1. 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:
Dept. of Industrial & Management Engineering POSTECH

2. Business Process Reengineering

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

4. 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

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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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?

20. Enterprise Resource Planning

21. 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

22. 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

23. ERP Application Components

24. 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

25. Costs of Implementing a New ERP

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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.

32. 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

33. 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?

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

35. 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

36. 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

37. Links ERP
Why do we need ERP?
Introduction to ERP