8/25/2008. Chapter Objectives PART 2. Concepts in Enterprise Resource Planning 2 nd Edition

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1 Concepts in Enterprise Resource Planning 2 nd Edition Chapter 2 The Development of Enterprise Resource Planning Systems Chapter Objectives Identify the factors that led to the development of Enterprise Resource Planning (ERP) systems Describe the distinguishing modular characteristics of ERP software Discuss the pros and cons of implementing an ERP system Summarize ongoing developments in ERP 2 Evolution to ERP PART 2 3 1

2 Enablers of ERP Evolutionary Path Hardware maturation Software maturation Data management concepts Organizational management concepts Y2K 4 From Computers to ERP Factors that make ERP systems technically feasible Advancement of computer hardware and software Computer processing power Low-cost computer memory Systems knowledge Advances in communications technology Factors that make ERP systems organizationally feasible Vision of a need for integrated information systems Reengineering of companies to shift from a functional focus to a managerial focus 5 Computer Hardware Computer hardware continues to get smaller, cheaper and faster Gordon Moore, an Intel employee, noted that the number of transistors on a computer chip, and thus its power, doubled every 18 months This trend in computing power continues to this day Moore s Law Computing power needed for ERP is affordable in corporate environments 6 2

3 Figure 2-1 The actual increase in transistors on a chip approximates Moore s Law Courtesy of Intel Corporation 7 Computer Software Computer software continues to get more powerful and faster Networking enabled operating systems Reusable modules of computer code Object oriented programming languages Relational database management systems Standards 8 Computer Evolution - I In the beginning - mainframe computers 1960s One large computer Shared by many users Users communicate with the system by punched cards or punched paper tapes Terminals monitor and keyboard with no computing capability used to communicate with the mainframe computer 9 3

4 Computer Evolution - II The personal computer (PC) 1980 gave individuals more control over their computing Users not connected to each other General-purpose applications like word processing, spreadsheets and presentation graphics developed and popular for the PC Networked computers for data sharing Also sharing of peripheral equipment Client server model for distributed computing A central computer (server) manages storage and sharing of common data 10 Client-Server Advantages Provide scalability Scalability refers to the capability to easily expand the existing system as need grows Processing capacity of the network could be increased inexpensively by adding a new server computer to the existing network Mainframe systems generally not scalable To increase capacity, buy a new system Client-server systems are much more cost effective over the long run 11 Computer Evolution - III Common database is key component of ERP system Relational database systems s Systems allowed for more efficient storage and retrieval of data To support ERP systems, relational databases needed to be able to find specific data quickly from a large, complex database Standard Query Language (SQL) By the 1990s, the hardware, networks and database software (RDBMS) were in place to make large scale ERP systems feasible 12 4

5 Functional Business Model Alfred P. Sloan developed the functional organizational model in the 1930s as chairman of General Motors The functional model was very successful for decades, but foreign competition in the 1980s highlighted problems with the model: Flexibility and rapid decision making were not possible Organizations had become overstaffed and top-heavy Ability to respond to change was limited 13 Top Management rmation Flow Marketing Infor Sales Ma anufacturing Logistics Material & Product Flow Financ ce & Accounting Figure 2-2 Information and material flows in a functional business model 14 Business Process Model In a process-oriented company, the flow of information and management activity are horizontal across functions The horizontal flow promotes flexibility and rapid decision-making Michael Hammer s Reengineering the Corporation encouraged managers to take a horizontal business process view of their companies 15 5

6 Suppliers S Accounts Payable Top Management Finance & Accounting Accounts Receivable Marketing & Sales Procurement ManufacturingLogistics Information Flow Figure 2-3 Information and material flows in a process business model ustomers Cu Supplies ConversionStorage & Shipping Material & Product Flow I 16 Y2K Most business software programs written in the 1960s and 70s saved storage space by using only 2 digits to store the year For example, 10/29/75 rather than 10/29/1975 With dates after 12/31/99, computer calculations were likely to be in error 10/29/2001 might be interpreted as 10/29/1901 by a program that only stored the date as 10/29/01 Companies faced a choice as the new millennium approached: Rewrite old software to store year data correctly Use problem as an opportunity to upgrade to ERP 17 Y2K The Y2K problem created explosive sales growth for Y2K-compliant ERP systems This lead to a significant shortage of experienced ERP consultants, leading many companies to have problems with their sometimes-rushed implementations The high demand for experienced ERP consultants prior to Y2K was followed by an abrupt drop off by the middle of 1999 By middle 1999, companies had decided how they were going to handle the Y2K problem, so new ERP sales dropped significantly 18 6

7 End of Chapter 2 Part 2 Evolution to ERP 19 7