Supporting Processes with ERP Systems

Supporting Processes with ERP Systems
Chapter 6 Supporting Processes with ERP Systems Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Learning Objectives Q1. What problem does an ERP system solve? Q2. What are the elements of an ERP system? Q3. What are the benefits of an ERP system? Q4. What are the challenges of implementing an ERP system? As we begin this chapter on Supporting Processes with ERP, we’re going to take a look at a key problem that ERP solves for organizations and the elements of an ERP system. We’ll also dive into the benefits of an ERP system as well as the challenges of implementing an ERP system. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Learning Objectives Q5. What types of organizations use ERP? Q6. Who are the major ERP vendors? Q7. What makes SAP different from other ERP systems? We also want to find out the types of organizations that use ERP and who the major ERP vendors are. Finally, we’ll talk specifically about SAP and the things that make SAP different from other ERP systems. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Problem Does an ERP System Solve?
Information Silo Problem Data isolated in separate information systems Solutions Enterprise Application Integration (EAI) Enterprise Resource Planning (ERP) The key problem that organizations face regarding information systems is the problem we addressed in Chapter 5. This is what we referred to as an information silo problem. Information silos result when organizations use several separate information systems which store data separately. As we discussed previously, this can lead to inconsistent data as well as other undesirable issues. Though the focus in this chapter is on ERP, there is another solution to this problem. That is EAI or Enterprise Application Integration. We’ll spend a few minutes learning more about EAI. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

EAI Connects information silos via a new layer of software Enables existing applications to communicate and share data Provides integrated data There are several characteristics of EAI. First, EAI is a software solution that connects information silos. It also enables existing applications to communicate and share necessary data. In doing so, it provides integrated data across departmental boundaries. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

EAI Leverages existing systems, leaving departmental information systems as is, but providing an integration layer over the top Enables a gradual move to ERP EAI also leverages existing systems, leaving them as they are, but providing a layer of integration. This is beneficial because it allows organizations to continue taking advantage of their current IT investments and causes less disruption than an ERP implementation. Finally, EAI serves as a gradual first step towards ERP. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

EAI Figure 6-1 EAI Architecture This diagram demonstrates how EAI works. As you can see, in section “a”, we have information silos. We can use the EAI software to act as an interface between the information silos so they can communicate and share data. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Integrates data and supports processes across departmental areas Suite of software, a database and a set of inherent processes for consolidating business operations into a single, consistent information system Uses a single database Is a single information system Unlike EAI, ERP moves all of your processes previously supported by separate information systems, into a single information system. In this way, data is stored in a single database and can be shared across processes in various departmental areas. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Figure 6-2 Data Integration of Processes In Four Example Departments As you see in this diagram, the ERP system allows for data to be shared across processes and departments by storing the data in a single consistent system. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Are the Elements of an ERP System?
Manufacturing Software MRP MRPII Before we talk about ERP, it’ worth getting an understanding of some older existing software that was available primarily to manufacturing organizations. The first is Materials Requirements Planning software. This software was designed to efficiently manage inventory, production, and labor. The next generation of MRP was called MRPII. MRPII included financial tracking of manufacturing processes as well as the ability to schedule capacities. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

ERP includes applications that integrate the processes for the following functions: SCM – Supply Chain Management – i.e. procurement Manufacturing CRM – Customer Relationship Management Human Resources Accounting Today, for a system to truly be considered an ERP system, it must include applications that integrate the processes for Supply Chain Management, Manufacturing, Customer Relationship Management, Human Resources, and Accounting. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Five Components of an ERP System Software Hardware Data Procedures People As you can see, ERP includes three of the five components of an IS: software, databases, and procedures. To create an ERP product, software and databases are installed on hardware and people are trained on the ERP procedures. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

ERP Software Configuration ERP Databases Over 25,000 tables Procedures Train the trainer (in-house training) The ERP software is designed to integrated data and processes across departmental areas in an organization. As each organization differs, even within the same industry, each organization has differing business requirements for the ERP Software. As a result, the software is often customized to meet the organizations needs. This is called configuration. Databases for ERP systems are very large. In an earlier chapter, we looked at databases and database design. An ERP system can have over 25,000 tables. Imagine the complexity involved in designing a database structure across over 25,000 tables. IS procedures are instructions for interacting with the ERP application. Procedures for an ERP system can be very strict and this requires a great deal of training for the users. Often organizations schedule trainer sessions where a third party vendor trains individuals within the organization in order for them to be prepared to train users on an ongoing basis. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Hardware ERP Hardware Dilemma People Users Analysts Consultants Several hardware needs are addressed because of ERP implementations. Among these are storage devices, clients, printers, servers, as well as others. However, with changes in technology, organizations are now facing a new ERP hardware dilemma. Recent developments in smartphone technology have led to the use of smartphones for business activities. The dilemma revolves around whether or not users’ private smartphones should be used to interact with the ERP applications. Organizations are faced with the choice of allowing the use of private smartphones or deploying company smartphones for their employees. Finally, people are involved with the ERP system and fall into three basic categories. First are the users, who interact directly with the system. Second are analysts, often referred to as systems or business analysts whose role is to analyze the system and business processes to maintain and adapt the system after implementation. The last role is that of a consultant. Consultants perform various roles, from training to configuration of the ERP system. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Inherent Business Processes in ERP System specified business processes Process blueprints An ERP system is more than just an IS. ERP also has predefined processes often based on best practices which are designed for ease of implementation and use. These are known as inherent business processes. Organizations are often forced to adapt existing processes to these inherent business processes. Organizations that prefer not to do this are forced to customize the ERP system to meet their requirements. This can be a costly venture! Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Are the Benefits of an ERP System?
The Sharing of data is KEY in ERP, especially the sharing of purchase orders with suppliers Figure 6-9 Benefits of Using an ERP Solution There are several benefits of using an ERP solution as we can see in this diagram. First, we saw in the previous slide that ERP systems have inherent business processes. These processes are built on industry best practices that are appropriate for the organization. This means, organizations existing processes aren’t necessarily improved. Instead, the inherent processes are adopted. Another benefit is the sharing of data in real time. This allows managers to respond more readily to changing business environments. Managers can also improve their management skills by having greater insight into the business. Finally, we’ve discussed the information silo problem on more than one occasion. An ERP system is an integrated system, allowing for the integration of data and processes across departmental boundaries. By design, an ERP system eliminates inefficient information silos. There are several benefits of using an ERP solution as we can see in this diagram. First, we saw in the previous slide that ERP systems have inherent business processes. These processes are built on industry best practices that are appropriate for the organization. This means, organizations existing processes aren’t necessarily improved. Instead, the inherent processes are adopted. Another benefit is the sharing of data in real time. This allows managers to respond more readily to changing business environments. Managers can also improve their management skills by having greater insight into the business. Finally, we’ve discussed the information silo problem on more than one occasion. An ERP system is an integrated system, allowing for the integration of data and processes across departmental boundaries. By design, an ERP system eliminates inefficient information silos. There are several benefits of using an ERP solution as we can see in this diagram. First, we saw in the previous slide that ERP systems have inherent business processes. These processes are built on industry best practices that are appropriate for the organization. This means, organizations existing processes aren’t necessarily improved. Instead, the inherent processes are adopted. Another benefit is the sharing of data in real time. This allows managers to respond more readily to changing business environments. Managers can also improve their management skills by having greater insight into the business. Finally, we’ve discussed the information silo problem on more than one occasion. An ERP system is an integrated system, allowing for the integration of data and processes across departmental boundaries. By design, an ERP system eliminates inefficient information silos. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Are the Benefits of an ERP System?
Figure 6-10 Example Measures of the Benefits of ERP In the previous slide we reviewed the benefits of an ERP system, but it’s equally important to understand how these benefits are measured. The diagram you see in this slide helps depict some examples of how benefits of an ERP system can be measured. As an example, you can see comparisons as is the case with inventory reduction and reduction of end-of-year closings. Other examples also exist. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Procurement Process SAP helps to manage the steps Get price quote Create PO (purchase order) Receive Goods Update Raw Materials Receive Bill Pay Suppliers – Not the same order as individual customer 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Are the Challenges of Implementing an ERP System?
Implementation Decisions Details People Issues Changes There are several challenges with implementing an ERP system. However, we can categorize them into two main categories, implementation decisions and people issues. The implementation decisions involve some of the more technical details associated with using the new ERP system, while the people issues involve changes with work patterns as well as managerial issues. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Implementation Decisions Figure A Sample of Configuration Decisions As we mentioned in the previous slide, part of the challenge of implementing an ERP system lies in the details of implementation decisions. Earlier we discussed customization and noted that customization results in making configuration changes. Customization is the result of implementation decisions. This table shows some examples of configuration decisions that an organization might face during implementation. As an example, an organization may currently have processes in place for approving production capacity that differ from the pre-configured best practices of the ERP system. If the organization would like to maintain their current processes, they would need to make some configuration changes to the system to adapt the system to the organization’s needs. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

People Issues Figure People-Related Implementation Challenges The other area of concern during implementation is people issues. In the previous slide we mentioned that sometimes an organization needs to configure the ERP system to meet their processes. People issues occur when the ERP system dictates changes in processes for the organization. When that happens, work is changed and is often not well received by the people in the organization. Other people issues involve management’s lack of involvement or overstating of the systems capabilities. As you can see here, there can also be a perceived threat to a department’s autonomy, especially if the department was allowed to operate in an information silo prior to the ERP system. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Implementation Decisions Details People Issues Changes Implementation decisions and people issues can thwart the success of an ERP implementation. It’s therefore essential to properly address these areas going into an ERP implementation. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Types of Organizations Use ERP?
ERP by Industry Type ERP by Organization Size International ERP The first major ERP customers were mostly large manufacturers. As time passed, other industries realized they could achieve the same the benefits from an ERP system. We’ll see some of these industries represented in the next slide. Also as we just mentioned, ERP was first used by large organizations. However smaller organizations realized their processes and business requirements were not all that different from larger organizations. As a result, small to medium sized organizations also realized they could benefit from ERP systems. However, small to medium sized organizations don’t always have the adequately skilled personnel to successfully implement such systems. Finally, global organizations also realized the benefits of ERP systems. Some of the challenges of global business include different currencies and differing languages. ERP systems provide the functionality to address these challenges making an ERP system a great fit for global business. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Types of Organizations Use ERP?
Figure ERP by Industry Here again are some examples of various industries that benefit from ERP systems. As you can see there are several industries. Also, recall that we mentioned ERP systems provide best practices for these industries making implementation easier. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Who Are the Major ERP Vendors?
ERP Vendor Market Share Figure 6-14 Characteristics of Top Vendors This slide shows some of the major ERP vendors. Keep in mind, earlier we defined a true ERP system as one which must include applications that integrate the processes for Supply Chain Management, Manufacturing, Customer Relationship Management, Human Resources, and Accounting. Though several vendors may claim to provide ERP applications, this table shows those that generally satisfy the criteria we just mentioned. They are listed in descending order of rank. As you can see, SAP holds the largest market share among ERP vendors. In this next slide, we’ll look at the product offerings and customer size. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Who Are the Major ERP Vendors?
ERP Products Figure 6-15 Vendors and Company Size As you can see from this diagram, ERP vendors are targeted to different sized organizations. For instance, Microsoft Dynamics is best suited for small to mid-sized companies, while Oracle and SAP are best suited for Large Companies. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Makes SAP Different from Other ERP Systems?
SAP Modules SAP Inputs and Outputs SAP Software SAP Business Suite SAP has some characteristics that make it unique. Some of those can be seen in this slide and the slides to follow. SAP’s ERP product is made up of a collection of interconnected and interdependent modules. The modules can be further described as a distinct and logical set of processes. SAP inputs and outputs provide usability features. Data is stored in a single centralized database and when running various transactions in the system, users enter information which calls up additional information from the database making transactions smooth. Finally, in recent years, SAP has repackaged its application offerings by grouping them into what they call the “SAP Business Suite”. We’ll spend a little time later discussing the SAP Business Suite. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

SAP Modules Figure 6-16 This table shows a list of SAP Modules. As we just mentioned SAP modules are a set of interconnected and interdependent processes. SAP has developed best practices for various industries that are supported by the processes in these modules. SAP offers processes specific to Quality Management; Financial Accounting; Plant Maintenance; Human Resources; Project Systems; Production Planning; Controlling; Sales and Distribution; Materials Management; and Business Intelligence. The Sales and Distribution module, SD, and the Materials Management Module, MM, will be addressed in Chapters 7 and 8 of this textbook. Keep in mind, though these modules support specific business processes, the real power of the system is in the integration across these modules. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

SAP Inputs and Outputs Figure 6-17 Procurement Example Screen This screen is taken directly from the SAP system and shows a series of events completed by the user in the Create Purchase Order screen. First, the user enters a vendor number in the field indicated with the number “1”. Second, in the field labeled “2”, the user enters material numbers for the purchase order. Once this has been completed, the user in step “3” clicks on the green check which is an “enter” action. Upon doing this, the SAP system extracts additional information from the database and populates additional fields as a means of output. This makes the procurement process easier for the user and provides the user with information to validate their entries. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

SAP Business Suite SAP ERP SAP CRM SAP SRM SAP SCM SAP NetWeaver The SAP software is now bundled into what SAP calls the SAP Business Suite. The SAP business suite is composed of various applications. These applications are listed on this slide and include items we’ve previously addressed, with the exception of SAP NetWeaver. Before we talk about SAP NetWeaver, let’s refresh ourselves on some of the acronyms we see here. Of course, this chapter’s main focus is on ERP, so let’s redefine the others in order. We see SAP Customer Relationship Management, SAP Supplier Relationship Management; and SAP Supply Chain Management. Recall a short while ago, we mentioned the characteristics of a true ERP system as including the products we see here. SAP NetWeaver is the application platform on which these mentioned applications run. SAP NetWeaver offers several advantages to SAP customers, which among other things includes services oriented architecture capabilities which allow for these SAP applications to integrate with non-SAP applications. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

SAP Modules SAP Inputs and Outputs SAP Software SAP Business Suite So we now have a better understanding of SAP and some of the terminology associated with SAP like modules and SAP Business Suite. Again, we’ll see some practical examples of how the SAP system works in chapters 7 and 8. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Ethics Guide ERP Estimation Todd’s ethical/unethical actions??? In this Ethics Guide we see an example of a successful ERP implementation, but the question is whether or not the results justify the means. Read through this Ethics Guide and review the questions for discussion. How do you feel about this situation? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Conclusion Q1. What problem does an ERP system solve? Q2. What are the elements of an ERP system? Q3. What are the benefits of an ERP system? Q4. What are the challenges of implementing an ERP system? As we saw early in this presentation, an ERP system solves the problems associated with information silos. We also saw different elements of an ERP system and addressed such things as MRP and MRPII as well as using configuration to help adapt the ERP system to meet an organization’s business requirements. There are also several benefits of using an ERP system. We break down the information silos that may have previously existed by integrating data and processes throughout the organization. ERP also has what we defined as inherent processes built in. These inherent processes are built around industry best practices. Implementing an ERP system also has its challenges. We categorized these challenges into two main categories, implementation decisions and people issues. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Conclusion Q5. What types of organizations use ERP? Q6. Who are the major ERP vendors? Q7. What makes SAP different from other ERP systems? We also looked at different types of organizations that use ERP. We mentioned initially, it was large manufacturing organizations who benefited from using ERP. But the types of organizations using ERP grew beyond large manufacturing organizations. Today we see organizations of small to medium sized businesses as well as organizations across various industries who benefit from ERP systems. We also listed several ERP vendors, which included SAP as the highest ranked ERP vendor. Vendors other than SAP include Epicor, Microsoft Dynamics, Infor, and Oracle. These vendors as a whole satisfy the needs of organizations of various sizes from small to large. Finally, we looked at how SAP is designed. We saw that SAP’s ERP product is constructed using modules which are interconnected and interdependent sets of processes. SAP also offers various applications called the SAP Business Suite, which runs on an application platform called, SPA NetWeaver. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

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