Introduction to ERP

Session 1 Introduction to Enterprise Resources Planning

Welcome

Session 1 Introduction to Enterprise Resources Planning

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Course Purpose

Provide the participant with the knowledge and skills to understand how to integrate the organization and its people and processes and why it is desirable

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Activity 1-1: Role Play

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Roles
Finance Manager Production Manager Sales Manager IT Manager Purchasing Manager

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Considerations
What are some of the considerations of choosing the sequence of the implementation?

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Implementation Sequence
____ Accounting ____ Inventory ____ Master Production Schedule ____ Material Requirements Planning ____ Order Entry ____ Production Activity ____ Retail
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Activity Summary
What was the biggest issue you faced in attempting to determine the proper sequence?
*Complex issues are involved in making ERP "work" *Many different functional areas within the organization must make compromises in deciding how to implement an ERP system *Different functional areas within an organization have different concerns *There is no set sequence. The sequence will be relative to each organization and its operations.
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Course Outline
Session 1: Introduction to Enterprise Resources Planning Session 2: Developing an ERP Business Case Session 3: Business Process Redesign Session 4: The Value Chain Process

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Course Outline (cont.)

Session 5: Technology and International Considerations in Implementing ERP Session 6: Change Management and ERP Implementations Session 7: Implementing ERP Session 8: Expanding on ERP

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Defining ERP
What is your definition of ERP? Computer system Planning and scheduling system Software used to run an organization An extension of old MRP II systems A linking of the different plans within an organization.
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Defining ERP
What is your definition of ERP?
A method for the effective planning and control of all resources needed to take, make, ship, and account for customer orders in a manufacturing, distribution, or service company.

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Characteristics of an ERP System

What characteristics identify an ERP system?

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Possible Characteristics
Automated processes can run manually but impractical. Computerized can be done to achieve above. People-oriented system Planning, control, monitoring Data management - ERP systems simply collect data. Operations philosophy - JIT (Just-in-Time) or Lean. Knowledge management system Integrates the plans of an organization

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The Organization as a System

People
and Processes

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Organization is not simply a collection of independently operated functional areas

a. A change in one part of an organization, like increasing sales quotas, ripples into other functions, like increasing paperwork in payroll and adding to the workload in shipping. b. Systems thinking is a way of thinking about and understanding the forces and interrelationships existing between the different functional areas within an organization. c. ERP systems must be viewed as a group of interrelated processes, all managed by people. Understanding ERP requires an understanding of how ERP is developed, managed, and maintained by people within the organization d. Understanding that an organization is a system will help in understanding that different organizations can have different levels of success with an ERP system. e. Two different companies can buy the same ERP system but achieve dramatically different results because of how each chooses to utilize the ERP system. One could simply use it to collect data while the other could use the ERP system to aid in strategic decision-making. The difference is where the organization lies on the ERP maturity model
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ERP Maturity Model

Level of Sophistication

Business Strategy

Knowledge Management

Operations Philosophy

Software Modules Share Database

Level of Value to the Organization

Data Management System

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(Reprinted with permission from Kapp, Karl M., with William F. Latham and Hester N. Ford-Latham, Integrated Learning for ERP Success. Copyright CRC Press, Boca Raton Florida, 2001)

ERP Maturity Model

one way to look at ERP systems, and how people view the processes of an ERP system, is to see how ERP has evolved from a data management system to a knowledge management system. Different organizations are at different places on this model. Understanding the model will help understand the different impacts ERP can have on an organization and how organizations can use ERP to achieve strategic goals. The model basically moves from the level of basic data to information to knowledge. When a company works to implement an ERP system, it needs to focus on achieving the highest level in the hierarchy.
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Level of Sophistication

Business Strategy

Knowledge Management

Operations Philosophy

Software Modules Share Database

Data Management System

Level of Value to the Organization

Data Management System

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(Reprinted with permission from Kapp, Karl M., with William F. Latham and Hester N. Ford-Latham, Integrated Learning for ERP Success. Copyright CRC Press, Boca Raton Florida, 2001)

Level of Sophistication

Business Strategy

Knowledge Management

Operations Philosophy

Software Modules Share Database

Level of Value to the Organization

Software Modules Share Database

Data Management System

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(Reprinted with permission from Kapp, Karl M., with William F. Latham and Hester N. Ford-Latham, Integrated Learning for ERP Success. Copyright CRC Press, Boca Raton Florida, 2001)

Level of Sophistication

Business Strategy

Operations Philosophy

Knowledge Management

Operations Philosophy

Software Modules Share Database

Level of Value to the Organization

Data Management System

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(Reprinted with permission from Kapp, Karl M., with William F. Latham and Hester N. Ford-Latham, Integrated Learning for ERP Success. Copyright CRC Press, Boca Raton Florida, 2001)

Business Strategy

Level of Sophistication

Business Strategy

Knowledge Management

Operations Philosophy

Software Modules Share Database

Level of Value to the Organization

Data Management System

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(Reprinted with permission from Kapp, Karl M., with William F. Latham and Hester N. Ford-Latham, Integrated Learning for ERP Success. Copyright CRC Press, Boca Raton Florida, 2001)

Level of Sophistication

Business Strategy

Knowledge Management

Operations Philosophy

Software Modules Share Database

Knowledge Management

Level of Value to the Organization

Data Management System

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(Reprinted with permission from Kapp, Karl M., with William F. Latham and Hester N. Ford-Latham, Integrated Learning for ERP Success. Copyright CRC Press, Boca Raton Florida, 2001)

The Final Analysis: What is an ERP system?

A framework for Organizing All the different plans within the organization-from patient management plans in hospitals to financial plans to budgets to production plans within manufacturing organizations. Defining defines data and information within the organization. Everyone works from a common database. My part number is the same as your part number. I can see your forecast, you can see my production schedule. We can share departmental goals and organizational goals with the common system and common definitions. Standardizing It provides a standard language for communicating between and among different groups of the organization. Managing Finally, it helps to manage the organization. The different systems, plans, and agendas of all the different sub-units within any organization need to be managed toward a common goal. The ERP system can help facilitate that management. ERP provides an organized communication system so that high-level operating philosophies and strategies are followed during the tactical operations of the business. ERP as software vs. ERP as a process.
Emphasize that it is people and processes working together that will make an ERP

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ERP Evolution Rings

System is integrated
(all applications on same database)

Applications became interfaced

(accounting could exchange data with inventory)

Applications performed different functions

(accounting software, inventory software)

Programs operated independently

(spreadsheet, word processing, custom algorithms)

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ERP Model
Enterprise Production Systems
Manufacturing Engineering R&D

ENTERPRISE RESOURCES Customer PLANNING (ERP) Relationship

Management Exec. Decision Support Strategic Plan

Supply Human Chain Demand Resources Management Production Forecasting Product Activity Engineering Full Sales Order Control MATERIAL Support Entry Maintenance Inventory REQUIREMENTS Management Logistics and Mgt PLANNING (MRP) Customer Distribution Service CRP Quality Field Purchasing Management Master Service Scheduling Std Costing Advanced Full Accounting Marketing Costing JIT A/P, A/R, GL Environmental Support Financial Planning
Adapted from Langenwalter, Gary A. Enterprise Resources Planning and Beyond (St Lucie Press/APICS Series on Resource Management, 2000)

MANUFACTURING RESOURCE PLANNING (MRP II)

Manufacturing Execution System

Advanced Supply Planning and Chain Scheduling Execution

Sales and Operations Planning

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Benefits of an ERP System

Tangible Intangible

Short-term
Long-term Continuous improvement
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Benefits of an ERP System

Tangible
Reduced costs Reduced inventory Increased employment Reduced staff Improved cycle time More flexible organization More efficient operations Increased visibility of problems Enable people to be less stressed

Intangible

Short-term
Organization of information Better management of operations

Long-term
Competitive advantage

Continuous improvement A major benefit is that an ERP system helps an organization to reduce the number of disparate information systems. Before implementing ERP systems, companies usually have dozens or even hundreds of disparate systems which may or may not talk to each other. These separate systems are a big problem for the business because management and employees don't know what information is available where. ERP eliminates this headache.

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Cost Drivers to Consider for ERP Implementation

ERP has many benefits, it also has many costs. Each of these costs can impact the organization's motivation to implement an ERP system. People (outside consultants, time from "regular job") Implementing an ERP system requires a large commitment of time from an internal implementation team as well as the time of other employees not directly involved in the implementation. Sometimes, even an outside consultant is needed to guide the team in the proper direction. Carefully consider all the personnel costs involved with the implementation. Training and education education (people need to be trained)- To make sure the implementation is a success, people need to be trained, not just once but several times. They need to understand the ERP system and the integrated nature of ERP, as well as how to deal with change issues. Time Implementations take time. Time is money. The organization need to be aware of how long the implementation may take and how much time, from the organization, is going to be used for the implementation. Tools (software, hardware)-The costs for hardware and software are pretty visible; however, remember that customizations can cost at the time of the customization, and later on when the organization wants to upgrade. Also, as the organization grows and technology changes, new investments in hardware and software will have to be made. These are not one-time costs. In addition, most software has ongoing licensing fees which are usually assessed yearly. Changes in processes (processes must be addressed) Process will need to be changed when ERP is implemented. At times, those changes, while good in the long term, can be expensive in the short term Mistakes, rework, re-implementation In far too many ERP implementations, mistakes occur, rework is done, and parts of the system need to be re-implemented. Those problems should be avoided. Good planning will help 1-28 to Visual prevent rework.

Metrics
Performance measurements there are costs and benefits for an organization to determine if its ERP system is right for it or if the existing ERP system is functioning at the desired maturity level. To make these types of decisions, an organization must develop some measurements. Ideally, measurements are taken both prior to the ERP implementation-creating baselines against which to measure-and after the ERP implementation, to provide benchmarks for organizational progress. Inventory turns This is the number of times inventory turns over in a certain time period. An ERP system should help to increase inventory turns. Increased productivity An effective ERP implementation should help to increase productivity because of the reduction of waste and the increase in the flow of information between various departments, which enables faster decisions. ROI can be measured by dividing the overall costs by the overall benefits and multiplying by 100 to get a percentage. Most organizations strive to have an ROI above 25% for major investments. Benchmarking An effective method of determining how an organization is doing relative to the implementation is to take pre-implementation and post-implementation measurements of such items as inventory turns. Process cycle time reduced The overall time needed to move material through the plant should be reduced. Paperwork cycle times reduced payback-In addition to a reduction in time for material flow, paperwork time should be reduced as well. Quality of product or service 1-29 Overall quality should improve because of visibility of problems exposed during Visual implementation.

ERP Pitfalls
with any large-scale change or implementation within an organization, ERP implementations Have some pitfalls that need to be avoided. These pitfalls include: Garbage in, garbage out If inaccurate or incorrect data are input into the ERP system, no one will trust the results. BOMs, customer files, item masters, and routings must be accurate and correct. If garbage goes into the ERP system, then garbage will come out of the ERP system. Automation of poor processes One common mistake is that organizations want to take their ineffective and inefficient processes and automate them. Automating poor processes only results in more efficient, more effective poor processes. Organizational processes must align with organizational goals before simply automating them. Customization of software Many organizations customize standard software and then find they must pay for that customization every time the base software package is updated (sometimes as often as every six months). Customization must be absolutely necessary. Implemented as an afterthought If the implementation is not given top priority within the organization, chances are it won't get much support as other items gain top priority. The organization must be fully committed to the implementation. No upper management support If upper management doesn't support the implementation-not just in words but in deedsthen the implementation is less likely to be successful. Upper management must be behind the implementation.

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Session 1 Summary
Describe the concept of ERP Define key terms as they relate to ERP Describe the basic ERP model Identify the five different ERP maturity levels Understand the transition from MRP to ERP State the benefits of ERP State the pitfalls of ERP implementations
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