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H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Enterprise resource planning
Intro
Matti Rossi, Professor
Helsinki School of Economics
Information Systems
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Contents
Intro to ERP Systems
Philosophy of ERP
ERP and ecommerce
Key components
Evolution of ecommerce
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Why ERP?
SAP alone is used by more than 60% of the major firms.
In 1995 SAP generated 90% of their revenues from global companies
Now there is a trend toward automating SME’s and mid-sized companies
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Why you should know about it?
Regardless of the management function you are involved in, you will need to know how to use information from ERP systems
ERP system implementation and application is key to the survival of global organizations
The choices made when implementing these systems could make or break your business. e.g. see Hershey case
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Evolution of Enterprise Information Systems
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
(Hannus, 1993)
Service strategies-separation of service channels and customers’ service needs and their efficient integration
Customer centric-IT in customer relationships -strategic applications
User centric- DSS- office automation and PCs
Information centric-data bases and MIS -integration of subsystems
Routine and task centric- production systems- administrative IS
1960 200019801970 1990
Develo
ping
the
orga
niza
iton
inter
nally
onl
yDev
elopi
ng al
so in
ter-
orga
niza
tiona
l dist
ribut
ion
of w
ork
Phasing of IS Utilization
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
The Evolution of Integrated Systems
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Enterprise Resource Planning (ERP)
Enterprise resource planning (ERP)
ERP is an integrated solution to the problem of how to control all major business processes with a single software architecture in real time. It is a process of planning and managing all resources and their use in the entire organization.
Leading ERP software producers
- SAP, Oracle, J.D. Edwards, Computer Associates, People Soft
Main Objective of ERP
to integrate all departments & functions across a company onto a single computer system.
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Strategic Rationale
Choose ERP to implement a specific strategy
As part of an E-business strategy, a firm could implement an ERP system
As part of a strategy to focus on the consumer, a firm could implement “Available to Promise” (ATP)
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Competitive Rationale
“A lot of ERP purchases are premised on the need to just stay in business.”
The competition has it can take two approaches
Implement because the competition has it
Focus on why the competition has it and see if it fits your company and what benefits can be gathered
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Cost is Serious
After cost of ownership is $15 million, typically at a cost of $53,320 per user, according to a Meta Study.
ERP costs can run 2-3% of revenues
The implementation takes from 6 months to 2 years
Severe changes into operation of the company and employee skill needs
Most projects fail…
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Transformation of companies
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
ERP and Reengineering
ERP implementation usually forces reengineering
ERP is an electronic “harness” for your business processes
The processes need to be tailored and streamlined before the ERP implementation!
The ERP can enable or constraint the implementation
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Technology and re-engineering
A particular technology (or portfolio of technologies) is chosenas a tool to facilitate reengineering.
Thus, reengineering choices are a function of the technologies chosen.
The technology drives the reengineering
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
”Old economy” company
Lähde: McLean, Turban & Wetherve, 1999
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
certificationauthorities
banksproducers-suppliersmarketplace
producers-designersmarketplace
EDI
Team workDigital design
Lifecycle management
buyers-producersmarketplace
WWW; XML;agents
Trust&
securityRelationshipmanagement
Digital simulation Office Furniture Buyers
Dynamic Value Markets & Networks
Source: eEurope initiative
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Networked versus hierarchical organisations
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Product or Business Units
Fu
nct
ion
s o
r C
ou
ntr
ies
/ R
egio
ns
80s: Vertical (Functional)
Structures
90s: Globale Matrix
Structures
00s:Global E-BusinessNetwork Structures
Sub-supplier
Sub-supplier
Sub-supplier
Sub-supplier
BrandOwner
BrandOwner
Sub-supplier
Sub-supplier
Distr.Partner
Distr.Partner
Distr.Partner
Distr.Partner
CustomersCustomers
E-M
ark
et /
Pri
vate
Ex
chan
ge
TransactionProcessingEnvironment
ManagementFocus
ManagementSystembased on
Legacy Systems
Margins / CostManagement
Financial Reporting
Integrated ERP Systems
Value Based Management/ Portfolio Management
EIS / Data Warehousing
Hybrid E-Business Systems
VBM II/ Value Network Management
Integrated Analytics
Systemsupplier
Systemsupplier
Systemsupplier
Systemsupplier
Changes in organization structure
Source SAP a/g
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
ERP Facilitates Organizational Communication and Collaboration
Increasingly firms are opening up their databases to facilitate procurement and other functions, thus ERP facilitates collaboration
Since the ERP has all the transaction processing information in it, communication is facilitated.
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
ERP functionality and processes
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
How Does An ERP System Work?
Information is input one time and selected information cascades through the system, rather than requiring re-inputting
e.g., Sales call information, cascades to sales information, which cascades to billing info.
Business events are integrated into processes
Associated with order processing are a number of functions, including Sales and Distribution, Planning and Production, Materials Management, and Financials
Source: O’Leary 2000
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Real Time Information
ERP provides a clearing house of real time up-to-date information necessary for e-commerce
Inventory Information (so they know what is available to sell)
Pricing Information
Configuration Information (necessary for requirements planning)
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
ERP system
Production Distribution Sales
Supplier Customer
Procurement
Employees Resources Equipment
Project management
Financial control and planning
Cust. serviceMaintenance Quality control
Supply chain management & planning
Business warehouse
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
FinancialFinancial controlcontrolLogisticsLogistics
AccountingBusiness Business processprocess
DokumentsDokuments
ReportsReports
PCPC
FIFI
COCO
SLSL
ExtExt..***
Integration in SAP
Source: SAP Ag
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
..........................
..........................
..........................
. . . . . . .
. . . . . . .
Warehouse
• Packing
• Shipping papers • Goods issue
Salesorder
• Picking
• Update stock• Post general ledger
Delivery
• Create delivery
..........................
..........................
..........................
. . . . . . .
. . . . . . .
..........................
..........................
..........................
. . . . . . .
. . . . . . .
Example: Delivery
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Goods issue
QuotationOrder
Order
Sls.order
A A
A
KMTKMT
TextDelivery
Req.
Billingdue list
Material M1Valuatedstock
C1M1 100 PCSales price 25 DEMCost price 12 DEM
Factory Overhead Stockof Production
X X!
Goods issue:
Decreases stock
Updates stock
Removes sales order
Creates bill
Goods issue handling
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Sales event flow
. Order
. . Delivery
. . . Bill
. . Return
. . . Return Delivery
. . . . Reinbursement
Returns
Order Delivery Billing
Return delivery
Hyvityslasku
Offer
Document flow
.
.
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Documents and transactions
Tammi 45,000,000Helmi 670,000,000Maalis 45,560,000Huhti 784,000
PostingsITEMSAccountsReports
Tulos
193100 SEBSEB
193100 SEB
13,000,00015,230,000
70,197,0007,000
23,000347,000
Tase
OriginalsOriginals
Arkistoituoptisesti
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Example Case
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
ERP and Customer Ordering
Facilitating commerce is one of the most important tasks in commerce
Unfortunately, it often is filled with errors.
For example, Cisco found that 25% to 33% of the orders made by faxes had errors in them.
How could e-commerce solve the problem?
What was the problem?
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
What is the Impact of Errors? Errors ultimately can delay the shipment or cause an error in the
pricing.
As customers found out about errors in the orders, they found itnecessary to contact Cisco about their orders to make sure that orders got in the system correctly
These requests required increases in Cisco’s personnel in order to respond to customer inquiries, raising costs and slowing down the process of getting goods to the customer.
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
En example from Cisco’s Internet Business
Solution Portfolio …
Develop-ment
Mfg. Mktg. Sales Support
Customer Care
InternetCommerceMktg.
Employee Workforce Optimization
Supply Chain Management
Encompass 5 web applications that cross the entire Cisco value system
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
One of Cisco’s first E-Commerce Applications
Using the web, customers were able to gather information from Cisco’s ERP system that would allow them to track and price their orders to see if they were correct and to see what the status was
Information was available seven days a week and twenty-four hours per day.
This reduced Cisco’s need to have personnel available to help track the orders and answer customer questions. Customer support had been shifted to the customer.
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Problem Detection:Problem Detection:CiscoWorksCiscoWorks
Problem Notification: Bug Alerts1 Problem Notification: Bug Alerts1
Problem Identification: Problem Identification: Bug NavigatorBug Navigator
Operation Support Operation Support Software Library Software Library
The Early Cisco Connection Online (CCO)
Problem Resolution: Open Problem Resolution: Open Forum, Troubleshooting EngineForum, Troubleshooting Engine
Installation and Configuration Installation and Configuration DocumentationDocumentation
In 1994, Cisco Began with a Simple Customer Care Application …
Goal: To provide technical assistance, automate customer care, improve customer satisfaction in the midst of a shortage of skilled engineers.
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
How to proceed
Perhaps a more important question was “How can you eliminate errors to begin with?” In Cisco’s second year, their goal was to eliminate the errors and allow the customer to make anytime anywhere ordering over the Internet
Accessing information from the ERP customers were permitted to originate, configure, price and place the order.
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
ConfigurationConfiguration11’’
Service OrderService Order
Order StatusOrder Status11
Order PlacementOrder Placement
PricingPricing
InvoiceInvoice
In mid-1996, Cisco Introduced Early iCommerce
Functionality to the CCOAdded Cisco Connection Online (CCO) Functionality
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
How did they get customers to use it?
Cisco guaranteed that pricing and configuration would be accurate, if the customer used the web application. Within only four months in 1996, 10% of the orders were done over the Internet. By 1999, 85% of the orders came in over the Internet
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Community portal for specific users:- New Hires- Sales- Engineering
Cisco LOBs
What’s New Segment
Standard Footer / Page Owner
Corporate NewsCisco My Yahoo!
Employee Workforce Optimization Activities
Directory and organization chart
Travel/expense
Benefits enrollment
Cisco My Yahoo!
Training registration
Stock information
Online Procurement
Online recruiting
In early 1995, Cisco Began to
Web-Enable All Employee Activities
In early 1995, Cisco Began to
Web-Enable All Employee Activities
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
A Summary of the Financial Impact behind Cisco’s Internet
Business Solutions ...
Financial Contribution
Customer Care Customer Care
•• Headcount AvoidanceHeadcount Avoidance
•• Software DistributionSoftware Distribution
•• Document PublishingDocument Publishing
$75,000,000$75,000,000
$250,000,000$250,000,000
$40,000,000$40,000,000
Employee ServicesEmployee Services
•• Online HiringOnline Hiring
•• Productivity IncreaseProductivity Increase
$8,000,000$8,000,000
$4,000,000$4,000,000
Supply Chain ManagementSupply Chain Management
•• Reduced Operating Cost Reduced Operating Cost
•• Increased ContributionIncreased Contribution75,000,00075,000,000
100,000,000100,000,000
Internet CommerceInternet Commerce
•• Headcount Avoidance Headcount Avoidance $12,000,000$12,000,000
TotalTotal $550,000,000 + $550,000,000 +
“Old World” Processes
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Integration & Sharing of Information
Purchasing is done using Cisco’s system and not the customer’s system so the customer needs to put the same information in their own ERP system
How could we facilitate optimal sharing of the information?
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Solution: Allow access to Cisco’s systems The information about catalogs, prices & configurations is
shared by Cisco & key customers
Once a day, new configuration, order and pricing information is made available to those special customers
Now customer can use their internal systems for ordering
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
ERP & Vendor Managed Inventories
Under Cisco’s model, the customer does the ordering
However, in many settings, the order process has been shifted from the customer to the vendor
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
How is VMI Accomplished?
VMI is accomplished by providing vendors real time access to necessary information.
Access must be electronic and the information must be up-to-date or else the quality of the inventory decisions can be limited, a particularly important limitation when the vendor is managing the inventory.
In an ERP-based world there are two solutions designed to facilitate VMI:
Integrating through access to ordering data
Direct ERP to ERP connection.
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Conclusions
ERP must be preceded with a process change
Change takes time and must be planned for
The implementer should be aware of the financial and operational costs
The costs and benefits should be measured
This is not a technology solution!
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Matti RossiHelsinki School of Economics P.O. Box 1210FIN-00101 HelsinkiFinlandEmail: [email protected]: +358-9-43138996Fax : +358-9-43138777
http://hkkk.fi/~mrossi
Contact information
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Links to exchanges
B-to-b in general
http://www.manufacturing.net/magazine/purchasing/
CommerceNet
http://www.commerce.net/
GE Capital
www.gecapital.com
MRO.com
www.mro.com
H E L S I N G I N K A U P P A K O R K E A K O U L UH E L S I N K I S C H O O L O F E C O N O M I C S
Technology providers
SAP: www.mysap.com
Ariba: www.ariba.com
i2: www.i2.com