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Hour 2: ERP Modules

Historical development

Historical
Initial Computer support to business
Easiest to automate payroll & accounting Precise rules for every case

Early 1970s
centralized mainframe computer systems MIS systematic reports of financial performance Variance analysis between budget and actual

MRP
Material requirements planning Inventory reordering tool Evolved to support planning MRPII extended to shop floor control

SAP Modules
SD
MM PP QM

Sales & Distribution


Materials Management MRP Production Planning Quality Management MRPII (with others)

PM
HR FINANCIAL FI CO

Plant Maintenance
Human Resources Financial Accounting Controlling

AM
PS R/3 INTERNAL WF IS

Asset Management
Project System Workflow: Industry solutions: prompt actions best practices

Comparative Modules
SAP
SD MM PP

Oracle
Marketing, Sales Procurement Manufacturing

PeopleSoft
Supply chain Supplier relationship

JDEdwards
Order management Inventory, procurement Manufacturing mgmt

QM
PM HR FI Service Human Resources Financials Asset Management Projects Order Management

Enterprise perform
Enterprise service Human capital mgmt Financial mgmt sol.

Technical foundation
Workforce management Financial management

CO
AM PS WF

Time & Expense mgmt


Enterprise asset mgmt Project management

Contracts

Subcontract, real estate

Industry-Specific Focus
Each vendor has turned to customized ERP products to serve industry-specific needs
Examples given from BAAN, PeopleSoft Microsoft also has entered the fray

BAAN Industry-Specific Variants


Discrete Manufacturing Aerospace & Defense Automobile Industrial Machinery Electronics Telecommunications Construction Logistics Process Manufacturing Chemicals Food & Beverage Pharmaceuticals Cable & Wire Pulp & Paper Metals

PeopleSoft Industry Solutions


Communications
Financial Services High Technology Professional Services Utilities

Consumer Products Federal Government Healthcare Higher Education


Industrial Products Public Sector Staffing Wholesale Distribution

Microsoft Great Plains Business Solutions


Accounting & Finance
Customer Relationship Management E-Business Human Resources & Payroll Manufacturing Project Accounting Supply Chain Management

Relative ERP Module Use


(Mabert et al. 2000; Olhager & Selldin, 2003)
Module
Financial & Accounting Materials Management Production Planning

Use reported - US
91.5% 89.2% 88.5%

Use reported Sweden


87.3% 91.8% 90.5%

Order Entry
Purchasing Financial Control Distribution/Logistics

87.7%
86.9% 81.5% 75.4%

92.4%
93.0% 82.3% 84.8%

Asset Management
Quality Management Personnel/HR Maintenance

57.7%
44.6% 44.6% 40.8%

63.3%
47.5% 57.6% 44.3%

R&D Management

30.8%

34.2%

Relative Module Use


Mabert et al. (2000) surveyed Midwestern US manufacturers
Some modules had low reported use (below 50% in red) Financial & Accounting most popular
Universal need Most structured, thus easiest to implement

Sales & Marketing more problematic

Why Module Use?


Cost:
Cheaper to implement part of system Conflicts with concept of integration

Best-of-Breed concept:
Mabert et al. found only 40% installed system as vendor designed
50% used single ERP package; 4% used best-of-breed

Different vendors do some things better Conflicts with concept of integration

Middleware
Third-party software
Integrate software applications from several vendors Could be used for best-of-breed Usually used to implement add-ons (specialty software such as customer relationship management, supply chain integration, etc.)

Customization
Davenport (2000) choices:
Rewrite code internally Use existing system with interfaces

Both add time & cost to implementation The more customization, the less ability to seamlessly communication across systems

Federalization
Davenport (2000)
Roll out different ERP versions by region Each tailored to local needs
Core modules shared some specialty modules unique

Used by:
Hewlett-Packard Monsanto Nestle

EXAMPLES
Dell Computers
Chose to not adopt

Siemens Power Corporation


Implementation of selected modules

Dell Computers
Evaluation of SAP R/3

Need to continue project evaluation


Initial project adoption
1994 Dell began implementation of SAP R/3 enterprise software suite Spent over 1 year selecting from 3,000 configuration tables

After 2 year effort ($200 million), revised plan


Dell business model shifted from global focus to segmented, regional focus

Rethinking
In 1996 revised plan Found SAP R/3 too inflexible for Dells new make-to-order operation Dell chose to develop a more flexible system rather than rely on one integrated, centralized system

Best-of-Breed
I2 Technologies software
Manage raw materials flow

Oracle software
Order management

Glovia software
Manufacturing control
Inventory control Warehouse management Materials management

SAP module
Human resources

Core Competencies
Glovia system interfaced with
Dells own shop floor system I2 supply chain planning software

This retained a Dell core competency


Would have lost if adopted publicly available system

Points
Demonstrates the need for speed
Prolonged installation projects become outdated Need to continue to evaluate project need after adoption
Tendency to stick with old decision But sunk cost view needed

Demonstrates need to maintain core competitive advantage


Adopting vendor ERP doesnt

Siemens ERP Implementation


Hirt & Swanson (2001)

Nuclear fuel assembly manufacturer Engineering-oriented

Siemens Power Corporation


1994 Began major reengineering effort
Reduced employees by 30%

1996 Adopted SAP R/3 system


Replacement of IS budgeted at $4 million

Some legacy systems retained

Siemens Modules
FI CO AR AP MM PP QC Finance Controlling Accounts receivable Accounts payable Materials management Production planning Quality control

Implementation
To be led by users Project manager from User community Consultant hired for IT support
IS group only marginally involved

Project Progress
Oct 1996 Installed FI module Sep 1997 Installed other modules On time, within budget

Permanent Team
Made project team a permanent group Project manager had been replaced
2nd PM retained

SAP steering committee SAP project team formed

SAP steering committee


7 major user stakeholders
Guided operating policy major expenditures major design changes

SAP project team formed


15 members from key user groups
part-time

Trainer User help Advisors to middle management

Training
End users became more proficient with time
Average of 3 months to learn what needed

Management training took longer


Management didnt understand system well Often made unrealistic requests

Operations
During first year
Major errors in ERP configuration Evident that users needed additional training New opportunities to change system scope suggested

Two years after installation


R/3 system upgrade

Summary
Core idea of ERP complete integration In practice, modules used
More flexible, less risk Can apply best-of-breed concept
Ideal, but costly

Related concepts
Middleware integrate external software Customization tailor ERP to organization Federalization different versions of ERP in different organizational subelements

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