Historical development

Initial Computer support to business Early 1970s

Easiest to automate payroll & accounting Precise rules for every case centralized mainframe computer systems MIS systematic reports of financial performance Variance analysis between budget and actual

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

SD MM PP QM PM HR FINANCIAL FI CO AM PS R/3 INTERNAL WF

Sales & Distribution Materials Management MRP Production Planning Quality Management Plant Maintenance Human Resources Financial Accounting Controlling Asset Management Project System Workflow: prompt actions MRPII (with others)

SAP SD MM PP QM PM HR FI CO AM PS WF Service

Oracle Marketing, Sales Procurement Manufacturing

PeopleSoft Supply chain Supplier relationship

JDEdwards Order management Inventory, procurement Manufacturing mgmt

Enterprise perform Enterprise service Human capital mgmt Financial mgmt sol.

Technical foundation

Human Resources Financials

Workforce management Financial management Time & Expense mgmt

Asset Management Projects Order Management

Enterprise asset mgmt Project management

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

Discrete Manufacturing Aerospace & Defense Automobile Industrial Machinery Electronics Telecommunications Construction Logistics

Process Manufacturing Chemicals Food & Beverage Pharmaceuticals Cable & Wire Pulp & Paper Metals

Communications Financial Services High Technology

Consumer Products Federal Government Healthcare Industrial Products Higher Education Public Sector

Professional ServicesStaffing Utilities Wholesale Distribution

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

Module Financial & Accounting Materials Management Production Planning Order Entry Purchasing Financial Control Distribution/Logistics Asset Management Quality Management Personnel/HR Maintenance R&D Management

Use reported - US 91.5% 89.2% 88.5% 87.7% 86.9% 81.5% 75.4% 57.7% 44.6% 44.6% 40.8% 30.8%

Use reported Sweden 87.3% 91.8% 90.5% 92.4% 93.0% 82.3% 84.8% 63.3% 47.5% 57.6% 44.3% 34.2%

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

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

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.)

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

Davenport (2000)

Roll out different ERP versions by region Each tailored to local needs Used by:
Core modules shared some specialty modules unique Hewlett-Packard Monsanto Nestle

Dell Computers
Chose to not adopt

Siemens Power Corporation

Implementation of selected modules

Evaluation of SAP R/3

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

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

I2 Technologies software
Manage raw materials flow Order management Manufacturing control

Oracle software Glovia software

Inventory control Warehouse management Materials management

SAP module

Human resources

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

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

Nuclear fuel assembly manufacturer Engineering-oriented

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

FI CO AR AP MM PP QC

Finance Controlling Accounts receivable Accounts payable Materials management Production planning Quality control

To be led by users Project manager from User community Consultant hired for IT support

IS group only marginally involved

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

Made project team a permanent group Project manager had been replaced

2nd PM retained

SAP steering committee SAP project team formed

7 major user stakeholders

Guided operating policy major expenditures major design changes

15 members from key user groups

part-time

Trainer User help Advisors to middle management

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

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

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