, allow the generation of warning signals relating to long-term monitoring of
strategic goal performance.

A special data-in access into the Analyzer is reserved for the findings of consultation with the Simulator,
where results of sensitivity analysis of parameters being monitored are used to produce a conclusive assessment
of dangers and to suggest corrective or preventive measures (a what if analysis).

Figure 2: The architecture of an ERP-fed analyzer.

The architecture of the Analyzer (see. Fig. 2) is based on an analytical platform which can be described as an
integrated application development environment utilizing OLAP technologies and expert knowledge bases. An
essential element of the subsystem architecture is an expert system processing knowledge in the form of fuzzy
rules. The expert system carries out the following three functions:

diagnosis assessment of the companys condition based on a set of observable symptoms;

identification of weak warning signals at the strategic level (e.g. those from the environment),

construction producing more detailed reports for users corresponding with the diagnosis performed,

control it controls applications by monitoring the users activities and triggering actions required in
the current context of analysis (customization of report generation, execution of data transformation
scripts).

The data output from the Analyzer (which is based on the double loop principle) can be then input into the
Communicator and the Simulator. However, it must be born in mind that the Analyzers primary products
are warning signals and reports identifying the endangered areas of the processes being monitored. The form in
which reports are delivered is suited to the users current needs; the critical information is conveyed in brief
conclusions produced by the inference rules activated and in explanations provided by the expert system in the
form of tables and presentation graphics (see Fig. 3).

For more information on the architecture of the Analyzer component, see Stanek, Sroka, Twardowski (2003)
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Figure 3: An excerpt from a diagnostic report on the companys financial condition.

3. BUSINESS PROCESS MODELING A CASE STUDY.

The proposed approach is used for the purpose of identifying and diagnosing the warning signals at either
operational or strategic management level. At the operational level, monitoring is, in our approach, focused on
the short-term budgeting process in domains depending on the specific needs of the companys decision
support system (cf. Reichmann 1977) and financial analysis in such areas as: current financial liquidity,
profitability, and long-term debt (Brealey, Myers 1996; Bernstein 1993; Fridson 1995). Control is exercised by
comparing the values captured against reference models, simulating the effect of deviations identified (owing to
the Simulator facility), issuing warnings of threats, and offering multi-variant suggestions for corrective
measures. At the strategic level, on the other hand, the companys competitive position is analyzed, in futurestate terms, and risk relating to the performance of current market strategy is continuously assessed against
reference strategies. The monitoring capability relies on two information sources: information on the
enterprises internal resources, which is retrieved from the MRP/ERP systems, and the information from the

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environment concerning factors which affect the level of risk related to the companys market position.
Assessment of the long-term market trends is performed in quantitative terms and based on expected values
estimated by subjective probabilities of experts opinions. The quantification of risk factors is accomplished by
the fuzzification of linguistic variables via a membership function.
The implementation approach for the proposed solutions is founded on a three-dimensional perception of
information within a business enterprise, the first dimension being the classical functional areas such as
material supply, production and sales, and the second dimension being information stored in the accounting
systems (OLTP), e.g. income, costs, cash flows, assets, capitals, etc. The third dimension is determined by the
time frame in which particular events occur. The events are thus identified as short-term, medium-term, and
long-term.
The first level comprises detailed information which is elementary at the level of accounting systems. This level
constitutes the main data source for the data warehouse and the OLAP cubes. The second level is made up of
reports carrying management information. The third and last level is composed of a set of specially selected
synthetic indicators, chiefly for use by the top management function. All these dimensions within an
information system must form an integrated environment of interrelated and easily identifiable objects and
relations (a prerequisite for interactive data mining).
The Southern Power Corporation is the greatest national power producer and, at the same time, one of the
biggest business organizations in Poland. The Corporation has a 18% share of the domestic power generation
market, while its share of the local heat generation market comes up to 16%. The proposed solutions were to be
implemented in the area of controlling, encompassing a controlling model, where the strategic and the
operational areas were isolated, as well as, due to its sectoral significance, financial controlling. The model was
implemented in a multi-dimensional analytical environment. Its optimum functionality is achieved through a
three-layer information system development platform (see Fig. 4) where the three layers are identified as
follows:

basic layer integrated transaction systems of the MRP/ERP class IFS Applications v. 2003
(ORACLE data base); implementation performed by IFS POLAND consultants,

analytical layer information technology solutions of the OLAP and data warehouse class the
OPTIMA CONTROLLING software application supplied by CONSORG Sp. z o.o. (MS SQL SERVER
and MS OLAP development platform),

publication layer (corporate portal) which provides publishing capabilities and user access to
synthetic (cumulative) reports via an intranet and/or an extranet facility.

Figure 4: The three-layer analytical platform for corporate information system development as implemented in
PKE S.A case study.

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3.1. Operational level
The principal application of solutions proposed in the Southern Power Corporation (PKE S.A) is in providing
operational support for planning and monitoring of the profit capacity of operating budgets. The procedure
presented, being an element of a controlling information system, is employed for assessing the operating
budgets which constitute profit centers, where the general budget is the aggregate Corporation budget
consisting of five primary budgets. The application aspect discussed below encompasses a short-term planning
perspective for selected management areas, where the primary budgets are aggregations, or sum-totals, of the
component sub-budgets. The budget preparation procedure consists in cost and income planning for the
subordinate budgets (of the n-th degree) with a view on their impact on the performance of the higher level
budgets, the primary budgets and, consequently, on the general Corporation budget. Within each primary
budget, a model was developed for the purpose of cause-and-effect analysis of deviations from plan (the
primary budgets are mostly attached to responsibility centers). Analysis is performed on individual products, in
terms of how changes in their price, sales volume and sales structure will affect the operating profit and the
cash flow. Similarly, variable costs are analyzed for each of the Corporations primary activity areas, in order to
study the effect of changes in consumption and price (relative to plan). In this way we arrive at a multi-level
estimate of deviations from plan indicative of the impact that each factor (across such dimensions as: products,
responsibility centers, income, invariable costs, variable costs) will have on the bottom-line result. Depending
on volatility shown by the parameters on which the plan and the targets are based, successive versions of the
budgets are built. One, or several (e.g. an optimistic scenario, a pessimistic scenario and a realistic scenario), of
these may be then adopted as a reference for the purpose of performance monitoring and used in establishing
the reasons for deviations. A synthetic result for each operating budget being a profit center is the cover
margin account. The budget period is one year, however, for the sake of plan performance monitoring and early
warning of threats to the achievement of targets, the annual budget is split into quarterly and monthly budgets.
The IBA expert system (identified with the Analyzer in the proposed hybrid architecture) is activated by
alarms generated by the triggering subsystem of the IFS Applications transaction system. Among the symptoms
which fire alarms there are e.g. advice of the worsening balance of current receivables relative to short-term
liabilities, and a drop in sales to major customers. Based on these is produced a set of most likely hypotheses
indicating an increased risk of financial liquidity loss. A domain model of financial liquidity management is
used assuming a relationship between sales, working capital, asset liquidity and demand for short-term debt.
For each area under observation, the hypotheses are validated in terms of impact that the deviations of the
parameters may have on dangers affecting the company. In doing so, reference is made to plan, which means
that planned values are adopted as reference values for the validation procedure. Each parameter of the model
is described by three coordinates across the plan-performance-deviation paradigm: present value, short-term
change dynamics, and the historical trend over a number of periods. For each parameter is estimated the
membership function whose shape resembles that of Gaussian functions (Pi curves) (cf. Cox 1995).

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3.2. Strategic level monitoring of the competitive position

Figure 5: Polands power plant monitoring in a benchmarking layout published via EIP.
Assessment of risk related to the companys competitive position constitutes one of the aspects of strategic
planning. The role of early warning models is to assess and validate warning signals in all areas being
monitored those coming from the competitive environment as well as those originating within the enterprise
(Fig. 5). An important application of such models, combining support for projections and financial monitoring
within PKE S.A., is found in economic and financial simulations. Simulation is understood to mean the
examination of the models sensitivity to changes in parameters input that is, it consists in answering what
if questions. By using the model in such a way, we gain the possibility to identify the most sensitive areas
under observation, which stands for a better risk assessment and a better informed choice of strategy realization
option.
Monitoring of this sort can be regarded from two different angles: firstly, in the context of business risk
fluctuations, and secondly, from the viewpoint of business strategy performance. It is possible to monitor all
areas of the enterprise or just the so-called critical success factors, which will be specific to each industry
sector. What is being tracked here is the sensitivity (risk level) of the solution to changes of parameters
originating e.g. from the environment. For each simulation variant tested, a summary of strengths and
weaknesses is produced. Warning signals generated at the strategic level are enhanced with additional
explanations, e.g. in the form of a strengths and weaknesses tree (Fig. 6). Any deviation from expected values
will activate, as is the case at the operational level, the Simulator, where a sensitivity analysis is performed,
followed by an assessment of the ultimate impact on risk levels in the areas affected.

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Figure 6: A diagnostic report from the assessment of a companys strategic position (an excerpt).

4. CONCLUSIONS.
Standardization introduced through the implementation of enterprise software and resulting from standardizing
the processes and artifacts does have global benefits, but it, at the same time, sacrifices local customized
capabilities. The desirable level of customization can be achieved by due care and diligence in implementation
(e.g. Koch et al. 1999 emphasize that it takes an average of 8 months after the new ERP system is installed to
see any benefits) and owing to the development of add-on elements by so-called niche companies. Support
systems are built on a different philosophy as tools addressing specific problems (e.g. prototyping) and
dedicated to different actors. A distinctive feature of a support system user is the ability to learn quickly
according to the double loop learning pattern (cf. Dutton 1993; Stanek, Sroka 2000).
Decision support philosophy coincides with business process automation philosophy as a logical sequence of
changes in technology, attitudes, processes, strategy and organization culture. The implementation of an ERP
system changes the way organizations do business and the way people carry out their work. Three major
motivations for implementing ERP systems were identified by Koch et al. (1999): to integrate financial data, to
standardize manufacturing processes, and to standardize HR information. However, ERP technology is not
sufficient to support decision making in organizations.
New information technologies are making it possible to enhance the traditional DSS components: data,
modeling and dialog. The research presented aimed to verify the applicability of the Analyzer-SimulatorCommunicator architecture of a hybrid ERP-fed information system. We believed that integrating different
information technologies within a single IT solution could yield an opportunity to strengthen the best qualities
of each component technology while at the same time producing an added value arising from the concerted
actions of them all.
On the whole, developing the decision support system on top of an existing ERP system has proved to be a
sound idea. In our instance, it resulted in an easier development process. Moreover, it confirmed the
functionality of the proposed A-S-C architecture. By enabling organizational standardization, eliminating
information asymmetries and providing on-line and real-time information an effect which can be expected of
most ERP implementations (c.f. OLeary 2000) the ERP system facilitated the development of the data
subsystem for the DSS. The decision support system, on the other hand owing to its Analyzer component

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founded on knowledge server technology allows an ongoing process analysis and performs on-line filtering of
incoming data.
The ERP system discussed in the case study was specifically addressed to the financial director and the finance
function. Combined with a decision support system whose architecture follows the proposed A-S-C model, it
proved capable of supporting a finance executive in the performance of his/her most demanding tasks:
controlling, simulating and forecasting.
One of the greatest advantages of the proposed A-S-C architecture seems to be in that it is an open one and, as
such, it will allow a host of modifications without undermining the general model. There are reasons to believe
that its further elaboration will be a rewarding task.

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Stanislaw Stanek, Henryk Sroka, Zbigniew Twardowski 2004. The authors grant a non exclusive licence to
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