| ERP |
| [1] Introduction |
| [2] The market and development of ERP |
| [3] What is an ERP System? |
| [4] Customization issues |
| [5] ERP Risk |
| [6] Preventing risks |
| [1] Introduction |
Enterprise resource planning (ERP) system is a very important in modern business moderation. One study found more than 60 percent of Fortune 500 companies had adopted of ERP system. This system have been credited with reducing inventories, shortening cycle time, lowering costs, and improving supply chain management practices. ERP systems are designed to integrate all of an organization’s information system computing. ERP has been credited with increasing the speed with which information flows through a company.
| [2] The market and development of ERP |
ERP has become a major software product line. The idea started by SAP in the early 1970s has evolved into a major information system software product line, which has revolutionized how large organizations approach business computing. Initial arguments were for integrated systems, yet vendors usually made sales in the form of modules, covering only limited functions of a business’s computing needs. Because of the high price tags involved, companies apparently wanted to minimize their risks by trying only part of the ERP system.
SAP began ERP product development in Germany in the early 1970s. Former IBM employees designed their new product with the intent of implementing the best practices for a firm’s information system processes. The idea of best practices is fundamental to an ERP system. SAP devotes significant resources to identify the best way to deal with common business functions and then incorporates those practices within its systems.
ERP systems were designed to integrate all information processing information support for a business
| Financial | Human resources | Operations and Logistics | Sales and Marketing |
| Accounts receivable and payable Asset accounting Cash forecasting Cost accounting Executive information Systems Financial consolidation General Ledger Profitability analysis Standard costing |
Time accounting Payroll Personnel planning Travel expenses |
Inventory management Materials Requirement Planning (MRP) Plant maintenance Production planning Project management Purchasing Quality management Shipping Vendor evaluation |
Order Management Sales management Sales planning |
In the early 1970s, information systems were supported by mainframe architectures. SAP marketed R/2, a mainframe-supported software product in 1974. In the early 1990s, client/server architectures became popular, with an organization’s computation and storage. Client/server architectures are more flexible than mainframe systems, and thus are capable of better supporting dynamic ERP environments. In the mid-1990s, SAP developed a client/server version of its ERP product, which was named R/3.
Currently R/3 is the most popular ERP product on the market in terms of dollar volume. The market for ERP peaked in early 1999, when many firms were concerned with potential Y2K problems.
2.1 Systems and Technology Background
Compunig
Historically, enterprise computing was heavily mainframe based. In roughly 1993, client server versions of enterprise computing applications began to be more available.
Mainframe computing
In a mainframe computing environment, all the computing is done on a single computer. Typically, this is handled by allowing users to share the computing resource-the mainframe computer. The user would typically be at a terminal that had no computing capabilities.
Client Server Computing
Over time, the user began to have increasing computing capabilities locally. As a result, computing began to shift some of the processing to the user’s computing, where client and server are linked so that the computing and storage can be distributed between the client and the server.
SAP and Client Server
SAP’s original product (R/2, developed for a mainframe environment) was introduced in 1974. SAP’s client server software, R/3, was introduced in 1992 in Europe and in 1993 in North America. R/3 can be configured in a number of ways. At one end of the spectrum, a central system can be used to provide presentation, applications, and database services. At the other end of the spectrum, larger ERP’s employ a three-tiered client server arrangement with separate servers for presentation, applications, and database.
Networks
In a clients server setting, there is a network between clients and server; this network may be a local area network (LAN) or across the internet. Network capabilities, standards, and security are critical to the success of any system.
ANs, Intranets, and Extranets
Local area networks used to link computers together over a relatively small geographical area, such as within a building. Wide area networks (WANs) link together computers over a large area. Intranets typically are WANs that are only for use by a specific corporation; extranets typically are WANs that are for use by a specific corporation and its partners.
Bandwidth, Standards, and Security
A network must be able to accommodate the requirements placed upon it by the applications.
| [3] What is an ERP System? |
ERP systems are computer based systems designed to process an organization’s transactions and facilitate integrated and real time planning, production, and customer response. In particular, ERP systems will be assumed to have the following characteristics:
3.1 ERP Vendors
The primary ERP vendors are BAAN, Oracle, PeopleSoft, SAP).
BAAN
This company was founded in the Netherlands in 1978. BAAN’s ERP market share is roughly 5%, and 1998 revenues were roughly $750 million. BAAN has approximately 3000 clients in 5000sites in the world.
ORACLE
ORACLE is the second-largest supplier of software in the world. They are perhaps best known for their database system, not their ERP applications.
Oracle has been criticized for being a database company and not an application company. Oracle’s prowess in the database business makes its offering particularly attractive to firms that rely heavily on their own databases for competitive advantage. Oracle’s reputation in ERP systems is for developing a product that can be interfaced with other products in order to construct a “best of breed” system. Oracle is likely to build software in house.
PeopleSoft
PeopleSoft was founded in 1987 and went public in 1992. This is the third largest ERP vendor.
PeopleSoft has become known for the broadest human resources-capability. In many cases, firms have chosen some other ERP for all other modules and PeopleSoft for human resource. The quality of this human resource module led some clients to adopt the rest of PeopleSoft’s ERP modules.
SAP
SAP holds the largest market share for ERP, with estimates ranging from 30% to 60% of the market. The company is known for spending a large portion of its revenues on research and development. SAP has a reputation for acquiring firms with features that they are interested in and then completely reprogramming those systems for integration.
3.2 ERP Modules
ERP systems in concept cover all computing for an organization. The idea is to centralize data and computation, so that data can be entered once in a clean form, and then be used by everyone in the organization with confidence that the information is correct.
One of the more popular computer systems supporting manufacturing before ERP was material requirements planning (MRP). SAP’s module MM covers the functions of MRP. MRP began as an inventory reordering tool in operations involving dependent demand. The capability of MRP systems evolved to support planning of all company resources, and currently can support business planning, production planning, purchasing, inventory control.
MRP II (manufacturing resource planning) this method plans all resources for a manufacturers. The different functions of a company are joined into the MRP II systems, this includes the order processing as in MRP, business planning sales and operations planning, production planning, master production scheduling, capacity requirements planning, and capacity planning.
3.3 Relative Module Use
The reason to implement ERP in modules is to obtain specific functionality. If a firm utilizes its own methods within an ERP, Davenport gave choices of rewriting the code internally or using the existing system with interface. Both approaches add time and cost to implementation, and thus would dilute the integration benefits of the ERP. There are more customization of an ERP, the less ability to communicate seamlessly within system components and across supplier and customer systems.
A related concept is the idea of federalization. Davenport used this term to describe te process of rolling out different versions of an ERP system in each regional unit, tailoring each location’s system to accommodate local operating practices.
However, there is some variance in different packages as to which modules are included and how they are named.
SAP’s modules
Includes the following application-based modules:
3.4 Best of Breed
The idea of best of breed approaches is to utilize what is perceived as a specific vendor relative advantage in particular areas of application. If a firm utilizes its own methods within an ERP, Davenport gave choices of rewriting the code internally or using the existing system with interfaces.
3.4.1 Advantages and disadvantages of the best of breed
The best of breed approach has one primary benefit: the firm will get the system and functionality that they want with the heterogeneous system. There are many additional costs that might be considered before applying the system:
| [4] Customization issues |
When it comes to ERP operational feasibility, one of the questions to consider is whether the new software fits the core business processes. ERP system should have a functional fit with the company’s business processes that really matter. Since ERP implementation is so involving in terms of time and resources, it should not be implemented when only inwardly focused functions, such as general ledger and accounts payable, will benefit from the system’s implementation. Such functions don’t differentiate the organization and need to be modified more quickly and cost effectively. In addition, the less customization required, the better a company is from an implementation and maintenance standpoint. Vendor updates for a highly customized system will require reintroducing customization, which means additional time and effort. Fewer changers in business processes will ease the transition and will increase productivity and profitability sooner. Also, a system should be scaled to support all the users. It sho uld be able to support multi-site planning and control. That brings up the question of whether a company’s present network will be able to support ERP. If the bandwidth capabilities are not sufficient enough to support all the users of ERP, the systems implementation will not be operationally feasible. Another question is how complex and user friendly the system is. If it’s too complex and not very user-friendly, it may cause great turnovers and will lower employee morale. Employees may even grow resentment toward a new system. It happens especially in companies that involve employees in system implementation without releasing them from their regular obligations.
4.1 Advantage and disadvantage of the customization
Customizing may give specific capabilities, it can be expensive and difficult, and the custom software may require special maintenance. It may also make the core application unstable and prone to glitches.
Some IT professionals are not in favor for some customization as not just desirable, but also inevitable. They point out that when firms install pure, out-of-the box applications, they may have to part with code and functions that have been developed over years to suit particular business processes.
Some experts suggest the customization to be used only with the competitive advantage capabitilty are required and not within the core product.
The companies are leaning more toward vanilla ERP upgrades. Writing custom code is costly and can make it difficult to upgrade to newer versions of the application, among other problems, she adds.
But sometimes customization is the only answer to a specific business problem. For instance, according to an SAP AG spokesman, a bank in a South American country with a high crime rate had an unusual request for an ERP customization.
4.2 Customization case
Firm A’s experiences emphasize the extra effort involved in almost ERP implementation. If the system is obtained from a vendor, modifications will be requested. The firm has different choices for its modification, can create new tools to cope with problems, or it can deny its request. In some cases, the vendor would argue that if the system’s procedures were adopted, the users would do their work better in the long run. Information technology personnel are focused on getting the system up and running quickly and within the budget, which are the performance indicators by which they are usually evaluated. They also are interested in making the system relatively difficult to operate. The first year of operation of an ERP tends to be quite difficult, with users learning to do their work differently, and information technology staff struggling to run the system.
There is inherently a divergence of interest between users and information technology staff members. Users are interested in getting information they need. Making the system more responsive to users would lead to fewer changes in how they do their work, but would also require modifications of the vendor system. Early in the implementation of the ERP system, a number of requests for changes in labels and terminology were received.
4.3 Real life cases of customization
Customization jobs can lead to disaster, as in Nike's case. The wide range of footwear products Nike sells also led to further difficulties in mapping the supply chain software to internal business processes. Nike Chairman and CEO Philip Knight, facing a drop in stock price and revenue, told shareholders, "I guess my immediate reaction is, 'This is what we get for $400 million?' "
Delta Airlines is implementing an SAP R/3. The CEO from this company opposes customizing because SAP already has solid applications with best practices built in. They think that when you start tinkering with the code, you make the application unstable and start losing benefits. For Delta Airlines it is better to reengineer their business processes than rewrite code.
For Delta Airlines SAP implementations aren't that difficult, if you go vanilla. Things get rough when start trying to integrate SAP into legacy systems or trying to bolt on third-party applications. They think that if you're going to start to customize, you might as well start assembling complex best-of-breed packages as well.
For some experts sophisticated companies look for software that can be tailored at the script level vs. changing the application kernel.
Some users may mix and match applications. Peabody, Mass.-based medical systems and components maker Analogic Corp. two years ago implemented a human resources application from Pleasanton, Calif.-based PeopleSoft Inc., but did things like adding extra fields into its supply chain and engineering-related ERP screens. For them it is better to stick to the PeopleSoft parameters, the customizations will work even when you do an upgrade.
Toronto-based Bank of Montreal uses both homegrown and customized applications as well as ones right out of the box, according. Last October, the bank started rolling out Oracle's e-business applications to handle Web-based expense reporting and procurement, replacing an existing mainframe based legacy system.
To make the most of the savings of this automation, avoided tampering with the applications, except within the configuration framework provided by Oracle, which permits changes in workflow processes. For instance, the bank can configure the application to match invoices to receipts or purchase orders.
| [5] ERP Risks |
The goal of this chapter is to present the risks of an ERP implementation project as well as safety-risks and at least some strategies to prevent such risks and problems.
5.1 General risks
Reengineering and customisation tasks are involved in the software implementation process, and are the major reasons for ERP dissatisfaction. It has been calculated that customers spend between three and seven times more money on ERP implementation and associated services compared to the purchase of the software license.
However, empirical surveys have shown that between half of two-thirds of information systems projects fail. Most installations of enterprise resource planning software cost more than they pay back in measurable financial benefits. A research made in the USA, studied companies with a turnover bigger or more than 500 million US dollars, and which invested in ERP projects. Just 10% of the projects were delivered on time, 55% were delayed and ran over budget, 35% were cancelled. In the delayed and over budgeted projects, the average delay was 230% of the planned time and the average mistake in budget forecasts were 178%.
One big goal of the introduction of ERP-system is to improve the process and structural organisation as well as to shorten the reaction times. To reach such goals, a good implementation is required. In course of this fact it should be known if the company want to introduce an IT-process as well as a process reengineering at same time, to reorganise the business process and to improve the costs and quality of them; or if they want to introduce a IT-system without changing and improving the operative structure.
Because of the fact that data are given in just once and all other department can fall back on this data, it is indispensable to establish an internal control system. This data have to be very solid and if a mistake happens it will go through all other process in the company.
If the system fulfils the wanted goals, depends on the configuration and organisational adaptation to basic conditions of the company to guarantee a faultless cooperation between organisation, personal and system logic. Without intelligent arranged and authentic measuring points, process and sub-process could get beyond control. This controls have to be established already at the beginning and before implementation otherwise it could be very costly and time-consuming or even impossible to solve. Bad process and structural planning could be the reason for mentioned problems and should be paid extra attention.
Concerning the enlargement of several modules the most recent problem is that costs are underestimated. The enlargement causes not only costs for the new software, furthermore the calculation of big sums on consulting, maintenance, software-license, installation, training for stuff and system of infrastructure. Also the temporal-factor should be considered because employees are grounded off from departure during the time of training.
5.2 Safety
The electronic transmission of business-data is a big discussed issue and concerns internal communication as well as communication with customers. One of them most important parts of this theme is safety and safety-risks.
Two aspects should be considered: First the safety in technical signification and second the legal certainty of electronic transactions of business processes. Appearing questions concerning the theme safety are:
How can I be certain that my internal information are not misdirected?
How can I protect my system of external access?
How can I provide a manipulation of business data?
How can I reach the legal certainty of electronic transactions?
5.3 Technical safety risks
The technical safety risks can be cut into four areas:
Because of these four safety-risks a safety program is indispensable. Firewalls and anti-virus-programs are the most used modules to protect the system. To protect every data it is recommended to encode the transfused information- in practise this method is hardly used.
The implementation of digital signature which can be compared with the original signature can protect spoofing. Several methods exist to protect the system of DDos-attack such as IDS (Intrusion-Detection-Systems), IETF (Internet Engineering Task Force) or IPSec.
5.3.1 Legal certainty
Concerning electronic transmissions the customer has to trust in the correctness of the data he/she gets from the internet and this could be a big problem. The actual legal requirements of electronic transmissions are the same like of the closure of “normal” contracts. Therefore it is necessary that the contract partners get information that they need from each other to get sure, that the right person closures the contracts. A digital signature could be very useful in this case so that problems or manipulation with the data are prevented.
| [6] Preventing risks |
Poorly defined business process seems to be most widely reported problem in ERP implementation literature. Also failure to see the need for Task-Actor problems such as change and underestimating the change management difficulty are important pitfalls.
First steps for preventing risks and problems are, to ask the following questions:
Keep in mind what you need and build the system to satisfy those needs, not other way round that you have ERP and then think what it can do for you. Choose the way you want to implement ERP, some modules first or every module to one SBU or as a “big bang”-approach, everything throughout organisation. Enough milestones are seldom made to keep the team motivated. Deadlines are very hard to place. It could be wise to think beforehand what will happen if the team breaks them. Also budged tend to be exceeded so make sure your budged is realistic no matter what consultants say. Selecting of the right vendor and implementation partner are Task-Actor related issues that have to be dealt with at the beginning. If you select wrong kind of software, you will have problems next five years at least. Even if you think you have chosen “best of the breed” software you may find out that it is not suitable for your organization.
For a well working IP-solution you need the perfect cooperation between planning, organisation, management and safety. These are the most important parts of the implementation and they should be paid extra attention so that money and time can be economized.
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Informationsverarbeitung 2
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