Ch. 09 BPR/ERP Dept. of Industrial & Management Engineering POSTECH Rev 4: April 15, 2015 Prof. Euiho Suh POSTECH Strategic Management of Information and Technology Laboratory (POSMIT: http://posmit.postech.ac.kr) Dept. of Industrial & Management Engineering POSTECH

Business Process Reengineering

Management Paradigm Shift Why BPR? Globe -driven Information -driven Management Paradigm Shift Customer -driven Technology -driven

Reengineering Business Processes Called BRP or Reengineering Fundamental rethinking and radical redesign of business processes Dramatic improvements in critical contemporary measure of performance, such as cost, quality, speed, and service “Do not automate , but, obliterate it “ HBR, 1990 by Michael Hammer, Prof at MIT Sloan Management School Fundamental Concept of BRP Process Fundamental Radical Dramatic Shift from function based thinking to process based thinking Fundamental rethinking of the way of conducting business Disregarding all existing structures and inventing complete new ways – not improvement or modification Making quantum leaps in performance rather than incremental improvement

Links Hammer BPR by Dr. Michael Hammer The role of the process owner

Definition of Process A process is a cross-functional interrelated series of activities that convert business inputs into business outputs Supplier Customer Input Output Activity Activity Activity Process

Seven Principles of BPR (1/8) Organize around outcomes, not task Have those who use the output of the process perform the process Subsume Information processing work into the real work that produces the Information Treat geographically dispersed resources as though they were centralized Link parallel activities instead of integrating their results Put the decision point where the work is performed, and build control into the process Capture all information at the source BPR Principles

Seven Principles of BPR (2/8) 1. Organize around outcomes, not task One person perform all the steps in a process Design that person’s job around an objective or outcome instead of a single task Example) Electronics company Customer service representative of the five steps between sell and install the equipment Task 1 Task 2 Task 3 Task 4 Task 5 Product / Service Task 5 Task 2 Task 1 Task 4 Task 3 Product / Service Reengineer

Seven Principles of BPR (3/8) 2. Have those who use the output of the process perform the process Establish specialized department to handle specialized process Each department does only one type of work BUT it’s slow and bureaucratic Now that computer-based data are more readily available, departments, units, individuals can do more for themselves Individuals who need the result of a process can do it themselves Greatly reduced the problem of capacity planning Example) Electronics equipment manufacturer’s service reengineering Customer make simple repairs themselves and only for complex problem is a service technician dispatched End performer End performer Reengineer Database

Seven Principles of BPR (4/8) 3. Subsume information-processing work into the real work that produces the information To maintain consistency and to reduce repetitive information process In the past, why didn’t an organization that produces information also process it? Not enough time to process the information Low trust to do both produce and process the information Belief that people at lower organizational levels are incapable Example) Ford’s redesigned accounts payable process Receiving department, receiving and processing the received information from vendor instead of sending it to accounts payable

Seven Principles of BPR (5/8) 4. Treat geographically dispersed resources as though they were centralized Centralization vs. Decentralization Decentralizing a resource gives better service to those who use it BUT at the cost redundancy, bureaucracy, and missed economies of scale Using database, telecommunications networks, and standardized processing systems to get the benefit of scale and coordination while maintaining the benefits of flexibility and service Example) Hewlett-Packard- 50 manufacturing unit’s separated purchasing department Provided excellent responsiveness and service but prevented realizing the benefits of its scale So each unit has access to a shared database on vendor and own purchase orders Separated department centralized by using database 150% improvement on-time delivery, 50% reduction in lead time, 75% reduction in failure rates Manufacturing units #1 Purchasing department #1 Centralized Manufacturing units #2 Purchasing department #2 Reengineer Database Purchasing department #3 Manufacturing units #3 Purchasing department #4 Manufacturing units #4

Links, communication networks Seven Principles of BPR (6/8) 5. Link parallel activities instead of integrating their results Forge links coordinate parallel functions during the process-not after it’s completed Communication networks, shared database can bring independent group together Usually, used in the product development Having people do development work simultaneously save time Example) Development of photo copier develop each subsystem(optics, paper handling, power and etc.) in a separated unit Easy to fail to work together Success! R&D department for optics Integrated result Reengineer R&D department for paper handling Failure! Links, communication networks R&D department for power Database

Seven Principles of BPR (7/8) 6. Put the decision point where the work is performed, and build control into the process Suggests that the people who do the work should make the decisions and can have built-in controls Self-managing, self-controlling, disappearing hierarchy through IT or Expert system Example) MBL (Mutual benefit Life) Case manager provides end-to-end management of the process, reducing the need for traditional manager Reengi-neer Case Manager

Seven Principles of BPR (8/8) 7. Capture information once and at the source In the past, information was difficult to transmit It made sense to collect information repeatedly Today, company store it in on-line database for all who need it Bar coding(POS: Point Of Sale), relational database, electronic data interchange(EDI) Example) Insurance company ‘Stovepipe’ computer system support and integrate, connect the different function. As a result, company was able to eliminate redundant data entry

Common Procedures When Performing BPR 1. Selection of project 2. Analysis of initial capability 3. Selection of process and project scope 4. Work analysis 5. Redesign of alternative process 6. Cost/benefit analysis for each alternative process 7. Selection of alternative process 8. Implementation of process 9. Change of process information

BPR vs. Other Programs (1/3) Taylorism vs. BPR Taylorism BPR (Hammerism) Orientation Task, Function Process Tool Stopwatch IT Domain Production Management Entire organization Goal Mass production Customer satisfaction Age Industrial revolution Information revolution

BPR vs. Other Programs (2/3) BPR vs. Business Improvement Business Improvement Business Process Reengineering Level of Change Incremental Radical Process Change Improved new version of process Brand-new process Starting Point Existing processes Clean slate Frequency of Change One-time or continuous Periodic one-time change Time Required Short Long Typical Scope Narrow, within functions Broad, cross functional Horizon Past and present Future Participation Bottom-up Top-down Path to Execution Cultural Cultural, structural Primary Enabler Statistical control Information technology Risk Moderate High

BPR vs. Other Programs (3/3) Reengineering Rightsizing Restructuring TQM Automation Assumptions Questioned Fundamental Staffing Reporting Relationships Customer Wants and Needs Technology Applications Scope of change Radical Staffing, Job Responsibilities Organizations Bottom-up Systems Orientation Processes Functional Procedures Improvement Goals Dramatic Incremental

Discussion Questions 1. Why BPR? 2. Why cross-functional and cross-layer? 3. Provide your own example for the Hammer’s 7 principles 4. Why and how is BPR different from the previous concepts?

Enterprise Resource Planning

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) 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

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

Common Causes of ERP Failure 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 SCM (Supply Chain 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

The view of Information Systems View Point 1 Data Information Decision Aids Knowledge Statistical Analysis Math Reasoning View Point 2 Extreme top Top Middle low Extreme low EIS/ESS DSS IPS TPS OAS E R P FIS AIS MkIS PIS Layer based Function based View Point 3 H Strategic Value ? ? L L H IS Expansion

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

Phases of ERP Selection 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?

Market Share Market share of ERP vendors in 2005, 2010 and 2013 2005 2013 2010

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) 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

Links ERP Why do we need ERP? Introduction to ERP