1. Hour 5: ERP System Installation Special IS Project In-house: massive IS project, heavy system design features

2. ERP Implementation Project If vendor system –Much less system design than otherwise –Vendor software already programmed Only need interfaces –Have help from vendor, consultants –Opportunities to outsource

3. ERP as an IS Project At least 7 optional ways to implement ERP Outsourcing (ASP) the easiest –But risky Next easiest is single vendor source without modifications –Not necessarily least expensive, nor greatest benefits All others involve significant IS project

4. Relative Use of ERP Implementation Strategies Mabert et al. [2000] Strategy% Single vendor package-internal modifications50 Single vendor package40 Vendor packages-internal modifications5 Best-of-Breed4 In-house plus special packages1 Total in-house development0.5

5. Implementation Strategy Use Dominant strategy in manufacturing: –Single vendor –Over half added internal modifications Very few best-of-breed Almost none developed totally in-house

6. IS/IT Project Management Results Conventional IS/IT projects have trouble with time, budget, functionality ERP projects have slightly more structure, but still face problems –Underestimation of required time common –Vendors have made easier & faster –Enhancement of systems another trend Reintroduces time problem

7. Systems Failure Method systematic method for analysis of failure successfully applied - wide variety of situations by reviewing past failures, avoid future failure as organizations rely more on computers, there is a corresponding increase in significant business interruptions yet of 300,000 large & mid-sized computer system installations, <3% had disaster recovery plans

8. Failures in Planning negative disasters: decision culminating in physical result, later substantially modified, reversed or abandoned after heavy resource commitment –power generation facility on campus positive disasters: decision culminating in physical results implemented despite heavy criticism, subsequently felt by many informed people to have been a mistake –Anglo-French SST; BART in San Francisco

9. Failures of Projects information technology 1992 - London Ambulance Service –1.5 million pound system on line 26 Oct 1992 –immediately lost ambulances –<20% of dispatched ambulances reached destinations within 15 minutes of summons –(before system, 65% met 15 minute standard)

10. Failures of Projects Some never work others over budget, very late, or both others perform less than design others meet design specifications, but maintenance & enhancement nightmares

11. System Failure Method failure is regarded as an output of transformation processed from system place trial system boundaries around situation –experiment with various configurations –reach conclusion about system –need to model system in some detail at different levels be careful not to make too fine, lose important inter- relationships

12. common results failure commonly a result of organizational structure deficiencies –lack of performance-measuring, control no clear statements of purpose subsystem deficiencies lack of effective communication between subsystems inadequate design insufficient consideration of environment; insufficient resources imbalance of resources production quantity; test quality

13. FoxMeyer Drug Large drug distributor Wanted to implement ERP

14. FoxMeyer Corp Holding company in health care services wholesale distribution of drugs & beauty aids served drug stores, chains, hospitals, care facilities US: 23 distribution centers Sought market niches, such as home health care

15. FoxMeyer Due to aging population & growth in health care, expected high growth Market had extreme price competition, threatening margins Long-term strategies: –efficiently manage inventory –lower operating expenses –strengthen sales & marketing –expand services

16. Prior FoxMeyer IS 3 data processing centers, linked included electronic order entry, invoice preparation, inventory tracking 1992 began migration of core systems Benefits not realized until system fully integrated

17. FoxMeyer Process Customer fills out electronic order Order sent to 1 of the 3 data processing centers Orders sent to the appropriate distribution center (within 24 hours) Orders filled manually and packaged Had just completed national distribution center with multiple carousels & automated picking Could track inventory to secondary locations

18. New System Needed new distribution processes & IS to capitalize on growth Wanted to be able to undercut competitors Replacing aging IS key PROJECT: 1994 - hoped to save $40 million annually (estimated cost $65 million) –complete ERP installation & warehouse automation system (another $18 million)

19. FoxMeyer Project Select ERP –hundreds of thousands of transactions –meet DEA & FDA regulations –benchmarked & tested for months –picked SAP R/3 –hired Andersen Consulting to integrate –hired Pinnacle Automation for warehouse automation system

20. Operations FoxMeyer expected the new systems to improve operational efficiency Signed several giant contracts –counted on savings, underbid competitors Counted on being up and running in 18 months

21. Problems SAP & warehouse automation system integration –two sources, two installers - coordination problems New contracts forced change in system requirements after testing & development underway Late, Over budget –SAP successfully implemented

22. Outcomes Lost key customer - 15% of sales To recoup, signed new customer, expected $40 million benefit from ERP immediately - pushed ERP project deadline ahead 90 days, no time to reengineer Warehouse system consistently failed –late orders, incorrect shipment, lost shipments –losses of over $15 million August 1996 filed for Chapter 11 –McKesson bought

23. McKesson Followup Mid-1990s started implementation of SAP R/3 –Cancelled project in 1996 after spending $15 million 1997 acquired FoxMeyer –Carefully designed new R/3 implementation –Dropped a number of modules –Implemented modules one at a time –Cautious rollout schedule, rigorously followed –Separate testing group formed –At last report $50 million system on time, in budget

24. McKesson Massive changes in 3,000 end user jobs Careful analysis of changes –Surveys –Focus groups –Demonstrations –Computer-based training

25. Lesson Implementing ERP a major undertaking Can easily bankrupt a company However, it can also be done –Opportunity for great benefits

26. System Architecture & ERP System architecture displays computer systems used to support organization Open systems architecture allows greater integration possibilities –Important in supply chains, e-business ERP systems initially quite closed

27. Open Architecture Many external systems being added to ERP –CRM –Supply chain –Internet for e-business Need to integrate independent ERPs across organizations –Messaging services used

28. Analysis & Design Control Frameworks Traditional standards for application development ERP implementation usually involves installation of vendor software –Still need for treatment as installation project Early in project, extensive customization needed –The more system flexibility, the more difficulties in implementation –Object-oriented framework benefits extension, tailorability, customizability

29. Application Service Providers Outsource ERP Popular –Unocal pared IT staff 40% in two years –Focus on core competencies, shed cost centers Many specific functions can be outsourced Outsourcing benefits –Speed –Organization lacks IT skills ASP the most popular way to outsource

30. ASP Risks Your applications and data are controlled by others Service failures out of your control Confidentiality failure a possibility Performance issues possible

31. Relative Implementation Effort MethodIn-HouseVendorConsultant Single vendor package-internal modifications SignificantHeavy Single vendor packageSignificant+HeavyHeavy + Vendor packages-internal modifications Significant+ModerateHeavy + Best-of-BreedSignificant ++ModerateHeavy + In-house plus special packagesExcruciatingNoneMaybe Total in-house developmentPainfulModerateMaybe Application Service ProviderLightNoneTo select

32. Implementation Effort Implementing ERP places strain on in- house information systems groups Consultants are expensive –Sometimes need special expertise Tradeoff: control vs. time & cost

33. Summary ERP driven by idea of quality software support Software quality has long been important Many ERP implementation strategies available Tradeoff in control vs. time & cost