Copyright © R.A. Sommer, 2011 Flattening the Organization with Enterprise Resource Planning Applications Lecture 4 “How international business works”

Copyright © R.A. Sommer, 2011

Flattening the Organization Flattening the Organization with Enterprise Resource with Enterprise Resource Planning Applications Planning Applications

Lecture 4“How international business works”

“New Model – 2015”

“BIG DATA”ExchangeApplicationServer

TransactionMonitor

EDITranslator

EDIProcessor

MessageHandling

FlatFile A

PI

Customer Relationship Management (CRM)

CatalogManagementSystems

CallCenter

WebServer

SupplierRelationshipManagement (SRM)

Business Intelligence“Analytics”

Integrated Business Applications

Environment


The Traditional Vertically Integrated The Traditional Vertically Integrated OrganizationOrganization

Sales Dept. Production Dept. Distribution Dept.


The Traditional Vertically Integrated The Traditional Vertically Integrated Organization w/ Check StationsOrganization w/ Check Stations

Sales Dept. Production Dept. Distribution Dept.

Sales

System

Prod.

System

Dist.

System

CheckStation

CheckStation


Important ConsequencesImportant Consequences

During the latter half of the 1990’s there were some very important negative consequences associated with the vertical hierarchical management models ◦What single group within the private

sector labor force suffered the most layoffs during the mid to late 1990’s?

◦Why the layoffs?


Important ConsequencesImportant Consequences

Private sector organizations were streamlining operations by:◦flattening organizational structures,◦managing across organizational

boundaries (cross-functional process management),

◦eliminating redundant “check stations”,

◦and outsourcing non-core activities.What does that mean?


Output

Domain “A”Sales

Domain “C”Shipping

CustomerOrder

Process # 1

CustomerOrder

Process # 2

Input

A

B

C

D

Functions

E

A

B

C

D

E

A

B

C

D

E

Domain “B”Production

Horizontally Integrated Processes


Horizontal ProcessesHorizontal ProcessesMost all management “experts”

agree that managing processes horizontally is much more efficient than the old vertical model

However, the actual implementation of horizontal process management has been VERY difficult

Why?


Horizontal ProcessesHorizontal ProcessesOrganizational culture is

entrenchedTechnologically difficult to supportManagerial tradition (remnant

“guild” influence) requires “control” through:◦Isolated/Filtered Information Flow,◦Islands of Automation,◦Intolerance for Power Sharing◦Isolationist (in-sourced) supply chain

view


Background InformationBackground Information


Traditional Process-Oriented Traditional Process-Oriented ManagementManagement

In many cases companies spent millions of dollars on the process re-engineering effort, then gave up on the project because the enabling IT costs were significantly higher than the re-engineering costs ◦Realigning IT with new organizational

process structures is the most costly (not the hardest) aspect of process-oriented change


Traditional Process-Oriented Traditional Process-Oriented ManagementManagementAfter many failures, industry as a

whole, stopped proprietary development of “systems” and purchased “management solutions” from vendors

These solutions are called Enterprise Resource Planning (ERP)

Although sold/marketed as an IT solution, in reality ERP is a high-level management concept


Process-Oriented Management Process-Oriented Management through ERPthrough ERP

Enterprise Resource Planning systems are the antithesis of process re-engineering

Organizations purchase cross-functional (horizontal) processes and the integrated enabling IT in a “pre-packaged” format

The organization will have to adapt to the processes that are implied in the ERP software

ERP is customized for industry verticals (automotive, pharmaceuticals, aerospace, petro-chemical, and more recently ---public sector)


Pre-packaged ERP SolutionsPre-packaged ERP SolutionsMost Fortune 1000 CEO’s have

abandoned traditional re-engineering and IT development in favor of ERP

ERP forces IT enabled cross functional process integration on the organization

This reduces the risk of political tampering and stalling that is associated with traditional re-engineering efforts

No proprietary legacy systems need be maintained


Achieving AlignmentAchieving AlignmentReengineer the process, and then develop

an integrated information system that aligns with the business process.

Adopt an off-the-shelf ERP software solution and reengineer internal business processes to align with the solution.◦ SAP, PeopleSoft, Oracle, etc.

Most larger US/International companies have selected the second option.

Why?


Achieving AlignmentAchieving AlignmentThe Drivers:

◦ Globalization Out-sourcing Off-shoring Mergers & Acquisitions Strategic Partnering

The Enablers: ◦ Telecom Infrastructure

High/Cheap Bandwidth Reliable Platforms and Networks Large Stores of Integrated Data


Extended Enterprise IntegrationExtended Enterprise IntegrationEnables outsourced business modelsEnables outsourced business models

SuppliersBackOffice(ERP)

FrontOffice

Customers

SellPurchase

Create Value

Demand ChainSupply Chain

The Extended Enterprise


How to ImplementHow to ImplementERP ERP

In-house Development

• Most large U.S. and International companies have discounted this option.

• New proprietary developments are risky and costly.

• There are many new options for “Mixing and Matching” commercial off-the-shelf components


ERP SolutionsERP Solutions

These are pre-engineered and integrated solutions that connect the complete scope of the business applications.

The solutions are usually modular; e.g.,◦Financial and Accounting◦Human Resources,◦Sales and Distribution,◦Manufacturing and Logistics.

Full implementations are called Enterprise Resource Planning (ERP) Systems, but are in reality process-based management solutions, packaged as a complete system.


The Antithesis of ReengineeringThe Antithesis of Reengineering

Reengineering calls for process redesign prior to searching for technology solutions.

A ERP software solution is implemented in an opposite fashion:◦A set of “reference” process, data, and

function models are purchased.◦Then, the organizational processes are

aligned with the standard software solution.


Process Oriented ImplementationProcess Oriented Implementation

Some ERP Software is designed to execute predefined business processes.

The information system (resulting from the software implementation) is aligned with the business process, enabling process management and cross-functional process integration.


Process Oriented Implementation Process Oriented Implementation (Cont.)(Cont.)

The ERP software modules are designed so that they explicitly execute a best practice business process.

This process is called the Reference Business Process or Reference Model.


Reference ModelsReference Models


Reference ModelsReference ModelsA reference model is a set of pre-

engineered and integrated organizational views.

◦ For example one type of reference model might be a business process (one view of an organization) and a depiction of the data flows (another view of an organization) that are aligned with the business process.

◦ ERP Software either implicitly or explicitly executes pre-defined business processes; hence, by definition it is based on the reference model concept.


Reference ModelsReference Models◦ The main benefit of a reference model is

that certain tedious views (e.g, the data view as realized in a data model) do not have to be individually developed for every implementation.

◦ The idea is to design and develop once, and then replicate many times.

◦ The reference model may have to be tailored for individual organizations, but this effort is significantly less than approaching each implementation as a new software project.


Reference ModelsReference Models

Sales

prognos is

per formed

Pr imary req.

planning, Mater ia ls

planning

Indiv idual

c us tomer order

releas ed

D eliv ery c all

is OK

Ex ac t c all-off

is OK

XOR

XOR

Produc tion

planning

Implementation/

Mod. of PN c onc ept

PN c onc ept

of par t

is introduc ed/

modified

D etermin ing

target PN

Target PN

are determined

Ac quis ition

PN proc es s ing

Produc tion

PN proc es s ing

Pre liminary as s embly

PN proc es s ing

Final as s embly

PN proc es s ing

Part pas s es

ex it c hec k point

of Ac quis ition C B

Part pas s es

ex it c hec k point

of Produc tion C B

Part pas s es

ex it c hec k point of

pre l. as s embly C B

Part pas s es

ex it c hec k point of

fina l as s embly C B

Ac quis ition PN

are determined

Produc tion PN

are determined

Final as s embly PN

are determined

PN c onc ept

to be introduc ed/

modified

Ex ac t c all-off

rec eiv ed

D eliv ery c all

rec eiv ed

Indiv idual order

rec eiv ed

N o

ac quis ition

required

Order

reques t is

c reated

Ac quis ition

XOR

Preliminary as s embly PN

are determined

N o

produc tion

required

XOR

N o

pre liminary as s embly

required

XOR

XOR

Produc tion

order

is c reated

N o

fina l as s embly

required

XOR

Produc tion

order data

trans mitted

C us tomer order

proc es s ing

new par ts

C us tomer order

proc es s ing

s er ia l par ts

XOR

N o

defic ient c ov er

determined

R equirements

ex plos ion

Order

reques t is

c reated

Produc tion

program planning

is c reated

Spec ial demands

oc c urred

D emand for

s ample par ts

oc c urred

R egis ter ing

PPC bas ic data

Monitor

order

handling

Parts are

dis tr ibuted to

w arehous e

R eleas e

c us tomer order

D eliv ery c all

Progress numberconcept

IDS Reference modelCar Industry Subcontractors


Industry Specific Reference ModelIndustry Specific Reference Model

Complete ERP Business Implementation◦Function Model◦Process Model◦Information Flow Model◦Communication Model◦Organization Model◦Distribution Model◦Data Model

Developing the Integrated IS Reference Modelfrom the Integrated Enterprise Model

BasicReferenceModel

Industry SpecificIS Reference Model(i.e. Aerospace)

Domain SpecificCustomeraddedextensions

Integrated Process Engineering Model (Business Process Analysis/Business Process Engineering)

StrategicBusinessUnit for

Product X

OrderDepartment

ProductionDepartment

DistributionDepartment

TechnicalSupport

AccountingDepartment

SBUManager

OrderProcessing Shipping

Contracting Packing

CustomerService

ProductionPlanning

DesignPlanning

Manufacturing

ProcessManagement

Team

Documentation

Payables

Receivables

StrategicBusinessUnit for

Product X

OrderDepartment

ProductionDepartment

DistributionDepartment

TechnicalSupport

AccountingDepartment

SBUManager

OrderProcessing Shipping

Contracting Packing

CustomerService

ProductionPlanning

DesignPlanning

Manufacturing

ProcessManagement

Team

Documentation

Payables

Receivables

orderheadercustom

ertime

orderitem produ

ct

customer

order

eERM Customer Order

orderheadercusto

mertime

orderitem produ

ct

customer

order

eERM Customer Order

OrderArrives

Notification

Submitted

PlanCompleted

Engineering

CompletedDistribution

Notified

Process Order

Engineer

Product

Plan Production

Manufacture

Product

Distribute

Product

Provide Technical

Support

Accounting NotifiedDistribution Complete

Provide Accounting

Support

Accounting NotifiedManufacturing Complete

Internet-BasedEDI Transaction

Resource, Capacity and

Schedule From ERP

PDM Vault

Initial ERP

Updated ERPWith Production

Plan

Existing Product

Data

Technical Documentation

(SGML Tagged)

Legacy Text

Data

Updated ERPFor Completed

Product

function 1

function 1.3function 1.2function 1.1

function 1.1.1

function 1.1.2

function 1

function 1.3function 1.2function 1.1

function 1.1.1

function 1.1.2


The Value of Reference Model-The Value of Reference Model-based ERP Systemsbased ERP Systems

ERP reference models define an explicit and optimized link between business processes and the supporting IT infrastructure.

Management has complete visibility into these linkages.

Updates to processes or to IT are managed through a centralized object repository that functions as a configuration management facility for these linkages.


Why Do Projects Get in Trouble?Why Do Projects Get in Trouble?The ERP software executes the

functions in a business process.◦ The business process could be explicit;

e.g., as in the SAP or Oracle business process reference model.

◦ The business process could be implied; e.g., Microsoft or PeopleSoft.

The implementing organization has a target business process; i.e., the way that they desire to execute their business functions.

The difference is called the “gap.”


Gap AnalysisGap AnalysisO

rder

Arrives

Notification

Subm

itted

Plan

Com

pleted

Engineering

Com

pleted

Distribution

Notified

Process O

rder

Engineer

Product

Plan

Production

Manufacture

Product

Distribute

Product

Provide

Technical

Support

Accounting N

otified

Distribution C

omplete

Provide

Accounting

Support

Accounting N

otifiedM

anufacturing Com

plete

Internet-Based

ED

I Transaction

Resource, C

apacity and

Schedule F

rom E

RP

PD

M V

ault

Initial ER

P

Updated E

RP

With P

roduction

Plan

Existing P

roduct

Data

Technical D

ocumentation

(SG

ML T

agged)

Legacy Text

Data

Updated E

RP

For C

ompleted

Product

Material master is to be created

Specify material type

Material type is specified

Specify material number

Specifyindustry sector

XOR

Material number is assigned internally

Industry sector is specified

Material number is assigned externally

XOR

Maintain material master classification view

Maintain material master warehouse view

Maintain material master purchasing

view

Maintain material master accounting view

XOR

split valuation is specified split valuation is not

specified

Mat. master purchasing view is maintained

Mat. master classification view is maintained

Mat. master warehouse view is

maintained

Create valuation types

The Gap

Target Business Process Reference Business Process

Can You Adapt to the Difference?


The GapThe Gap

If the target business process aligns with the business process that is implied by the software, then implementation is only slightly difficult.

If there is a large gap, then extreme implementation difficulty is encountered.◦Customization is required, or◦Internal business process change is

required


ERP SummaryERP Summary


What is the ImportanceWhat is the Importanceof ERP Software?of ERP Software?

ERP software is more reliable than proprietary software.◦Its functionality has been tested extensively by the developers.

◦It has been used in other enterprises, so problems have been discovered and corrected.



ERP software provides efficient operations, because it is designed around industry “best practices.”

Reports on corporate information are produced on schedule or by request, without special computing skills.



ERP software provides the means for enterprise-wide access to real-time information.◦ ERP software provides the ability to

manage product flows and allocations with real-time data.

◦ Managers and workers can use data to plan and program projects, monitor the progress of projects, and manage resource allocations.

◦ Customers receive better service and information on their products.

Documents

Copyright © R.A. Sommer, 2011 Flattening the Organization with Enterprise Resource Planning Applications Lecture 4 “How international business works”