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ERP
Session1 - ERP? Evolution,
Vendors, Industry growth and
analysis, Cost & ROI
Understanding ERP
What is an
Enterprise Resource Planning System
• An Enterprise Resource Planning (ERP) system is an integrated system consisting of integrated applications with a common database which coordinate business activities and support the flow of information across the enterprise.
• Includes financial, operational and strategic systems
• Often features e-commerce capabilities
ERP (Enterprise Resource Planning)
Tool to integrate enterprise across its
business functions as well as with
outside business partners to manage the
enterprise resources efficiently.
Vendors Enterprise
. Dept1
. Dept2….
Customers
ERP (Enterprise Resource Planning)
Mfg Sales Financial
Accounting Cap
plng
Demand
plng
Controlling
HR MM
Vendors
Customers
• Characteristics:
– Flexibility
– Modular
– Open architecture
– Comprehensive
– Beyond the organization
– best business practices
– Simulation
Provide:
• Best practice functionality within departments and
• High level of integration across all enterprise functions
Includes:
• Transaction processing system (TPS)
• Management information systems (MIS)
• Decision support systems (DSS)
ERP (Enterprise Resource Planning)
Evolution of ERP
• 1960s: MRP systems
- software packages with inventory control and production control
• 1970s: MRP II systems – Sales and Operations Planning with Production
schedule
• 1990s: ERP – Integrated system with various functional control
• Early 2000s: ERP II – ERP integrated with BI, SCM and CRM functions
CRM Early 00’s
Sales Force
Automation
Contract
Management
Customer Service
& Support
Marketing
Automation
Documentation
Management
SCM
Logistics
Electronic
Invoicing
Electronic
Marketplaces
Contract
Management
Late 90’s
Early 00’s
ERP II Product Data Management Engineering Change Orders
New Product Introduction Collaborative Product Design
A Complete Family Tree
Before and After ERP
Traditional “Silo”
View of
Information Systems
Within the business:
• There are functions/processes, each having
its uses of information systems
Outside the organization’s boundaries:
• There are customers and vendors
Functions tend to work in isolation
Traditional View of Systems
Business Before ERP
Customers
Customer
Demographic
Files Sales Dept.
Vendor
Orders
Parts
Accounting
Accounting
Files
Purchasing
Purchasing
Files
Order is placed
with Vendor
Invoices
accounting
Inventory
Files
Warehouse
Checks for Parts
Calls back “Not in stock”
“We ordered the parts”
“We Need parts #XX”
“We ordered the parts”
Sends report
Sends report
Sends report
Ships parts
What about
Cross-Functional Business Processes?
• Cross functional business processes Cut
across functional boundaries like Sales,
Marketing, Manufacturing, and Human
Resource, etc.
• Group employees from different functional
specialties to a complete piece of work
Example: Order Fulfillment Process
The Order Fulfillment Process
ERP systems are:
• Designed to support organization-wide
process coordination and integration
Enterprise Systems
Non-integrated IS and Integrated IS
Some other characteristics:
• Common set of applications
• Usually requires re-engineering of business processes – Better alignment
• Limited customization – Easier upgrades
• Overcomes inefficiencies of independent systems
• Integrated data supports multiple business functions
Business With ERP
Database
Customers Sales Dept.
Purchasing
Warehouse
Accounting
Vendor
Inventory Data
If no parts,
order is placed
through DB
Orders
Parts
Order is submitted
to Purchasing.
Purchasing record
order in DB
Order is placed
with Vendor
And invoices accounting
Financial Data exchange;
Books invoice against PO
Books inventory
against PO
Ships parts
ERP II consist of :
• Core Enterprise Resource Planning (ERP)
Modules
• Supply Chain management systems (SCM)
• Customer Relationship Management Systems
(CRM)
• Business Intelligence System (BI)
Inter Organization Integration with ERP II
Enterprise Application Architecture
ERP Benefits
• Reduces workforce in core transaction
processing systems by eliminating tasks and
duplication
• Supports global business operations
• Achieves economies of scale
• Improves communication and information
exchange among departments
ERP Benefits
• Reduces information systems development
staff
• Improves customer service through better
logistics
• Improves data integrity
• Improves decision support
Overall Business Benefits
• Information – Maximizes information throughput
– Provides timely information
– Integrates information throughout supply chain
• Minimizes response time
• Pushes decision making down to lowest levels
• Reduces costs
• Cuts inventory
• Improves operating performance
Department Benefits
• Sales – Increased efficiency
• Lower quotes, reduced lead time, improved responsiveness
• Manufacturing – Concurrent engineering
– Faster design and production
• Data Service – Accurate customer service history and warranty
information
• Accounts Payable – Suppliers paid accurately
Systems Benefits
• Eliminating legacy systems – Reduces incompatible data
– Can cause fragmentation
• Allows sharing and monitoring of information across organization
• Foundation of eBusiness – Back-office functions
• Standardization
• Helps obtain and maintain competitive advantage
• Improved interactions with customers and suppliers
Construct Technology Infrastructure Support Globalization
Support Supply/Demand Chain Processes Reduce Cost or Improve Productivity
Achieve Year 2000 Compliance Improve Customer Responsiveness Standardize Info Systems/Platform
Improve Business Processes Integrate Business Processes or Systems
Improve Quality/Visibility of Data
15%
17%
20%
24%
25%
29%
31%
37%
37%
70%
0% 10% 20% 30% 40% 50% 60% 70% 80%
% Respondents
Source: Deloitte Consulting and Benchmarking Partners
(Based on a study of 62 companies that have gone live with an ERP system)
Companies expect
that implementing
ERP will improve
the quality and
visibility of data
ERP Capabilities Expected
44%
42%
27%
23%
19%
16%
15%
12%
10%
8%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Personnel Reductions
Inventory Reductions
IT Cost Reduction
Productivity Improvements
Order Management/Cycle Time
Cash Management
Revenue/Profit
Procurement
Financial Close Cycle
Maintenance
% Respondents
The main
anticipated benefit
of ERP: cost
reduction
ERP Targeted Tangible Benefits
Source: Deloitte Consulting and Benchmarking Partners
(Based on a study of 62 companies that have gone live with an ERP system)
Typical architectural components
E-business Platform Tech Stack
Web Internet
Mobile Wireless
Dedicated Client
Call Center Telephony
Interaction
Channels
Common Data and Object Models, Security, Interface
Production Sales eCommerce Business
Applications
Marketing
Intelligence
Sales
Intelligence
Production
Intelligence
Call Center
Intelligence Analytical
Applications
Finance HR
Data Warehouse
On-Line Analytical Processing
(OLAP)
Bolt-On Applications
(Industry Specific Functions)
Sales
&
Distribution
Business
Planning
Shop Floor
Control Logistics
Customers Suppliers
Operational Database Customers, Production,
Vendor, Inventory, etc.
Legacy
Systems
Core Functions [On-Line Transaction Processing (OLTP)]
ERP System
Business Enterprise ERP System
ERP Vendors and Market
Trends in ERP Market
ERP application revenue estimate, 2006–2011 (Source: AMR Research)
The ERP market will see revitalized
growth (Source: Forester Research)
ERP vendors ranked by license revenue 2005-06 (Source: AMR Research)
Top 10 ERP vendors by total revenues
($ millions) (Source: Forester Research)
These revenues are for the vendors’ fiscal quarters that most closely correspond to calendar year 2005. Vendor
revenues calculated in currencies other than US dollars have been converted to US dollars using the average daily
exchange rates.
* Infor revenues based on vendor estimate following SSA Global acquisition announcement
$10,536
$4,651
$1,600
$1,414
$855
$747
$439
$319
$289
$289
SAP
Oracle
Infor*
Sage Group
Microsoft (MBS)
Lawson
Unit 4 Agresso
IBS
Epicor
IFS
ERP Vendor License Revenue Share, 2006
Top 10 Vendors by Total Revenue Share
Vendors focus on different verticals
Vendor
Public
sector
Finance/
insurance
Utilities/
telecom Healthcare
Business
services
Retail/
wholesale
Manu-
facturing
SAP
Oracle
Sage Group
MBS
Lawson-Intentia
SSA Global
Infor
Unit 4 Agresso
IBS
Epicor
IFS
Exact
Capability
Low High
Next-generation architecture strategies —
the road to SOA
Batch
On-line
midrange
Client/
server
Web
client
Service-
oriented
architectures
1970s 1980s 1990s 2000s 2010s
The final four: major middleware ecosystems
Vendor
IBM
WebSphere
“Blue Stack”
Microsoft
“.NET”
Oracle “Fusion
Middleware”
SAP
“NetWeaver”
SAP
Oracle
The Sage Group
MBS
Lawson-Intentia
SSA Global
Infor
Unit 4 Agresso
IBS
Epicor
IFS
Exact
(open source: JBoss)
ERP vendor competitive positioning
Large
enterprise SAP
mySAP
Business
Suite
Oracle
EBS and
Enterprise
NetSuite
Lawson/
Intentia
SAP
Business
One
MBS
AX
MBS
GP
MBS
NAV MBS
SL
Oracle
E1
Epicor
Sage
Group
SSA
Infor
QAD
IFS
Exact
Unit 4
Agresso
Midmarket
Small
business
Mergers and Acquisition in ERP Software Market
Analysis of Overall Market Share (Source: Panorama-Consulting.com)
The report is based on surveys of over 1,600
respondents that have
either selected or implemented ERP
solutions over the last five years, with a
heavier weighting on
projects completed in 2010.
(Source: Panorama-Consulting.com)
• The above analysis indicates that SAP and Oracle
compete both for small companies (less than $25 million
revenue) and large companies (more than $500 million
revenue), but SAP clearly is more popular with companies
with revenues between $25 million and $500 million.
Competition among all vendors intense for customers
within the revenue classification of less than $50 million,
although it is also fairly competitive in other segments as
well.
SAP and Oracle are active in all segments, while Microsoft
Dynamics has the most success with companies under
$50 million and between $100 and $500 million.
Major observations:
• Although SAP continues to lead with 24.0-percent
market share, its share is a decrease from 2010
when it had 31.0-percent of the market.
• Today, Oracle is at 18.0-percent whereas in 2010 it
was at 25.0-percent.
• Microsoft Dynamics’ share has decreased from 15.0-
percent to 11.0-percent.
• Tier II implementations on a whole command 11.0-
percent of the market
• whereas Tier III/others makes up 36.0 percent.
Total Market Shares by Industry (Source: Panorma-consulting.org)
Average vendor cost
ERP Modules
SAP R/3 Modules
Logistics SD Sales & Distribution
MM Materials Management MRP
PP Production Planning MRPII (with others)
QM Quality Management
PM Plant Maintenance
HR Human Resources
FINANCIAL FI Financial Accounting
CO Controlling
AM Asset Management
PS Project System
R/3 INTERNAL WF Workflow: prompt actions
ABAP 4GL Programmable interface
Comparative Modules
SAP Oracle PeopleSoft J.D. Edwards
SD Marketing, Sales Supply chain Order management
MM Procurement Supplier relationship Inventory, procurement
PP Manufacturing Manufacturing mgmt
QM Enterprise perform Technical foundation
PM Service Enterprise service
HR Human Resources Human capital mgmt Workforce
management
FI Financials Financial mgmt sol. Financial management
CO Time & Expense mgmt
AM Asset Management Enterprise asset mgmt
PS Projects Project management
WF Order Management
Contracts Subcontract, real
estate
Industry-Specific Focus
• Some vendor has turned to customized
ERP products to serve industry-specific
needs
– Examples given from BAAN, PeopleSoft
– Microsoft also has entered the fray
BAAN Industry-Specific Variants
Discrete Manufacturing Process Manufacturing
Aerospace & Defense Chemicals
Automobile Food & Beverage
Industrial Machinery Pharmaceuticals
Electronics Cable & Wire
Telecommunications Pulp & Paper
Construction Metals
Logistics
PeopleSoft Industry Solutions
Communications Consumer Products Federal
Government
Financial Services Healthcare Higher Education
High Technology Industrial Products Public Sector
Professional
Services
Staffing
Utilities Wholesale
Distribution
Microsoft Great Plains Business Solutions
Accounting & Finance
Customer Relationship Management
E-Business
Human Resources & Payroll
Manufacturing
Project Accounting
Supply Chain Management
Relative ERP Module Use (Mabert et al. 2000; Olhager & Selldin, 2003)
Module Use reported - US Use reported –
Non US
Financial & Accounting 91.5% 87.3%
Materials Management 89.2% 91.8%
Production Planning 88.5% 90.5%
Order Entry 87.7% 92.4%
Purchasing 86.9% 93.0%
Financial Control 81.5% 82.3%
Distribution/Logistics 75.4% 84.8%
Asset Management 57.7% 63.3%
Quality Management 44.6% 47.5%
Personnel/HR 44.6% 57.6%
Maintenance 40.8% 44.3%
R&D Management 30.8% 34.2%
Enterprise Wide ERP
Implementation Costs
Implementation Costs
• Software Licenses
• Computer Hardware
• Professional Services
• Data and System Migration
• Internal Staff Cost
$15Million
Hidden Costs
Training, testing, data
conversion…
Hidden Costs
• Training – Most elusive budget item
– Consistently underestimated
• Integration and Testing – Run real data through the system instead of dummy data
• Data Conversion – From old systems to ERP systems
• Data Analysis – Costs related to external data warehouse
• ERP Consultants – Hard to circumvent
– Good practice to include performance metrics and time schedules as part of the contracts.
Reasons of Budget Overrun
Duration
EXAMPLES
• ONGC
• Raytheon Aircraft
• Dell Computers
– Chose to not adopt
• Siemens Power Corporation
– Implementation of selected modules
SAP at ONGC
Project:
Enterprise wide Implementation of ERP in
ONGC
through Project
ICE
(Information Consolidation for Efficiency)
Project Highlights
• Annual turnover of ONGC is Rs. 32000 Cr
• Operating cost is Rs. 6000 Cr
• ONGC’s capital outlay including projects and schemes is around Rs. 10000 Cr
• ONGC monitors the activities on daily, monthly, quarterly & on annual basis at work center & at corporate level. It required multi-process based data integrity.
• Absence of integrated online databases, key executives always had to face time lags between activity period & data availability
• Non availability of timely information cause slippages in execution and thereby affects planned hydrocarbon production targets.
• A minimal improvement in information availability can accrue much more benefits than implementation cost of project
Additional objectives for ERP Implementation:
• Optimization & standardization of business processes
• Moving up the value chain
• Higher productivity & cost reduction
• Lowering inventories & increasing customer services
• Selection of ERP software was of utmost
importance
• Considering the requirement & performance,
ONGC used SAP R/3 platform.
• Most of the top petroleum companies in world
use SAP, is also considered as one of the
criteria.
• Implementation cost was Rs. 136 Cr
• 23 base modules of SAP R/3 were implemented to cover all activities of ONGC
• State of the art datacenter consisting of high end RISC servers, intel servers, storage area networks, multi layer firewalls, robotic tape library was established
• User base for project was 10000
• Work centers scattered geographically
around India
• ERP implementation completed in 30
months
• Project completed exactly as per schedule
• Implementation team size was 70% of the original planned size.
• Implementation strategy, scope as well as time lines were clearly specified in project charter document.
• The whole project was implemented in 6 stages.
• During implementation, various stake holders were kept informed with latest developments
• Top down approach was adopted for
Implementation, i.e. convincing first the
higher management and then people at
operational level
• Initially, 150 executives were trained over
SAP, then those people were divided into
different groups depending on the module
in which they were trained.
Team structure
Steering committee – Executive Committee
Project Manager (ONGC Project manager.. SAP)
Functional Project Managers Technical Project Managers
Business Analysts ABAP Leads
Training Managers Basis Teams
Integration Managers Lead Interfaces
Major implementation phases
• Project Preparation
• Business Blue Print
• Realization
• Final Preparation
• Go-Live and Support
Major Modules
• PP Business Information
• PM warehouse
• FI
• CO
• SD
• MM
• QM
• ABAP
Results achieved:
• Optimization and standardization of re-engineered
business processes
• Eliminated duplicate activities across various processes
• Availability of timely and accurate information
• Integration of various business application on single
platform
• Integrated supply chain management and optimization in
inventory holding
ERP & Raytheon Aircraft
• $2.7 billion subsidiary of Raytheon Co.
• Implemented SAP in just over 1 year.
• Total cost of about $55 million.
• Eliminated 30 legacy systems.
• Integrated four manufacturing sites and
fifteen airport service stations.
Raytheon’s Training
• $5.5 million went into training employees.
• 5,000 employees trained for 20
hours/week months before the go-live
date.
• 150 go-live managers worked full-time on
SAP before go live date.
Dell Computers
Evaluation of SAP R/3
Need to continue project
evaluation • Initial project adoption
– 1994 Dell began implementation of SAP R/3 enterprise software suite
– Spent over 1 year selecting from 3,000 configuration tables
• After 2 year effort ($20 million), revised plan
– Dell business model shifted from global focus to segmented, regional focus
Rethinking
• In 1996, revised the plan
• Found SAP R/3 too inflexible for Dell’s
new make-to-order operation
• Dell chose to develop a more flexible
system rather than rely on one integrated,
centralized system
Best-of-Breed
• I2 Technologies software – Manage raw materials flow
• Oracle software – Order management
• Glovia software – Manufacturing control
• Inventory control
• Warehouse management
• Materials management
• SAP module – Human resources
Core Competencies
• Glovia system interfaced with
– Dell’s own shop floor system
– I2 supply chain planning software
• This retained a Dell core competency
Siemens ERP Implementation Hirt & Swanson (2001)
Nuclear fuel assembly
manufacturer
Engineering-oriented
Siemens Power Corporation
• 1994 Began major reengineering effort
– Reduced employees by 30%
• 1996 Adopted SAP R/3 system
– Replacement of IS budgeted at $4 million
• Some legacy systems retained
Siemens Modules
• FI Finance
• CO Controlling
• AR Accounts receivable
• AP Accounts payable
• MM Materials management
• PP Production planning
• QC Quality control
Implementation
• To be led by users
• Project manager from User community
• Consultant hired for IT support
– IS group only marginally involved
Project Progress
• Oct 1996 Installed FI module
• Sep 1997 Installed other modules
• On time, within budget
Training
• End users became more proficient with
time
– Average of 3 months to learn what needed
• Management training took longer
– Management didn’t understand system well
– Often made unrealistic requests
Operations
• During first year
– Major errors in ERP configuration
– Evident that users needed additional training
– New opportunities to change system scope
suggested
• Two years after installation
– R/3 system upgrade