Enterprise Resource Planning, 1st Edition by Mary Sumner
Chapter 1:
A Foundation for Understanding Enterprise Resource Planning Systems
Objectives
Develop an understanding of how ERP systems improve the effectiveness of information systems in organizations
Recognize the business benefits of ERP systems
Understand the history and evolution of ERP
ERP Market
One of the fastest growing markets in software industry
34.5% of companies with revenues over $1 billion plan to purchase or upgrade
$180 billion in sales in 2002
Maybe as much as $1 trillion by 2010
ERP Systems
Major investment
Cost between $50,000 and $100,000,000+
Variety of business justifications
Replace legacy systems
Reduce cycle times
Lower operating costs
Enables better management decisions
Real-time
On-line
What is ERP?
Software tools
Manages business systems
Supply chain, receiving, inventory, customer orders, production planning, shipping, accounting, HR
Allows automation and integration of business processes
Enables data and information sharing
Enterprise-wide system
Introduces best practices
Evolution of ERP
1960s: software packages with inventory control
1970s: MRP systems
Production schedule with materials management
1980s: MRPII systems
Adds financial accounting system
1990s: MRPII
Integrated systems for manufacturing execution
Late 1990s: ERP
Integrated manufacturing with supply chain

Integrated Systems Approach
Common set of applications
Usually requires re-engineering business processes
Better alignment
Limited customization
Easier upgrades
Overcomes inefficiencies of independent systems
Integrated data supports multiple business functions

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

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

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

Design Alternatives
Vanilla implementation
Complete vendor package
Benefits
Total integration across all functional areas
Re-engineering of all business processes
Deficits
Expensive
Time-consuming
Selected ERP modules
Benefits
Less costly and time-consuming
Deficits
Lacks total integration of data
Limited applicability and use

Design Alternatives, continued
Build in-house
Benefits
Can create system based on its needs
Competitors will not have access to similar system
Deficits
Time- and resource-consuming
Expensive
Risky
May not provide competitive advantage
Maintain concurrent legacy systems
Benefits
Familiarity
Deficits
May be a competitive disadvantage

Cost-Benefit Analysis
Net Present Value
Time value of money
5-year timeframe for ERP
Non-recurring costs:
Hardware, software, consulting, training, implementation
Recurring expenses:
Licenses, maintenance, consulting, teams

Maintaining Competitive Advantages
Implement ERP system better than competitors
Migrate to new versions faster
Use vanilla ERP for core systems and build customized modules for others
Increase availability of operational data
Better use of data for analysis
Challenges
Realization of benefits
On-time, on-budget implementations
Applying multi-stage approach
Markus
Three phases: project, shakedown, and onward and upward phases
Business results not achieved until last phase
Parr and Shanks
Four phases: planning, re-engineering, design, and configuration and testing phases
Benefits not achieved until last two phases
Holland and Light
Benefits occur after implementation of advanced modules

Case: Business Research
Expected future growth in ERP Marketplace
U.S.
Fortune 500 and mid-cap
International
Fortune 500 and mid-cap
Market share of major vendors
U.S.
Fortune 500 and mid-cap
International
Fortune 500 and mid-cap
Summary
ERP systems can improve the effectiveness of organizations through automation and integration of business processes
ERP systems allow data and information sharing across the organization
Departmental benefits include increased efficiency, faster design and production, and accuracy
Implementing an ERP system helps the organization obtain and maintain a competitive advantage

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