ERP Systems Is it about the enterprise or the system?

Enterprise System  A technological tour de force  Implementation costs from $ 50 million to $ 500 million  Owens Corning adopted ES to replace 211 legacy systems  Enables a company to integrate the data throughout its entire organization  Has become an operating standard in the petrochemical industry

Evolution of ERP

Anatomy of ERP Systems  At the heart resides a central database that draws data from and feeds data into a series of applications  Key functions span financials, human resources, operations & logistics, and sales & marketing  Modules  A service company will not choose the manufacturing module!  Already have a serviceable system for that function  Greater the number of modules selected: greater the potential integration benefits greater the costs, risks and changes involved

Anatomy of ERP Systems  Tailor particular system aspects using configuration tables  What kind of inventory accounting  FIFO or LIFO  Basis for assessing product revenue  Geographical unit, product line, or distribution channel  SAP’s R/3 has more than 3,000 configuration tables  Dell spent about a year getting these tables set up

Flextronics  A $1.1 billion custom manufacturer  Rolled out ERP to its 26 global locations  Key benefits  Inventory turns  Shop first internal stores  Dynamic listing of parts & materials anywhere within the company  Inventory consolidation aids purchasing deals

Kaasco  80-employee furniture maker in Mukilteo, WA  Links manufacturing runs to BOM  Identify supply deficits before hiccups  More than MRP, as financials are current, as opposed to three months late!

IBM, Rochester, MN  5,500 employee manufacturing facility  Consolidated production of two different hardware lines  From silo- to consolidated-view of the factory

Key ERP Benefits  Price changes when a single component is changed  Manufacturing-cost comparisons  EDI with vendors & suppliers  Improved forecasting  Inventory visibility  Process control  Process integration  Custom quotes for special orders  Elimination of bottlenecks & duplicative procedures

Standardize or Customize?  Is ERP right for me?  How unique should a process be?  Should we differentiate core processes from competition Compaq wrote its own forecasting and order- management processes Implied more cost and reduced levels of integration with the ERP system But, critical for its “build-to-order” strategy

Strategic Alignment  Dow Chemicals  Lean production model; tight global coordination  Process standardization across divisions  Shift sourcing, manufacturing and distribution functions  Hewlett-Packard  Maintain business-unit anatomy  Several large divisions implementing SAP

ERP Failures  Mobil Europe  Applied Materials  Dell Computer  Dow Chemical  FoxMeyer Drug blamed its ERP for helping drive it into bankruptcy

ERP Failures

ERP Implementation  A recent Harvard study found  65% of business executives believe that ERP systems have a moderate chance to hurt their business because of potential implementation problems ERP technology could not support their business needs their organization could not make the necessary changes to extract benefits from the new systems  major reasons for failure user acceptance of process change budget and schedule overruns availability of skilled personnel technical problems

ERP Implementation  Treat ERP implementation like starting a new venture Invest in stages Risk sharing among all stakeholders Talented high-performance team Alignment of incentives for all stakeholders with the company’s interests Real time problem solving rather than compliance with plans

The Changing ERP Landscape  ERP market is radically different now than in the mid-1990s, ERP isn't dead.  ERP vendors provide the "plumbing solutions" necessary to conduct e-business. The ERPSuperSite is expanding its coverage to include Customer Relationship Management, Application Service Providers, and Enterprise Application  Integration.

Wrap-Up  Should you lock into one vendor? Should your company be pursuing ERP or a best-of-breed strategy?  Will the vendor hold me back from innovating?  What about SCM application providers, such as i2?  Can I outsource selected SCM services? PlasticsNet provide you forecasts and inventory stocking recommendations  Companies that stressed the enterprise and not the system gained the most benefits from their ERP implementations.  Potential benefits are substantial as are the associated risks