Enterprise Resource Planning (ERP) Rev: Feb, 2012 Euiho (David) Suh, Ph.D. POSTECH Strategic Management of Information and Technology Laboratory (POSMIT: http://posmit.postech.ac.kr) Dept. of Industrial & Management Engineering POSTECH

Contents ※ Discussion Questions 1 Introductions of ERP 2 1) Fundamental Introductions of ERP 2) Development of ERP 3) Functions of ERP 4) Structure of ERP System 5) Characteristics of ERP 2 ERP Selection Criteria Phases of ERP Selection Market Share ERP Vendors with Their Characteristics 3 Case Study

Discussion Questions (1/2) What do you think is the main function of ERP? Give a definition of ERP system by your own words How can we meet the challenges that ERP brings to us? Which ERP selection criteria do you think is the most important, and why? What are the pros & cons of ERP vendors (SAP and Oracle)?

Discussion Questions (2/2) Case 2 in textbook (pp. 290~291, Chapter 7) What are some of the business benefits of the technologies described in the case? Provide several examples beyond the mere automation of transaction-oriented processes What are some of the challenges and obstacles in developing and implementing HRM systems? Are these unique to this type of systems? What strategies would you recommend for companies to meet those challenges? Provide several specific recommendations Discussion Questions in textbook (p. 305, Chapter 7) Why is there a strong trend toward cross-functional integrated enterprise systems in the business use of information technology?

What is ERP? Definition of ERP (Enterprise Resource Planning) 1. Introductions of ERP 1) Fundamental Introductions of ERP What is ERP? Definition of ERP (Enterprise Resource Planning) A set of applications designed to bring business functions into balance and represents the next generation of business systems – by Gartner Group An accounting oriented information system for identifying and planning the enterprise wide resource – by APICS Advanced Process Information Technology ERP BPR Process Innovation

Why ERP ? Roles of ERP (Enterprise Resource Planning) 1. Introductions of ERP 1) Fundamental Introductions of ERP Why ERP ? Roles of ERP (Enterprise Resource Planning) The backbone of business processes A cross-functional enterprise system An integrated suite of software modules A system supports basic internal business processes A system facilitates business, supplier, and customer information flows

ERP Application Components 1. Introductions of ERP 1) Fundamental Introductions of ERP ERP Application Components

Benefits and Challenges of ERP 1. Introductions of ERP 1) Fundamental Introductions of ERP Benefits and Challenges of ERP ERP Business Benefits 1. Quality & efficiency 2. Decreased costs 3. Decision support 4. Enterprise agility ERP Costs 1. High risk & cost 2. Hardware and software are a small part of overall project 3. Failure can cripple or kill a business

Costs of Implementing a New ERP 1. Introductions of ERP 1) Fundamental Introductions of ERP Costs of Implementing a New ERP

Common Causes of ERP Failure 1. Introductions of ERP 1) Fundamental Introductions of ERP Causes of ERP Failures Common Causes of ERP Failure Under-estimating the complexity of planning, development, training Failure to involve affected employees in planning and development Over-reliance on ERP vendor or consultants ERP Selection Criteria Insufficient training Insufficient data conversion and testing Trying to do too much, too fast

Development of ERP 1970’s 1980’s 1990’s 2000’s 1. Introductions of ERP Inter-company Optimization Win-Win-Win Enterprise-wide Planning Management Innovation SCM (Supply Chain Management) Closed Loop MRP Capacity Planning Cost Reduction ERP (Enterprise Resource Planning) Material Planning Minimum Inventory MRPII (Manufacturing Resource Planning) MRP (Material Requirement Planning) 1970’s 1980’s 1990’s 2000’s

ERP Functions of ERP 1. Introductions of ERP 3) Functions of ERP Finance/ Accounting Engineer- ing Sales/ Mktg Supplier Production Logistics Customer Product Development Process CAD/CAM PDM Drawing/Docu Mgmt EC Mgmt Configuration Control Release Control Order Fulfilment Process Manufacturing Process Management Process Employee MES Finite Scheduling Data Collection/POP Facility Management Quality Management FA

Structure of ERP System 1. Introductions of ERP 4) Structures of ERP System Structure of ERP System Supplier AR Planning AP GL Receiving Shipping Inventory Manufacturing Plants Distribution Centers Product Life cycle Engineering Purchasing Order Admin Finance Order Entry Shop Floor Control PDM E D I . W e b FA Customer

Characteristics of ERP 1. Introductions of ERP 5) Characteristics of ERP Characteristics of ERP BPR Enabler BPR Tool BPR Infrastructure Integration Data Integration Single View of Distributed Systems Communication Tool Globalization Configuration Function No Programming Supporting Multi-language Enterprise Real-time Integration

Phases of ERP Selection 2. ERP Selection Criteria 1) Phases of ERP Selection Phases of ERP Selection Phase 0 Studies the business(mission, strategy, etc.), business processes Decide if the company has to acquire an ERP Phase 1 Conduct a market research initiative looking for ERPs Reduce the number of candidates Phase 2 Obtain one or more interviews with the providers Get as many fact sheets, catalogs, articles, ect., as possible Select 2 or 3 ERP candidate solutions Phase 3 Analyze the demonstration of candidates Visit the providers Phase 4 Make final decisions Negotiate and plan Acquirement First filter Second filter Analysis Final decision

ERP Selection Criteria (1/3) Functionality criteria Criteria Definition Included functionality Areas or functions of the company that the ERP has to serve It is described how the ERP covers each function Main target Functional area or areas for which the ERP is specially oriented or strong Adaptability Possible level of customization in general and for the specific company Openness for custom development working with other systems Level of openness to additional bespoke development (internal or external) and to other existing applications E.g. API, CRM, SCM, etc. Specifics supports E.g. Y2K, euro, ISO-9000, etc.

ERP Selection Criteria (2/3) Technical criteria Criteria Definition Platforms Information technology platforms supported Database management systems DBMS or DBMSs used as base for the ERP Languages and development tools Languages and development tools used to customize the ERP User management tools Management capabilities: users, user groups, access levels, roles, authorizations, etc. User documentation Printed manual Online help Tutorials Type of user documentation for training and helping to use the ERP Technical documentation Database schema Source code Design Technical documentation provided about internal structure of ERP master programs and databases Internet/Web Remote EDI Types of external connectivity supported

ERP Selection Criteria (3/3) Others Cost Are the license costs justified given the functionality offering? Are annual maintenance charges reasonable? How quickly can payback be received? Service & Support Can the supplier provide a complete turn-key solution? How quick are non-critical software bugs fixed? Does the vendor offer business process reengineering as part of the implementation process? Does the supplier have industry experience? Vendor longevity How many years has the company been actively engaged? When was the product’s first release? What is the current release version being quoted?

2010 2005 Market Share Market share of ERP vendors in 2005 and 2010 2. ERP Selection Criteria 3) Market Share Market Share Market share of ERP vendors in 2005 and 2010 2010 2005

ERP Vendors with Their Characteristics (1/2) 2. ERP Selection Criteria 4) ERP Vendors with Their Characteristics ERP Vendors with Their Characteristics (1/2) Logistics & Workflow System Administration Integration of Modules SAP Workflow-oriented Excellence in outbound logistics Oracle Effective in e-commerce SAP Offering tools to simplify system administration users cannot utilize sufficiently Oracle Ease of system administration (basis of Oracle Database) SAP Excellence in interface bet. Modules Lack of 3rd party vendors Oracle Following OLE, ODBC, DDE standard

ERP Vendors with Their Characteristics (2/2) 2. ERP Selection Criteria 4) ERP Vendors with Their Characteristics ERP Vendors with Their Characteristics (2/2) Usability Ease of implementation SAP Complex to use Oracle Good in usability SAP Very complex to implement Oracle AIM (Application Implementation Methodology) Ease of configuration

Case Study

Note MIT PPT materials (MRP/ERP) http://ocw.mit.edu/courses/sloan-school-of-management/15-761-operations-management-summer-2002/lecture-notes/lec13xrp.pdf

Reference Euiho Suh, “BPR/ERP(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory) Euiho Suh, “ERP Selection Criteria (PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory) O’Brien & Marakas, “Introduction to Information Systems – Fifteenth Edition”, McGraw – Hill, Chapter 7, pp. 271~276