Chapter Eight

Building The EBusiness Backbone: Enterprise Resource Planning

ERP: The Technological Backbone of EBusiness

Typical corporate computing environment today of mainframebased apps is antiquated
Cannot meet demands of new economy and must be replaced

ERP integrated app suite

Framework to automate back-office functions: Financial, Manufacturing and Distribution, HR, Administrative Unites major business processes within single family of modules: production, order processing, inventory mgmt and warehousing, A/P and A/R, general ledger, and payroll

ERP phenomenon also catching fire among dot-coms

Managing customer relationships key for the newer online firms ERP offers customers efficient, high-quality service Ability to order online; inquire about product pricing and order status ERP prices dropping and rental ASP model becoming prevalent

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ERP: The Technological Backbone of EBusiness

ERP is the technological backbone of ebusiness
Enterprise-wide transaction framework with links into sales order processing; inventory mgmt and control; production and distribution planning; finance In early 1990s, only large manufacturers saw benefits of ERP Today, medium-size and dot-com firms also recognize necessity of integrating back-office processes for front-office success in e-commerce world
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Who Really Uses ERP Suites?

Large corporations that want to gain control over disparate groups of core business apps
3Com, Chevron Products Company, GM

3 primary categories of ERP implementations

Single to few products in single industry: eToys Single SBU firms, selling only few products in a single industry: Delta Airlines, Dell, Microsoft, Nike Large corporate conglomerates or multiple-SBU firms, selling many products in multiple industries: GE, IBM, Colgate-Palmolive, and Nabisco

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The Basics of ERP

Integrated Logistics Production Planning

Accounting & Financials Sales Distributions (Order only)

Human Resources

These apps are themselves built from smaller s/w modules that perform specific business processes within a given functional area
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Evolution of ERP

Wave 4
Interenterprise Integration (XRP)

Wave 3
Customer-Centric Integration (CRP)

Wave 2
Enterprise Integration (ERP)

Wave 1
Manufacturing Integration (MRP)

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Evolution of ERP
1960s

Automation of all aspects of production master scheduling

Showed technology could link disconnected business functions

Wave 4
Interenterprise Integration (XRP)

Wave 3
Customer-Centric Integration (CRP)

Wave 2
Enterprise Integration (ERP)

Wave 1
Manufacturing Integration (MRP)

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Evolution of ERP
Began in 1980s as MRP II as execs sought for similar benefits as MRP by integrating other functions Business drivers of ERP: replacing legacy systems, greater control, globalization, regulatory change, integration of decisions across enterprise Wave 3 Y2K preparation in 1999 a significant factor

Wave 4
Interenterprise Integration (XRP)

Customer-Centric Integration (CRP)

Wave 2
Enterprise Integration (ERP)

Wave 1
Manufacturing Integration (MRP)

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Evolution of ERP
ERP evolving into CRP to integrate brick with click Using middleware has drawbacks Traditional ERP build for maketo-stock business models; but this is no longer the case; customer value, effectiveness, enhanced service delivery key today Continuous planning vs. long Wave 2 planning cycle of ERP Ericsson Enterprise Integration (ERP)

Wave 4
Interenterprise Integration (XRP)

Wave 3
Customer-Centric Integration (CRP)

Wave 1
Manufacturing Integration (MRP)

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Evolution of ERP
A companys partners benefit from the same seamless integration as the company itself Extends beyond four walls of the enterprise to customer, suppliers and trading partners B2B marketplaces ERP does not support continuous-planning requirements of SCP Wave 2

Wave 4
Interenterprise Integration (XRP)

Wave 3
Customer-Centric Integration (CRP)

Collaborate or perish

Enterprise Integration (ERP)

Wave 1
Manufacturing Integration (MRP)

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Benefits of ERP
Critical business need: Enterprise-wide shared services
Replace old, autonomous departmental, or divisional services with single, streamlined, corporate-level process

Shared-services standardize the processes for routine, non-core functions for all business units to use
Accounting

With processes defined, an ERP-based IT infrastructure can be established to manage them efficiently
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ERP Decision = Enterprise Architecture Planning

Management must resolve enterprise architecture issues before selecting an ERP suite of products
What kind of company do we want to be? Not, What are each applications features?

Inability to find the right fit between ERP apps and their business causing corporate frustration
FoxMeyer

Problem not with ERP concept but in managements demands for quick fixes and rapid cures to underlying structural problems
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ERP Decision = Enterprise Architecture Planning

Selecting and installing a new ERP solution one of the most important and most expensive endeavors
Also most likely to go wrong Lack of alignment between ERP, business processes and ecommerce objectives can derail best of firms Managers must understand core functionality, not abdicate responsibility to IT dept

Successful organizational change is gradual

Enterprise apps require moving decades of corporate knowledge and information to a new technology platform Technology is not the only challenge in managing transformation

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ERP Decision = Enterprise Architecture Planning

Cannot lose sight of customers
Is this something our customers will recognize as valuable? Will it shorten order-to-delivery cycle? Will this improve our product and performance?

ERP impacts not just s/w

Corporate culture, business processes, staff, and day-to-day procedures are all affected

Executive mgmt must understand technical basis for business change and e-commerce functionality, besides ROI of new technology
What business are we in? What are the key issues facing us today? What issues will be important tomorrow?
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ERP Decision: Build Vs Buy Vs Rent

Important decision: whether to build or buy or rent
ERP apps define overall corporate architecture Enterprise-wide implementations

Custom design app that meets specific requirements of an organization has several drawbacks
Highly complex Lengthy design, development and implementation efforts Limited flexibility to support diverse and changing operations or to respond effectively to evolving business demands and technologies
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ERP Decision: Build Vs Buy Vs Rent

COTS apps address limitations of custom built apps
Provide broad functionality, better integration with existing legacy systems, greater flexibility to change and upgrade, and a lower TCO

Downside of COTS apps

Reengineer estbd. business practices Customize apps Hire consultants to make s/w work No competitive edge

Mgmt must view COTS apps within the context of overall business strategy
What business processes bring us our identity and our competitive advantage? How can we ensure that we enhance these with COTS solution? How can we support our ecommerce initiatives with COTS?
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Capabilities of COTS ERP Solutions

Consolidation of back office Creation of single back office that supports multiple distribution channels Facilitation of changes in business practices Facilitation of changes in technology

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Microsoft
Spent 10 months and $25 million installing SAP R/3 to replace a tangle of 33 financial-tracking systems in 26 subsidiaries

$18 million annual savings

Growth rate was straining companys systems
50 subsidiaries worldwide; continues to grow every day More than 30 systems implemented in a piecemeal fashion over time supported financial, operations and HR groups alone Batch processes to move information between systems Run time grew to more than 12 hours 90% of the more than 20,000 batch robs that ran each month retrieved and processes same information

Mgmt realized it needed a global and integrated solution to support its core business
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ERP Implementation: Catching the Bull by the Horns

Installation of ERP packages unique
Each ERP app suite has own architecture, customization features, installation procedures, and level of complexity

Implementation strategies for SAP

Step-by-step One module at a time Big bang Replacing all old systems at once Modified big bang Various modules at once, but pilot first Very common

Even if implementation strategy is right, setting up the solution not easy

Brother Industries
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Roadmap to Rapid Implementation: Accelerated ERP Approach

Todays intense competitive pressures require fast response
ERP app suites cant keep up

But successful companies understand business processes, simplify them, and then introduce automation
Automating complex or non-value-adding processes will not increase productivity or provide measurable improvements in performance Automation without simplification immortalizes ineffective processes

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Roadmap to New Leadership Skills

Effective coordination mgmt encompasses a combination of four capabilities
Strategic thinking How well does your ERP selection, implementation, and evolution strategy align with your business strategy? Process reengineering Managing implementation complexity Transition management

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