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INTRODUCTION TO ERP

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Learning Objectives
1.
2.
3.
4.
5.

Provide an overview of how ERP systems help

address issues caused by functional systems.
Understand why business and IS students should
learn about ERP systems
Discuss the value ERP systems can provide
Review issues associated with implementing ERP
systems.
Describe the key characteristics of ERP systems

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ERP Video
Questions:
How does an ERP system change the way
people work?
Why do you think its important for top
business managers to have a sound
understanding of ERP systems?
What are some of the issues associated with
implementing an ERP system?

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Why Study ERP

It affects most major business enterprises
and many small and medium businesses

60% + of very large corporations use SAP (an ERP vendor)

Increasingly, smaller organizations are adopting
Its out there, and its very likely you will work with one in some
capacity

It changes behavior of competitors and

partners

Competitors: adopt to survive?

Partners/Suppliers: adopt to keep business

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Why Study ERP

It enforces best practices and aids
reengineering

Best practices built in (lots of choice)

dont iterate, obliterate

It changes the nature of consulting firms and

IS

HUGE portion of revenue from ERP consulting

It is challenging to implement and cost is high

Its growth has made it the predominant
software

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How does ERP create value?

It integrates a broad range of business functions
It allows diverse enterprises to standardize
It stops data redundancy and synchronization

Data stored in one place

One version of the truth

It provides simultaneous access to real-time data

It facilitates communication inside and outside
the enterprise
It provides a foundation for eBusiness

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Disadvantages of ERP
ERP implementation is very difficult.
There is a change in the way business is
done. From a business function approach
to a process approach.
ERP systems are very expensive to
implement. Can take years and cost 10s
of millions of dollars.

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Disadvantages of ERP
It takes time to realize the benefits of
an ERP system.
Forces people to change and change =
resistance:

Share information that was once closely guarded

(i.e., their information).
Make decisions they were never required to make.
Do things they were never required to do before

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Disadvantages of ERP
ERP systems are strategic solutions. In
essence some companies are betting
their future on a successful ERP
implementation.
If the implementation fails, the
consequences to the company can be
disastrous.
Companies have gone out of business as
a result of a failed ERP implementation
effort.

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Hidden Costs
Training

Critical, but effort and cost is often underestimated

Integration and Testing

Links between modules and between ERP software and

external systems

Customization

Expensive, complex, dangerous

Data Conversion

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Hidden Costs
Consultants
Staffing

Need best and brightest from business how to replace

them?

Implementation team needs to stay in

place
Delayed ROI
Post-ERP Depression

All change and upheaval impact on organizations morale

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Colgate Case

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Colgate Brief History

William Colgate established Colgate in 1806
Mainly a starch, soap and candle business
Merger with Palmolive in 1928; Colgate-PalmolivePeet
Corporate name changed to Colgate-Palmolive in
1956

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Colgate Brief History (cont)

Continuous growth
Today $9.9 Billion company (2003)
Operations in more than 200 countries and
territories
Colgate is now recognized as one of the leading
manufacturers of oral care, dental care, household
surface care, fabric care and pet nutrition products

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Colgate
Divergence of operating platform

Dozens of platforms

Low IT skills/knowledge

No one understood all of the legacy systems

Each CIO for each country very decentralized IS

organization no standards or best practices in
place
No centralized operation e.g. 80 CIO
Decided to implement ERP software in 1999

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Integration of Processes Some

benefits
Activity

Enter pricing data

Customer credit check

Before

After

5-80 days
15-20 min.

5 min.
automatic

Enter customer order

30 min.
Customer billing inquiry 15-20 min.
Ship evaluation unit
3-30 days
Ship replacement part
Credit returned item
Commit date for
delivery

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3-44 days
1-5 months

5 min.
real-time
2 days
2 days

5 days
2 hrs.-3 wks. real-time
Source: Hammer

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Outcomes for Colgate

Availability of information in real time
Decision making made easy because of
availability of accurate and up-to-date data
Business process re-engineered and in some
cases different departments consolidated into
one
Improved efficiency: about 30% for the
database applications and about 50%
reduction in processing time

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Outcomes for Colgate Contd

SAP handles 95% of the companys $9.9 billion
annual sales.
Colgate saved $225 million where as target
was $125 million.
Datacenters shrinks to 1 (and one backup)
from 75
Inventory reduce by 10%
Facilitated move to eCommerce.

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ERP in . the Army?

Why do you think the US army would want to
implement an ERP system?
What kinds of challenges would the US army
face in implementing an ERP system?

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Whats the difference between a

function and a process?

Business Function: Related sets of

specialized activities carried out by an
organization

For efficiency keep people who do the same thing

together
Often = department
Examples?

Business Process: the way that work is

organized and coordinated in an organization
to add value

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Process Oriented Application

ERP systems are composed of a series of modules that

support end-to end business processes (which is how
value is added in an organization)

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Enterprise Resource Planning (ERP)

Systems

Enterprise Resource Planning Systems are

enterprise systems meant to integrate data
and support many of the major functions of
organizations.

Traditional focus: back office mostly isolated from

customers (except sales)

The goal of an ERP system is integrate data

and to make the information flow dynamic
and immediate, therefore, increasing its
usefulness and value.

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Enterprise Resource Planning (ERP)

Systems
(cont)
Clients, employees and vendors all use the same

Clients, employees and vendors all use the same

system
Major functions are integrated in a single
software system
Replace an assortment of systems and numerous
databases that typically existed in organizations.
Integrate departments and functions across an
organization sharing a common database
Integrated information available in real-time.
Data flows seamlessly no manual intervention
and no paper
Do you see any issues with sharing data with customers and
vendors?

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ERP Supported Functions

Financial

Human
Resources

Operations &
Logistics

Sales &
Marketing

Accts Receivable

Time Accounting

Inventory

Order Processing

Asset Account

Payroll

MRP

Pricing

Cash Forecast

Personnel Plan

Plant
Maintenance

Sales Reporting

Cost Accounting

Travel Expense

Production
Planning

Sales Planning

General Ledger

Benefits Mgmt

Manufacturing

Catalogue Mgmt

Profit Analysis

Purchasing

Standard Costing

Quality Mgmt.
Shipping

All of these functions. One software package.

One database

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Factors in development of ERP

Speed and power of computing

Hardware (servers and disk) now cheap and fast makes ERP feasible
Happened in the 90s.

Increasingly complex business environment

Organizational complexity
Increasingly demanding customers
Globalization
Increased competition

Increasingly sophisticated software needs

Legacy systems break under the strain of.all of the above

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ERP Vendors
Oracle - www.oracle.com

Peoplesoft - www.peoplesoft.com
> J.D. Edwards - www.jdedwards.com

SAP - www.sap.com
SSA Global - www.baan.com
Microsoft
Others niche/specialty

SYSPRO: Small manufacturers

Banner: Universities
Meditech: Hospitals

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ERP Vendors
Consolidation is currently taking place in the
ERP software business

PeopleSoft purchased ERP vendor J.D. Edwards in 2003

Oracle, after a long battle, acquired PeopleSoft in 2005
SAP and Oracle are now the two largest ERP vendors
Microsoft is challenging SAP and Oracle to sell ERP
systems to small- and medium-sized businesses
Other vendors

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