Thursday, September 27, 2012

Enterprise Resource Planning

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INTRODUCTION

The assignment will explore ERP from its origin and would shed light on its fundamentals and implementation procedures. ERP will be evaluated from two perspectives of two different companies which implemented the ERP solution. First we will be discussing ¡§Cisco¡¦s¡¨ ERP implementation and the technical and business issues related to that and then we will move on to the other case study of ¡§Tektronix¡¨ which also implemented an ERP system. We will critically be evaluating the pre implementation phase and then we will be focusing on the benefits of the ERP systems for both these companies.

HISTORY

The concept of ERP has been around since the early 160¡¦s. Until 17 ERP was just a concept without a name or classification. It was a concept that companies had to integrate all departments and functions to increase revenues and strengthen the business.

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In 17, five managers left their positions at IBM to start a company to realize this vision of ERP. That company that they started is what is known today as SAP (Systems, Applications and Products).

SAP eventually became the first company to develop and implement ERP specific software and applications. Today SAP is the world¡¦s leader in ERP software with other big names like Oracle, Peoplesoft, Microsoft, Baan and Pinnacle also in the league.

DEFINITION

There is no widely accepted definition of ERP, due to the wide nature of the topic, its many implications and the concept that ERP is individual to each company using it. Some definitions are very technological oriented, focusing on the enabling of the technology and the other elaborate on the business aspect of it which are as follows

ERP, Short for enterprise resource planning, a business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing.

(www.zdnet.com/erp)

ERP focuses on trying to integrate departments and functions throughout a company. It attempts to integrate everything into a single system that can serve every departments and functions needs.

(Dr. Raft Sheiberger)



ERP is an attempt to integrate all departments and functions across a company onto a single computer system that can serve all those different departments particular needs.

(www.cio.com/research/erp)

ERP broken down simply is an application/system that both small and large companies are using today in order to streamline and integrate operation processes.

(Dr. Hall, University of Conneticut)

ERP¡¦S IMPACT ON BUSINESS

There are key aspects that ERP will help improve in a business. ERP allows for financial information and figures to be accurate and available at any given point in time. This is important because this allows for the executives to be able to evaluate the businesses worth, cash flows and other financial information.

ERP brings together and closes the gap that many companies have between its customers. Companies can now serve their customers in a faster and higher quality manner. The ERP system allows for less flaws and errors that cause tensions between customers, vendors and companies.

The reduction in inventory can increase a company¡¦s financial situation. ERP allows for companies to keep less inventory and try to become a Just In Time production practice. Reducing inventory allows a company to be able to get ride of the buildings and space that the inventory used to occupy. In this process reducing cost of storage and the taxes on inventory that companies have to pay and the fear of them being obsolete.

ERP INTEGRATION

There are many components of an environment that ERP Integrates which are as follows

DATABASES

Databases hold every single piece of electronic information for a company. When companies have several different databases it is hard for those databases to share information. When an ERP brings every piece of information into one central database, it then becomes easy to share that information.

APPLICATIONS

ERP attempts to bring all your current applications functions into one main system. No more having several applications for various tasks is needed to perform. ERP will bring all of those into one system that will perform the same tasks and functions as before, but into looking to streamline and improve the way those older applications performed.

PEOPLE

Over the most important integration that ERP provides is its ability to integrate people together. It joins people from different departments, divisions and countries with each other. People interaction is sometime the most important part of ERP. It allows for business to become personal and not just data flowing through systems

MARKET ANALYSIS OF ERP

ERP has been growing since its conception in the 160s. The ERP software market is estimated to see up to a 7% growth rate over the next five (5) years. This is a strong growth rate showing us that the ERP market is still on the rise, even though some speculations say ERP will be declining over the years. It is however to determine the actual size of the world market because of the inability to actually determine its value.

Even though ERP has its greatest impact in the manufacturing industry, it is breaking into and impacting other industries. These other industries include retail, utilities and health care.

KEY PLAYERS IN THE ERP MARKET

SAP is the world leader in ERP Software. They hold % of the market share. Oracle is a very up and coming ERP Solutions provider that has not been in the market for very long. However because of its strong database software, it was able to develop an ERP software utilizing its strong database. Oracle holds 15% of the market share. JD Edwards is a fast and up coming ERP software developer. Its has a main focus in customer relations, thus it decided to enter the ERP market and develop a ERP Software with a strong CRM module. JD Edwards hold 5% of the market share. The last key player holding 8% of the market share is People Soft. People soft has a relative small market share compared to SAP however it is a big contender in providing solutions for smaller companies. SAP and Oracle have mostly marketed and developed their software for large corporations. It has only been recently that ERP solutions providers have looked into try to develop software for smaller companies.

BENEFITS OF AN ERP SOLUTION

There are a number of benefits that corporations can gain from successful ERP implementations which are as follows

100% Web-based Enterprise Resource Planning

ERP can be deployed as part of an internal corporate network (intranet) or outsourced through ASP Hosting service and accessed via the Internet. Real-time data offers an instantaneous view into supply chain operations. You do not need to build an expensive communication infrastructure to use the ERP applications. You simply access the Internet for doing that.

Flexibility

ERP software is designed to be flexible. Users can define how much of the system they require with a flexible business-rule configurator. Application modules are implemented quickly and are easily modified to fit your business. Functions can be used individually or combined to provide the necessary information tools. ERP software can even be used to modify or replace all or part of an existing legacy ERP system. Functional parameters can be modified to accommodate changing needs. ERP Solutions are made to fit your business, instead of forcing your business to fit to the system.

Rapid Training

A lot of companies have designed a new approach to train people to their ERP solutions with the University in California (who is a leader in the distance learning programs) to develop a comprehensive multimedia training program for the ERP systems. This new training system has reduced implementation times by 75% and cut training costs by over 80% compared to other ERP and supply chain management systems.

Adaptable Architecture

The ERP system is built on a series of tightly coupled object layers that can be easily modified to accept new and current developments. A change in technologies (i.e. databases, communications, hardware, operating systems, or user interfaces) can be accommodated simply by changing the appropriate object layer. This ensures that your investment in the system, the investment in your peoples training, and the investment in your business process development will not become obsolete from a change in technology.

Affordable Pricing

ERP software offer three affordable pricing plans for the use of most ERP solutions in the market

1. Perpetual Licensing One-time fee for each concurrent user

. Transactional Pricing Fees are based on each database write

. Subscription Pricing A fixed monthly fee for each concurrent user

DISADVANTAGES OF ERP

There are a number of disadvantages for firms opting for an ERP approach

COSTS

ERP is a very costly solution to implement into an environment. Costs are a very crucial part of planning for an implementation.

TIME

ERP is a long and often on-going process. Many companies experience a 1-18 month implementation process and 1- year after implementation to see a real transition. Often many companies underestimate the time it will take to implement and see changes with in the company.

TRAINING

With a new way of performing jobs and a new application and sometimes processes, it takes time and money to train everyone in the company in this new system. This a huge disadvantage because many times people do not like change and when forced into change they become unwilling to accept the new system.

ACCEPTANCE

It takes a corporate wide change for and ERP solution to happen. Without 100% acceptance, there could be problems down the road with the new ERP system. Acceptance by everyone is crucial and a huge disadvantage or ERP because it is a given that 100% acceptance can not be reached.

HIDDEN COSTS

Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. Armed with insights from across the business, ERP pros vote the following areas as most likely to result in budget overrun.

Training

Training is the near-unanimous choice of experienced ERP implementers as the most underestimated budget item. Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface. Worse, outside training companies may not be able to help you. They are focused on telling people how to use software, not on educating people about the particular ways you do business. Prepare to develop a curriculum yourself that identifies and explains the different business processes that will be affected by the ERP system.

Integration and testing

Testing the links between ERP packages and other corporate software links that have to be built on a case-by-case basis is another often-underestimated cost. A typical manufacturing company may have add-on applications from the major e-commerce and supply chain to the minor sales tax computation and bar coding. All require integration links to ERP. If you can buy add-ons from the ERP vendor that are pre-integrated, youre better off. If you need to build the links yourself, expect things to get ugly. As with training, testing ERP integration has to be done from a process-oriented perspective. Veterans recommend that instead of plugging in dummy data and moving it from one application to the next, run a real purchase order through the system, from order entry through shipping and receipt of payment the whole order-to-cash banana preferably with the participation of the employees who will eventually do those jobs.

Customization

Add-ons are only the beginning of the integration costs of ERP. Much more costly, and something to be avoided if at all possible, is actual customization of the core ERP software itself. This happens when the ERP software cant handle one of your business processes and you decide to mess with the software to make it do what you want. Youre playing with fire. The customizations can affect every module of the ERP system because they are all so tightly linked together. Upgrading the ERP package¡Xno walk in the park under the best of circumstances¡Xbecomes a nightmare because youll have to do the customization all over again in the new version. Maybe it will work, maybe it wont. No matter what, the vendor will not be there to support you. You will have to hire extra staffers to do the customization work, and keep them on for good to maintain it.

Data conversion

It costs money to move corporate information, such as customer and supplier records, product design data and the like, from old systems to new ERP homes. Although few CIOs will admit it, most data in most legacy systems is of little use. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some overhaul to match process modifications necessitated or inspired by the ERP implementation.

Data analysis

Often, the data from the ERP system must be combined with data from external systems for analysis purposes. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget and they should expect to do quite a bit of work to make it run smoothly. Users are in a pickle here Refreshing all the ERP data every day in a big corporate data warehouse is difficult, and ERP systems do a poor job of indicating which information has changed from day to day, making selective warehouse updates tough. One expensive solution is custom programming. The upshot is that the wise will check all their data analysis needs before signing off on the budget.

Consultants ad infinitum

When users fail to plan for disengagement, consulting fees run wild. To avoid this, companies should identify objectives for which its consulting partners must aim when training internal staff. Include metrics in the consultants contract; for example, a specific number of the user companys staff should be able to pass a project-management leadership test¡Xsimilar to what Big Five consultants have to pass to lead an ERP engagement.

Replacing your best and brightest

It is accepted wisdom that ERP success depends on staffing the project with the best and brightest from the business and IS divisions. The software is too complex and the business changes too dramatic to trust the project to just anyone. The bad news is a company must be prepared to replace many of those people when the project is over. Though the ERP market is not as hot as it once was, consultancies and other companies that have lost their best people will be hounding yours with higher salaries and bonus offers than you can afford or that your HR policies permit. Huddle with HR early on to develop a retention bonus program and create new salary strata for ERP veterans. If you let them go, youll wind up hiring them or someone like them back as consultants for twice what you paid them in salaries.

Implementation teams can never stop

Most companies intend to treat their ERP implementation as they would any other software project. Once the software is installed, they figure the team will be scuttled and everyone will go back to his or her day job. But after ERP, you cant go home again. The implementers are too valuable. Because they have worked intimately with ERP, they know more about the sales process than the salespeople and more about the manufacturing process than the manufacturing people. Companies cant afford to send their project people back into the business because theres so much to do after the ERP software is installed. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least. And it is in analysis and, one hopes, insight that companies make their money back on an ERP implementation. Unfortunately, few IS departments plan for the frenzy of post-ERP installation activity, and fewer still build it into their budgets when they start their ERP projects. Many are forced to beg for more money and staff immediately after the go-live date, long before the ERP project has demonstrated any benefit.

Waiting for ROI

One of the most misleading legacies of traditional software project management is that the company expects to gain value from the application as soon as it is installed, while the project team expects a break and maybe a pat on the back. Neither expectation applies to ERP. Most of the systems dont reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system. And the project team is not going to be rewarded until their efforts pay off.

Post-ERP depression

ERP systems often wreak cause havoc in the companies that install them. In a recent Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that they suffered a drop in performance when their ERP system went live. The true percentage is undoubtedly much higher. The most common reason for the performance problems is that everything looks and works differently from the way it did before. When people cant do their jobs in the familiar way and havent yet mastered the new way, they panic, and the business goes into spasms.

CISCO CASE STUDY

HISTORY

„h Cisco Systems was founded by two Stanford Graduates in 184

„h Company specializes in the making of ¡§Networking and Internetworking¡¨ devices

„h Rise of the Internet demand for their products boomed

„h 17 Cisco¡¦s market capitalization passed $100 billion, making it the third company after Microsoft and Intel to achieve that.

PROBLEM BACKGROUND

„h Cisco was a growing company which needed a more robust system to handle its transactions.

„h The old UNIX package lacked reliability, maintainability and was also redundant.

„h Cisco wanted a system which could handle its future plan for $5 billion plus operations efficiently.

Cisco adopted the waterfall method in deploying its ERP solution.

Key philosophy and vision taken in the Business Process Re-engineering

„h Implementation strategy encompassed a ¡§Rapid Iterative Prototyping¡¨ technique (CRP)

„h Planned to follow the ¡§Vanilla Approach¡¨

„h Made ERP the first priority of the business and employees

Key steps taken in the Business Process Re-engineering

„h Chose KPMG to be their business partner as a consultant

„h Approached the vendors and jointly with KPMG studied their responses

„h Selection of Oracle (software vendor) was

„h Better Manufacturing capability

„h They made a number of promises of functionality

„h Flexibility offered by Oracle (Oracle was in the same city as Cisco)

„h ERP solution to be provided by a firm bigger than Cisco itself

„h Chalked out a time frame and stuck to it

„h Rewarded employee performance by a cash reward

„h Created structured and effective team for ERP implementation which included an Executive Training Committee under which there was a Project Manager who was reported to by the Business and IT consultants placed in all different areas.

„h Formulated a clever hardware agreement for support

„h Obtained high commitment from Oracle also

„h Formulated proper training procedures for the people in the organization.

During this process of business re-engineering Cisco also committed a few mistakes

„h Employed the ¡§Big Bang Approach¡¦¡¦ to its implementation of ERP

„h This was one of the very first Oracle Implementation and Cisco was a ¡§Guinea Pig¡¨

„h The selection of the project was done in almost 1 months time while most companies spend 6-8 months figuring out an ERP solution provider

„h The employee training process was compressed from 5 days to 16 hour days

„h Did not Black Box and White Box test the application.

„h Didn¡¦t work out the real cost of ERP project (app. $ 4 million)

CISCO¡¦S RESULTS

SHORT RUN (OPERATIONAL)

Initial success was less than expected

Plummeted overall business performance for sometime

System crashes occurred almost once every day due to hardware architecture

Software would crash when large amounts of transactions were made

The customer commitment fell from 5% to 75%

Cisco could not follow ¡§vanilla approach¡¨

LONG TERM (STRATEGIC)

They were able to implement a 15 month planned solution in just months

Total systems were replaced in just $15 million

Cisco achieved the competitive edge with the solution

TEKTRONIX CASE STUDY

HISTORY

An electronic test equipment manufacturer since, 146

By 1, Tektronix had grown to be a $ 1. billion giant manufacturing electronic tools for the industry.

Main manufacturing divisions were Measurement Business Division, Color Printing and Imaging and Vide Networking division.

Tektronix was headquartered in the US with operations in 60 countries

PROBLEM BACKGROUND

IT Architecture - Over 460 legacy systems in the United States only

No standardization, lacked accuracy, delayed orders, slow processing and customer service, extensive manual coordination, lack of integration in the financial systems

Orders were fed into multiple systems due to Tektronix¡¦s operations in 60 countries and in 6 divisions.

Tektronix ERP approach

Textronix adopted the ¡§waved concept¡¨ waterfall method in deploying its ERP solution.

Key philosophy and vision taken in the Business Process Re-engineering

Improvement of Industrial Strength

Standardisation driven

Operational Simplicification

Separability of the businesses

Leveraging Shared Service (worldwide financial system)

Staying as ¡§plain vanilla¡¨ as possible

Key steps taken in the Business Process Re-engineering

Single Mature ERP Vendor

Management Involvement and Support - Strategic and Methodological Role of Steering Committee

Strong Implementation Team Structure

Stressed importance on project schedule, wave concept

Five major sub-projects

Business Change followed by improvement of business Processes due to Plain Vanilla Approach

Only changes affected by extreme cases have been approved competitive advantage threat in OMAR implementation, local language support.

Sub-project Implementation enabled to build practices and learn lessons for the future waves.

Vigorous testing programme at MBD

Rigorous but successful global rollout

During this process of business re-engineering Tektronix also committed a few mistakes

Poor and Unstructured Consulting Support combination of large and small consulting firms and independent consultants.

Choice of Beta Version of ERP under CPID - version instability, ¡§debugging¡¨.

Poor initial internal Project Management Training

CPID & MBD Delayed Schedules due to learning & testing challenges.

Total expenditure app. $55 million

TEXTRONIX RESULTS

SHORT RUN (OPERATIONAL)

Improved Day¡¦s Sales Outstanding & Inventory Level

Worldwide goods inventory visibility

Same Day Shipment went up by 50%

Detailed financial analysis due to improved data integration

Effective sales and performance forecast

Better operational decisions making

Improved personnel satisfaction

LONG TERM (STRATEGIC)

Improved position of managing existing business

Has capacity to grow the business substantially

Increased efficiency and standardisation

Better visibility into customers and products

Meet the company goal to acquire new businesses and divest others

CONCLUSION

There are many limitations in this study. First, we focus on a limited number of variables for ERP implementation success. More relevant variables associated with ERP implementation, for example, project team competence, may be added to improve the understanding of ERP implementation success. Second, we only used perceived project metrics in defining implementation success, leaving out factual aspect of success outcome in the IS research. This was due to the difficulty in securing the factual data from the participating organizations. Third, this paper has a common method bias because the dependent variable and independent variables rated by the same respondent. Again, this was due to the difficulty of securing data from both ERP project members and operating department personnel.

Despite the fact that more and more companies are investing in ERP for replacing their custom-built legacy systems, the research in organizational fit of ERP has been generally overlooked. While it is recognized that organizational fit of ERP is a critical selection criterion for ERP, the link between organizational fit of ERP and ERP implementation success was not empirically validated. Many ERP vendors just ignore the organizational fit concept and urge blind trust on ERP from their clients.

In this study, we found that organizational fit of ERP is indeed critical in explaining ERP implementation success. In addition, we found that both ERP and process adaptations interact with organizational fit of ERP on ERP implementation success. We learned that ERP and process adaptation are only effective when organizational fit of ERP is relatively low. Beyond a certain level of organizational fit, more adaptation will only lead to lower implementation success. We also learned that, since ERP adaptation also shows a significantly negative direct correlation with implementation success (while process adaptation only shows interaction effect), as many ERP vendors have claimed, process adaptation may be a safe choice than ERP adaptation when organizational fit of ERP is low.

Therefore, for successful ERP implementation, ERP implementation managers as well as top management should be able to assess the fit between their organization and the target ERP system before its adoption and, once adoption is decided, should measure and manage the impact of ERP and process adaptations from a risk assessment approach.



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