ERP. Session1 - ERP? Evolution, Vendors, Industry growth and analysis, Cost & ROI

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Mildred Bertha McDaniel
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1 ERP Session1 - ERP? Evolution, Vendors, Industry growth and analysis, Cost & ROI

2 Understanding ERP

3 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

4 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

5 ERP (Enterprise Resource Planning) Customers Mfg Cap plng Demand plng MM Sales Financial Accounting Controlling HR Vendors

6 Characteristics: Flexibility Modular Open architecture Comprehensive Beyond the organization best business practices Simulation

7 ERP (Enterprise Resource Planning) 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)

8 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

A Complete Family Tree Late 90 s CRM Early 00 s SCM Logistics Electronic Invoicing Electronic Marketplaces Contract Management Sales Force Automation Contract Management Customer

9 A Complete Family Tree Late 90 s CRM Early 00 s SCM Logistics Electronic Invoicing Electronic Marketplaces Contract Management Sales Force Automation Contract Management Customer Service & Support Marketing Automation Documentation Management Early 00 s ERP II Product Data Management Engineering Change Orders New Product Introduction Collaborative Product Design

10 Before and After ERP

11 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

12 Traditional View of Systems

13 Business Before ERP Sends report Sales Dept. Customer Demographic Files Orders Parts Customers Checks for Parts Accounting Files Calls back Not in stock We ordered the parts Sends report Accounting Invoices accounting Sends report Order is placed with Vendor Vendor Ships parts We Need parts #XX Warehouse Purchasing Files Purchasing We ordered the parts Inventory Files

14 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

15 The Order Fulfillment Process

16 ERP systems are: Designed to support organization-wide process coordination and integration

17 Enterprise Systems

18 Non-integrated IS and Integrated IS

19 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

20 Business With ERP Customers Orders Parts Sales Dept. Inventory Data If no parts, order is placed through DB Accounting Financial Data exchange; Books invoice against PO Order is submitted to Purchasing. Purchasing record order in DB Database Books inventory against PO Order is placed with Vendor Vendor Purchasing Warehouse Ships parts And invoices accounting

22 Inter Organization Integration with ERP II ERP II consist of : Core Enterprise Resource Planning (ERP) Modules Supply Chain management systems (SCM) Customer Relationship Management Systems (CRM) Business Intelligence System (BI)

23 Enterprise Application Architecture

24 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

25 ERP Benefits Reduces information systems development staff Improves customer service through better logistics Improves data integrity Improves decision support

26 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

27 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

28 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

29 ERP Capabilities Expected Improve Quality/Visibility of Data Integrate Business Processes or Systems Improve Business Processes Standardize Info Systems/Platform Improve Customer Responsiveness Achieve Year 2000 Compliance Reduce Cost or Improve Productivity Support Supply/Demand Chain Processes Support Globalization Construct Technology Infrastructure 17% 15% 20% 25% 24% 31% 29% 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

30 ERP Targeted Tangible Benefits Personnel Reductions Inventory Reductions 44% 42% IT Cost Reduction 27% Productivity Improvements 23% Order Management/Cycle Time Cash Management Revenue/Profit Procurement Financial Close Cycle Maintenance 19% 16% 15% 12% 10% 8% The main anticipated benefit of ERP: cost reduction 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% % Respondents Source: Deloitte Consulting and Benchmarking Partners (Based on a study of 62 companies that have gone live with an ERP system)

31 Typical architectural components Interaction Channels Web Internet Mobile Wireless Dedicated Client Call Center Telephony Analytical Applications Marketing Intelligence Sales Intelligence Production Intelligence Call Center Intelligence Business Applications Production Sales ecommerce Finance HR Common Data and Object Models, Security, Interface Tech Stack E-business Platform

32 ERP System Business Enterprise Data Warehouse Legacy Systems Customers On-Line Analytical Processing (OLAP) ERP System Bolt-On Applications (Industry Specific Functions) Core Functions [On-Line Transaction Processing (OLTP)] Suppliers Sales & Distribution Business Planning Shop Floor Control Logistics Operational Database Customers, Production, Vendor, Inventory, etc.

33 ERP Vendors and Market

34 Trends in ERP Market ERP application revenue estimate, (Source: AMR Research)

35 The ERP market will see revitalized growth (Source: Forester Research)

36 ERP vendors ranked by license revenue (Source: AMR Research)

37 Top 10 ERP vendors by total revenues ($ millions) (Source: Forester Research) SAP Oracle Infor* Sage Group Microsoft (MBS) Lawson Unit 4 Agresso IBS Epicor IFS $1,600 $1,414 $855 $747 $439 $319 $289 $289 $4,651 $10,536 These revenues are for the vendors fiscal quarters that most closely correspond to calendar year 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

38 ERP Vendor License Revenue Share, 2006

39 Top 10 Vendors by Total Revenue Share

40 Vendors focus on different verticals Vendor Public sector Finance/ insurance Utilities/ telecom Healthcare Business services Retail/ wholesale Manufacturing SAP Oracle Sage Group MBS Lawson-Intentia SSA Global Infor Unit 4 Agresso IBS Epicor IFS Exact Capability Low High

41 Next-generation architecture strategies the road to SOA On-line midrange Client/ server Web client Serviceoriented architectures Batch 1970s 1980s 1990s 2000s 2010s

42 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 (open source: JBoss) Exact

43 ERP vendor competitive positioning Large enterprise Midmarket SAP mysap Business Suite MBS AX MBS GP Oracle EBS and Enterprise Oracle E1 Lawson/ Intentia Epicor Unit 4 Agresso SSA Infor QAD IFS Small business SAP Business One Sage Group MBS NAV MBS SL NetSuite Exact

44 Mergers and Acquisition in ERP Software Market

45 Analysis of Overall Market Share (Source: Panorama-Consulting.com)

46 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.

47 (Source: Panorama-Consulting.com)

49 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.

50 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 percent to 11.0-percent. Tier II implementations on a whole command percent of the market whereas Tier III/others makes up 36.0 percent.

51 Total Market Shares by Industry (Source: Panorma-consulting.org)

56 Average vendor cost

57 ERP Modules

58 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

59 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

60 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

61 BAAN Industry-Specific Variants Discrete Manufacturing Process Manufacturing Aerospace & Defense Chemicals Automobile Food & Beverage Industrial Machinery Pharmaceuticals Electronics Cable & Wire Telecommunications Construction Pulp & Paper Metals Logistics

62 PeopleSoft Industry Solutions Communications Consumer Products Federal Government Financial Services Healthcare Higher Education High Technology Industrial Products Public Sector Professional Services Utilities Staffing Wholesale Distribution

63 Microsoft Great Plains Business Solutions Accounting & Finance Customer Relationship Management E-Business Human Resources & Payroll Manufacturing Project Accounting Supply Chain Management

64 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%

65 Enterprise Wide ERP Implementation Costs

66 Implementation Costs Software Licenses Computer Hardware Professional Services Data and System Migration Internal Staff Cost

67 $15Million

68 Hidden Costs Training, testing, data conversion

69 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.

70 Reasons of Budget Overrun

71 Duration

73 EXAMPLES ONGC Raytheon Aircraft Dell Computers Chose to not adopt Siemens Power Corporation Implementation of selected modules

74 SAP at ONGC Project: Enterprise wide Implementation of ERP in ONGC through Project ICE (Information Consolidation for Efficiency)

75 Project Highlights Annual turnover of ONGC is Rs Cr Operating cost is Rs Cr ONGC s capital outlay including projects and schemes is around Rs 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

76 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

77 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.

78 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

79 User base for project was Work centers scattered geographically around India ERP implementation completed in 30 months Project completed exactly as per schedule

80 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

81 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.

82 Team structure Steering committee Executive Committee Project Manager (ONGC Project manager.. SAP) Functional Project Managers Technical Project Managers Business Analysts Training Managers Integration Managers ABAP Leads Basis Teams Lead Interfaces

83 Major implementation phases Project Preparation Business Blue Print Realization Final Preparation Go-Live and Support

84 Major Modules PP PM FI CO SD MM QM ABAP Business Information warehouse

85 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

86 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.

87 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.

88 Dell Computers Evaluation of SAP R/3

89 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

90 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

91 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

92 Core Competencies Glovia system interfaced with Dell s own shop floor system I2 supply chain planning software This retained a Dell core competency

93 Siemens ERP Implementation Hirt & Swanson (2001) Nuclear fuel assembly manufacturer Engineering-oriented

94 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

95 Siemens Modules FI CO AR AP MM PP QC Finance Controlling Accounts receivable Accounts payable Materials management Production planning Quality control

96 Implementation To be led by users Project manager from User community Consultant hired for IT support IS group only marginally involved

97 Project Progress Oct 1996 Installed FI module Sep 1997 Installed other modules On time, within budget

98 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

99 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

Introduction to SAP. SAP University Alliances Version 2.20 Author Stefan Weidner. Product SAP ERP 6.0 EhP4. Level Beginner

Introduction to SAP. SAP University Alliances Version 2.20 Author Stefan Weidner. Product SAP ERP 6.0 EhP4. Level Beginner SAP University Alliances Version 2.20 Author Stefan Weidner Introduction to SAP Product SAP ERP 6.0 EhP4 Level Beginner Abstract This teaching material is intended to explain how the fundamental business