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ITM 309

Enterprise Resource Planningand Collaboration

Dr. Frederick Rodammer Michigan State University

Eli Broad College of BusinessRodammer@bus.msu.edu

November 12, 2008

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Today’s Learning Objectives

• Describe Enterprise Resource Planning (ERP) and ERP components

• Describe the three primary components found in core enterprise resource planning

• Describe the four primary components found in extended enterprise resource planning systems

• Explain ERP benefits, costs and risks

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ENTERPRISE RESOURCE PLANNING

• Enterprise resource planning – integrates all departments and functions throughout an organization into a single IT system (or integrated set of IT systems) so that employees can make enterprisewide decisions by viewing enterprisewide information on all business operations

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Enterprise Resource Planning

• Serves as a Cross-Functional Enterprise Backbone that Integrates and Automates Many Internal Business Processes and Information Systems

• Helps Companies Gain the Efficiency, Agility, and Responsiveness Needed to Succeed Today

• Gives a Company an Integrated Real-Time View of its Core Business Processes

• ERP Software consists of many integrated modules and relies upon a common data base management system

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ERP and BusinessProcess Integration

• ERP systems automate business processes

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CORE AND EXTENDED ERP COMPONENTS

• Core ERP component – traditional components included in most ERP systems and they primarily focus on internal operations

• Extended ERP component – extra components that meet the organizational needs not covered by the core components and primarily focus on external operations

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CORE ERP COMPONENTS

• Three most common core ERP components

1. Accounting and finance

2. Production and materials management

3. Human resource

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Accounting and Finance ERP Components

• Accounting and finance ERP component – manages accounting data and financial processes within the enterprise with functions such as general ledger, accounts payable, accounts receivable, budgeting, and asset management

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Production and Materials Management ERP Components

• Production and materials management ERP component – handles the various aspects of production planning and execution such as demand forecasting, production scheduling, job cost accounting, and quality control

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Human Resource ERP Component

• Human resource ERP component – tracks employee information including payroll, benefits, compensation, performance assessment, and assumes compliance with the legal requirements of multiple jurisdictions and tax authorities

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CORE AND EXTENDED ERP COMPONENTS

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EXTENDED ERP COMPONENTS

• Extended ERP components include:– Business intelligence– Customer relationship management– Supply chain management– E-business

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ERP BENEFITS

• Common ERP benefits1. Integrate financial information

2. Integrate customer order information

3. Standardize and speed up manufacturing processes

4. Reduce inventory

5. Standardize human resource information

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ERP Implementation Costs

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ERP RISKS

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Causes of ERP Failures

• Business mangers and IT professionals underestimate the complexity of the planning, development, and training needed

• Failure to involve affected employees in the planning and development phases

• Trying to do too much too fast in the conversion process

• Failure to do enough data conversion and testing

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ERP SOFTWARE

• Successful ERP projects share 3 attributes1. Overall fit

• Off the rack• Off the rack and tailored to fit• Custom made

2. Proper business analysis• Successful companies spend up to 10 percent of the

project budget on a business analysis

3. Solid implementation plans• A plan is needed to monitor the quality, objectives,

and timelines

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ERP Process andInformation Flows

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ERP VENDOR OVERVIEW

• SAP boasts 20,000 installations and 10 million users worldwide

• ERP solutions are growing because:– ERP is a logical solution to the mess of incompatible

applications that had sprung up in most businesses– ERP addresses the need for global information

sharing and reporting– ERP is used to avoid the pain and expense of fixing

legacy systems

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ERP Benefits

• Quality and Efficiency – ERP creates a framework for integrating and improving a company’s internal business processes that results in significant improvements in the quality and efficiency of customer service, production, and distribution

• Decreased Costs – Significant reductions in transaction processing costs and hardware, software, and IT support staff

• Decision Support – Provides vital cross-functional information on business performance quickly to managers to significantly improve their ability to make better decisions in a timely manner

• Enterprise Agility – ERP breaks down many former departmental and functional walls of business processes, information systems, and information resources

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ITM 309 Homework

• Assignment #5 due November 19-20