Exploiting IT for business benefit

Transcription

1 Exploiting IT for business benefit EITBB 6. Enterprise resource planning systems benefit. BCS 1

2 Introduction to enterprise resource planning (ERP) applications Focus in this presentation on internal systems that support external transactions Core business IT applications tend to be similar from one organization to another ERP applications are suites of applications that carry out core generic business transactions like creating an invoice, processing a sales order, paying employees The applications are written as standard software by external suppliers benefit. BCS 2

3 Examples of common business-wide systems Sales orders Customer billing Purchase orders Stock control Accounts receivable Bank reconciliation Payroll Financial accounting Distribution Accounts payable Personnel records Assets management benefit. BCS 3

4 Interacting functions in a business Goods + despatch note Customer Customer payment Sales order Stock out notification Supplier Customer payment Invoice SALES Process sales order Credit check request Credit authorization FINANCE Process payments Sales order Stock out notification Copy of despatch note Supplier invoice WAREHOUSE Pick and despatch order Copy of despatch note Goods received note Payment request INVENTORY CONTROL Monitor stock levels Purchase order Supplier Goods inwards + despatch note benefit. BCS 4

5 Before ERP Businesses tended to develop applications on an individual basis Little shared data application silos Tendency to build systems in-house rather than use off-the shelf (OTS) solutions Emergence of legacy systems essential core systems which required expensive development effort to maintain benefit. BCS 5

6 ERP Developed from materials requirements planning (MRP 1970s) and manufacturing resource planning (MRP II s) applications standard systems for manufacturing ERP extended idea of externally-sourced standard software to core business applications Key players include Oracle, Microsoft, Sage but most prominently SAP benefit. BCS 6

7 Characteristics of ERP Comprehensive and integrated set of IS applications covering the key business transactions Data held in a common integrated database. Data is updated in real-time, that is, as events trigger transactions. The core software is supplied by a specialist supplier of off-the-shelf ERP applications. Predetermined functionality is based on a reference model which, the suppliers claim, represents identified best practice benefit. BCS 7

8 Motivation for ERP Shared database more efficient less duplication of data and processing Cost saving through OTS Opportunities to organize business processes more efficiently e.g. common procedures at all sites To remain competitive ERP developers offer new features to keep up to date which can be adopted benefit. BCS 8

9 Some strategic ERP decisions Federalism Distinguishing those areas where standardisation and integration have business value and those where differentiation and customisation have benefit Where do we put functionality? Head office subsidiary subsidiary subsidiary benefit. BCS 9

10 Some strategic ERP decisions Selection of ERP modules Any change incurs costs Some existing systems may be fit for purpose Some existing systems may provide competitive advantage These are probably not candidates for replacement benefit. BCS 10

11 Some strategic ERP decisions Customisation ERP may allow you to catch up with competitors in terms of IS If competitors have same modules then you are on a level playing field In some areas could build your own software to give you competitive advantage benefit. BCS 11

12 ERP and business value Costs of ERP implementation can be enormous despite little or no software development costs Competitive advantage reduced as competitors have similar systems Risk of being locked into a particular supplier could put you in a weak negotiating position for future developments Low degree of fit with ERP reference model could mean benefits do no justify costs benefit. BCS 12

13 ERP implementation process - stages 1. Evaluation potential business value needs to be examined to establish ERP solution is worthwhile 2. Project preparation establishing a team to carry out the ERP implementation. Unlike conventional development, most staff are likely to be users 3. Requirements gathering will not address detailed processes. Identifies where ERP solution can be adopted and where local customized solutions needed benefit. BCS 13

14 ERP implementation continued Package and vendor selection Will probably involve assessing hardware platform needed as well It is usual to employ system integration specialists who are expert in implementation of the selected ERP suite Technical architecture and design, including: Interfaces with other organizational systems How data in old systems will be migrated to new systems Phased versus big bang approach benefit. BCS 14

15 ERP implementation continued Implementation analysis usually based on workshops with integration specialists and super-users (knowledgeable user representatives) Can involve fit-gap or as-is analysis Configuration Setting parameters for the particular implementation Baseline model usually generated - superusers then walk through process to check compatibility with corporate requirements benefit. BCS 15

16 ERP implementation continued Testing focus on whether particular implementation is correct, not the underlying software Training successful ERP implementation usually depends on changing processes to fit in with ERP software. Users have to be accustomed to new ways of working benefit. BCS 16

17 ERP implementation - continued Data migration data cleansing may be needed to ensure that data from previous separate systems is now compatible. Once data is transferred it needs to be checked on the new system Post implementation support super-users and others need to be on hand to deal with teething troubles. Productivity may initially go down as users struggle with the new system benefit. BCS 17

18 ERP success/failure factors Scope for efficiency gains from improved IT support, for e.g. real-time updating and integrated databases Ease of software customization to deal with local requirements; The degree of fit between business processes and those in ERP reference model The ease with which the current business processes can be modified; The degree to which there are benefits in changing the current business practices. benefit. BCS 18

19 Strategic concerns IT support improves efficiency not + software change costs high low able to change software unable to change large small gap between business and ERPs able unable to change business processes business change beneficial not customize software not - change business process not benefits high low business change cost higher lower project success failure benefit. BCS 19

20 Package-process misfit types Data Format Relationships Functional Access which staff can do what Control data validation rules Operational Output presentation format information content benefit. BCS 20

21 Data misfit types Misfit type explanation example Format The ERP data format does not match that used locally Formats of dates and postcodes Relationship The way that items of data are linked Payments have to be with invoice. Practice has been to allow payments without invoice benefit. BCS 21

22 Functional misfits Access Control who has access to what information differences in validation rules staff access to customers in designated region only. constraint not supported by package UK postcodes and US zipcodes Operational differences in business rules Calculation of local taxes. benefit. BCS 22

23 Output mistypes Presentation Content Layout of reports etc., makes it difficult to use in the local situation Local need for information not provided by the system Accounts in account number order, clerks access by name Government requirements for information from local authorities benefit. BCS 23

24 Misfit resolution strategies change Organizational Change organisational procedures to match those of ERP system Accept shortfall in ERP reduce scope of requirements Devise workarounds alternative ways of doing things Change ERP package ERP customisation NB: Changes could be add-ons benefit. BCS 24

25 Issue of flexibility Best of breed approach choose different packages for different functions Problem of silos and interoperability Possible solutions include Enterprise Application Integration products Service oriented architecture benefit. BCS 25

26 ERP and Business Process Re- engineering Question: Do you do any process re-engineering before or after ERP implementation? benefit. BCS 26

27 Simplistic example of enterprise information analysis 2.Application processing # new cards # purchases Value of purchases 3.purchases Value of overall debt 4.balances # applications monthly statements Value of interest penalties 1.card promotion # invitations # payments Value of payments 5.payments 6.debt chasing benefit. BCS 27

28 Simplistic example of enterprise information analysis - continued Performance indicators include 1. Card promotion Ratio of invitations to applications Reflects effective of marketing campaign 2. Application processing Ratio of applications to new cards Reflects precision in targeting correct market segments benefit. BCS 28

29 Simplistic example of enterprise information analysis - continued 3. Purchases Average value of purchases per customers Key indicator of business health Recall previous talk on customer selection, extension and retention 4. Balances higher the balances the greater interest charged 5/6. Payments and debt chasing but too great a level of debt, plus bad debts could make business vulnerable benefit. BCS 29

30 Strategic enterprise management ERP implementation should provide integrated data and systems Next challenge is to exploit this to produce integrated management information ABC Activity Based Costing aggregate all the costs for the end-to-end processes that create a product Balanced scorecard idea that managers could be given cockpit style control panel benefit. BCS 30

31 Concluding remark Once an ERP suite has been implemented it needs to be managed and enhanced on an ongoing basis to ensure benefits of system are actually achieved. Concept of benefits management is discussed in Chapter 7. benefit. BCS 31