Ch. 8: Supporting Processes with ERP Systems

How are ERP Implementations Accomplished?

- Activities in Initial Implementation > First step is for top managers of company to revisit their strategy so that ERP system has clear goals > Next they conduct a gap analysis: study that highlights differences between business requirements that emerge from strategic planning and the capabilities of the ERP system > Implementation team develops processes it will use and configures the software > Company's IT staff writes procedures, trains the users, and tests the system >> Testing in final phase occurs in 2 ways: >>> Functional test: evaluates if the system as it is configured for the company meets the company's requirements (does it behave as desired?) >>> Performance test: stress/load test; ensures that system is able to accommodate the expected workload and transactions in an efficient manner - Initial implementation process can require year-18 months for large firm > initial implementations are rare as almost all large organizations have some type of ERP system in operation

ERP Upgrades Pt. 2

- Company will often first implement an ERP on small scale in one division or function with intent to expand later - Upgrade is often justified on pending change of service from ERP vendor or significant increase in service support fees from vendor - Companies also upgrade to leverage advances in IT and better integrate their processes - Discussions about upgrades need to occur within a year or two after original implementation > resistance may be strong if ppl believe upgrade with be disruptive - May be more challenging to justify upgrades than original implementation - Upgrades sometimes referred to as version lock: occurs when client firm has customized ERP software that is has locked itself out of upgrading to new ERP software > Firms that customize extensively have locked themselves into particular version of ERP software and upgrading is more difficult - Upgrades are challenging if client firm hasn't developed long-term strategy for ERP updates > specify plans for upgrading different business functions and allocate sufficient funds to ensure future upgrades are conceived and executed

SAP Inputs and Outputs

- Different roles in the organization give people access to different screens and different data - SAP is designed to preclude deleting saved records > makes auditing and supervision of the transactions more complete and reduces the risk of fraud

International Firms and ERP

- ERP application programs must be available in many languages and currencies - Once implemented, ERP brings huge benefits to multinational organizations - ERP solutions provide worldwide consolidation of financial statements on timely basis - Single instance: the use of one large ERP implementation to consolidate all the operations of an international firm - Multiple instances: separate ERP implementation for each country, business unit, or region - For these firms, advantages of one set of data, single financial system, and worldwide process standards are outweighed by the cost of consolidating or the disparity among divisions

Decision making

- ERP vendor selection: selecting right ERP vendor > ERP vendors have variety of strengths and weaknesses > picking right vendor is important as it creates long-term relationship between firms that has impact on effectiveness of ERP system for length of contract - Gap analysis: organization conducts gap analysis to identify differences between business requirements that emerge from strategic planning and capabilities of chosen ERP system > First difficult decision is deciding what company would like ERP system to do > long list of "likes" will lead to long list of gaps and difficult implementation > short list of "likes" is better > Second decision is what to do about gaps > company can write custom code, look for solutions outside ERP, or live with gap for now > Whether to integrate existing information systems with new ERP system - Configuration: firms may need to make as many as 8,000 configuration decisions > Item identifiers, order size, bill of material (BOM): specifies raw materials, quantities, and subassemblies to create a product > For each configuration decision, implementation teams must decide if any of the configuration choices offered by ERP vendor are suitable - Data Issues > Format of data, how duplications can be avoided, deciding who enters and edits data - Cutover method: during transition, or cutover, from current way of doing things to new ERP system > Deciding which option to use to overcome an addiction (cutover all at once or gradually in steps)

What Problem Does an ERP System Solve?

- Information silo: isolated data stored in separated information systems > data needed by one process are stored in an information system designed and used in another process - Silo problem is solved by ERP systems > ERP systems: very large enterprise IS that bring data together in a big database and help a company improve its processes > An ERP system is an IS designed to integrate processes by consolidating data > ERP system is an IS with 2 key characteristics: >> ERP system creates single database > by consolidating data, a company can avoid the problem of having multiple versions of the same thing >> ERP systems provide a set of industry-leading processes that are well integrated with each other

ERP by organization size

- Initially adopted by large manufacturing organizations that had complex process problems that needed ERP solutions - As ERP implementation improved, other smaller organizations were able to implement ERP - Today, 84% of organizations with between 100-1000 employees have implemented ERP - Companies of different sizes have one important difference that has a major impact on ERP: the availability of skilled business and IT analysts > Small organizations employe only one or two IT analysts who not only manage ERP system but also manage entire IS department > spread very thin and are often in over their heads during ERP implementation; smaller, simpler ERP solutions are common > Midsize organizations may expand IT from one person to small staff, but frequently this staff is isolated from senior-level management > such isolation creates misunderstandings and distrust > Large organizations have full IT staff that is headed by CIO, a business and IT professional who sits on the executive board and is an active participant in organizational strategic planning

People

- Management Moves on Prematurely: managers need to stay involved and ensure implementation is monitored, resources are committed, good procedures are written, and thorough training is conducted - Management Oversells: management is often blindsided by benefits of promised system and don't look carefully at assumptions behind promises > lead to top management to buy more features than it needs or than organization can implement successfully - Management Fails to Anticipate Cultural Resistance: > Culture: day to day work habits and practices that workers take for granted > Changing culture can lead to employee resistance as change in work habits may threaten self-efficacy: person's belief that they can be successful at their job - Management has Poor Project Management Skills: if project is poorly managed and runs long, business is faced with bad choice - rush to finish and make mistakes due to rushing or reduce training time and money and suffer from end users not being properly trained - Team Collaboration Breaks Down: implementing an ERP system requires extensive and effective collaboration > when collaboration breaks down, implementation suffers - Users Feel Pain and Get No Gain: implementation changes work people do > people whose work has changed often receive no benefit from the change (benefits occur for organization) > Employees may need to be given extra inducement to change to new system - Difficult-to-Use Software: how to get firm's people to learn and use ERP software that isn't particularly user-friendly > ERP screens are filled with jargon, difficult to correct, offer unhelpful help, and hard to explain

What are the Elements of an ERP System?

- Material requirements planning (MRP): software used to efficiently manage inventory, production, and labor - Manufacturing resource planning (MRPII): a manufacturing information system that schedules equipment and facilities and provides financial tracking of activities - Just in time (JIT) delivery: integrates manufacturing and supply - manufacturing occurs just as raw materials arrive - Sarbanes-Oxley Act (SOX): required companies to exercise greater control over their financial processes, and ERP systems addressed that new requirement - For a product to be considered a true ERP product, it must include applications that integrate processes in following business functions: > Supply chain management (SCM; procurement, sales order processing, inventory management, supplier management, and related activities) > Manufacturing (manufacturing scheduling, capacity planning, quality control, bill of materials, and related activities) > Customer relationship management (CRM; sales prospecting, customer management, marketing, customer support, call center support) > Human resources (payroll, time and attendance, HR management, commission calculations, benefits administration, and related activities) > Accounting (general ledger, accounts receivable, accounts payable, cash management, fixed-asset accounting) - Inherent processes: process designs included in an ERP product that may be implemented by the organization - Process blueprints: comprehensive set of inherent processes for all organizational activities, each of which is documented with diagrams that use a set of standardized symbols

ERP Trends

- Most significant trend affecting ERP vendors is the cloud, providing their customers the opportunity to run their ERP systems in the cloud > Cloud is more attractive to customers because it reduces costs and makes their data more portable and accessible > Cloud improves ERP system accessibility on mobile devices > AI will also play greater role in ERP systems

SAP Software

- Most widely implemented version is R/3: (R = real time); first truly integrated system that was able to support most of an organization's major operational processes - SAP must constantly adapt > Cloud where SAP is facing stiff competition with other ERP firms to be an industry leader in cloud offerings to customers > SAP is offering customers a new system: S/4 Hana: 2 main advantages are in-memory processor that runs much faster and introduction of a new end user interface called Fiori - Shift from selling efficiency to effectiveness > allows SAP to adapt its marketing and product focus from providing process efficiency for its customers to an emphasis on customer effectiveness goals - SAP is announcing that in the future it will discontinue support of R/3 hoping that will spur sales of S/4

What Are the Benefits of an ERP System?

- Real-time data sharing allows managers to see trends as they occur and respond appropriately - Converting its processes to the well-integrated, inherent, best-practice processes of the ERP vendor - Effective ERP system can lead to better management as more managers have visibility to more data - ERP systems can provide managers with dashboards: easy to read, concise, up to minute displays of process KPIs > a viz customized for a particular user - ERP systems make it easier to exchange data with supply chain partners > can reduce costs and create efficiencies for every business in the chain - Creates economies of scale > helpful after merger or acquisition > by sharing data and common processes throughout the new combined firm, the organization can reduce cost and gain economies of scale by bringing all the transactions under one roof

What Makes SAP Different from Other ERP Products?

- SAP AG: Systems, Applications, Products; world's most successful ERP vendor > 3rd largest software company in the world; core business of SAP AG is selling licenses for its SAP software solutions and related services; also offers consulting, training, and other services for its software solutions - Industry-specific platforms: preconfiguration platform that is appropriate for a particular industry, like retail, manufacturing, or health care - All SAP implementations start with SAP industry-specific platform and are further configured to particular country with configuration choices mentioned earlier Module: distinct and logical grouping of process

Who Are the Major ERP Vendors?

- SAP has largest market share and longest history - Top companies are labeled Tier 1 ERP vendors and comprise about half of total market share for ERP - Over last several years, SAP's market share has decreased slightly as smaller vendors and cloud offerings have improved > attributed to growth in small-to-medium market and maturity of ERP systems in large organizations

The 5 Components of an ERP:

- Software > Software can be customized to meet customer requirements without changing program code (configuration) > Writing new code to supplement an ERP system is customization - Hardware > Disk storage, servers, clients, printers, scanners, network devices, cables > Organization first estimates number of users, processes supported, and volume of data for intended system - Data: operational data are entered during development and use > Several different types of data: >> Transactional data: data related to events like purchase or student enrollment >> Master data: reference data; data used in organization that don't change with every transaction > supplier names and addresses, items names and units of measure, employee data >> Organizational data: data about the company like location of its warehouses, mailing addresses of buildings, names of its financial accounts - Procedures: set of instructions for a person to follow when operating an IS > Every ERP installation requires a firm to select ERP processes and then specify how those processes will be executed on ERP software > Procedures not only specify instructions, but important opportunity for organizations to improve control of a process > procedures help processes provide consistent results > Train the trainer: training sessions in which vendors train organization's employees to become in-house trainers in order to improve training quality and reduce training expenses - People > 3 categories: >> Users: employees of firm implementing system >> IT analysts (system analysts): specialized training or education that enables them to support, maintain, and adapt the system after it has been implemented >> Consultant: works for ERP vendor or different company (third party) and helps budget, plan, train, configure, and implement the system

Goals of Large ERP Vendors

- Tier 1 vendors are trying to make their ERP systems simpler to use, more secure, and with cloud-based options; also seeking to empower end users to be their own data analyst - ERP vendors want to remove need for IT analyst by making system easier to use to make it possible for accountant to directly work with ERP data - Next-generation goal is to improve interface between ERP systems and IoT objects and 3D printers; another is improve connectivity between ERP system data and large external data sources - Vendors are seeking to reduce manual key inputs by individuals and allow more automated data inputs to the system

What Types of Organizations Use ERP?

- Use depends on organization's industry and organization's size - ERP by industry > First major ERP customers were large manufacturers in aerospace, automotive, industrial equipment, and other industries > Natural for ERP vendors to go up supply chain and sell ERP solutions to those industries that supplied the manufacturers: distributors, raw materials extractors and processors, and petroleum industry > Over time ERP spread to companies and organizations in other industries > Today ERP systems are used by governments and utilities in retail industry and in education

What Are the Challenges of Implementing an ERP System?

- Wide range of implementation challenges that fall into 2 categories: 1. Decision making 2. People

ERP Upgrades

reoccurring activity designed to improve the IT system or improve functionality - Upgrades can be as challenging as initial implementations - 3 main types of upgrades: 1. Minor upgrade: technical (less complex) 2. Functional upgrade 3. Major upgrade