STRATEGIC APPLICATION OF IT I
E. R. P
What is Enterprise Resource
Planning (ERP)?
ERP is an enterprise-wide information
system designed to coordinate all the
resources,
information,
activities needed
to complete business processes such as;
order fulfillment
billing.
So ERP?
An ERP system is an attempt to integrate
all functions across a company to a single
computer system that can serve all those
functions specific needs.
Integration is the key word for ERP
implementation.
ERP delivers a single database that
contains all data for the software module
BENEFITS OF ERP
Operational
Managerial
Strategic
IT Infrastructure
Organizational
Operational Benefits
Cost reduction
Inventory
Manpower
Material cost
Cycle time reduction
Order to ship lead times reduced
Better coordination among departments
Productivity improvement
Fewer shortages and interruptions
Quality improvement excellence, specification, value for
money
Customer services improvement
Better coordination between sales and production
Delivery schedules commitment
E commerce facilities
Managerial Improvement
Improved resource management
Load resources according to production
schedule
Better decision making
with real time information
Better planning
-Capacity planning
Performance improvement
Strategic Improvement
Support business growth
Support business alliances
Build business innovations
Build cost leadership
Generate product differentiation
Build external linkages
IT Infrastructure
Improvement
Build business flexibility
IT cost reduction
Increased IT capability
Latest use of technology
Information Integration
Organizational
Support organizational change
FORCE organizational change!!
Facilitate business learning
BPR does a good job of this
Empower employees
Build common vision
Total Cost of ERP Ownership (in
millions of $) - META Group Survey
System
Medium
Baan
Average
16.1
Smallest
13.6
Largest
0.8
26.5
JD Edwards
1.9
Oracle
7.4
3.9
4.1
5.4
15.5
SAP
13.9
SSA
1.7
5.7
0.8 21.6 Lawson
0.4 16.4
11.2
1.4 42.8 PeopleSoft
1.3 58.6
52.2
7.6
0.8
0.7 29.6
From: Implementation Study Reveals Costs, Benefits,
308.2
Benefits of ERP Implementation
(META Group Survey)
Benefits are mostly in terms of cost
containment rather than revenue increase.
53 companies (out of 63) reported annual
savings of over $5 millions with the median
annual saving of $1.6 million. Nine
companies account for 73.4% of the
reported savings.
The study found that much of the ERP value
is in indirect, non-quantifiable benefits.
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Companies before ERP
Systems
Companies after ERP
Systems
Major Phases of ERP
Implementation
Project Preparation ( Initiation)
develop business case, project scope,
and implementation strategy
Business Blue print
Planning establish implementation team,
determine goals and objectives, establish
metrics
Analysis and process design analyze and
improve existing processes, map new
processes to be adopted by the system
Realization install a base system,
customization, and test the system
Major Phases of ERP
Implementation
Final Preparation - Transition
replace the formal system with the
new system, data conversion
Go Live - Operation monitor and
improve system performance, provide
continued training and technical
support
Stages of ERP
Implementation
Phase-1 Project Preparation
Phase- 2 Business Blueprint
Phase-3 Realization
Project Plan Outline for Realization
Phase-4 Final Preparation
Phase-5 Go Live & Support
The cost of implementation
Strategic ERP
Implementation
Choices
Timeline
Big Bang Implementation
Phased (Roll Out) Implementation
Parallel Implementation
Staff/Resources
Outsourcing
In-house
Customization Level
3 Pillars of ERP Technology, Process and
People
ERP Implementation
Strategies The big bang
The big bang install a single ERP
system across the entire organization
All modules happen across the entire
organization at once
Move from existing system to new ERP
system on a specific date.
Careful preparation and planning is
required
Dominated early ERP implementations
Advantages
Reduce the Integration cost
Reduce cost of implementation as no
interface programs are required to
communicate between legacy system and
new ERP system
Eliminates all of sequencing and decision
making of implementing one module at a
time
Reduce project implementation time
Avoid complex integration issues
Disadvantages
Too many resources to support at a particular
time
Amount of time and cost for careful planning
and preparation is required for go live
Recovery process if something goes wrong is
more difficult.
Consequence of failed implementation can
cause huge financial loss
Contributed to higher rate of failure of ERP
ERP Implementation
Strategies
Phased
implementation
Phased
implementation
install one or
several ERP modules for phased
implementation of key business processes.
One functional module at a time in sequential order.
Scope of implementation usually to one functional
department
Integration of ERP modules takes place at a later
date
Commonly used methodology of ERP implementation
Advantages
Modular implementation reduces risk of
installation , customization and operation of
ERP
Success of one module can benefit overall
success of ERP
Less resources to support at a particular time
Recovery process is simple if something goes
wrong.
Scheduling of experienced people gives
additional flexibility
Disadvantages
Increase the Integration cost
Increase cost of implementation as interface
programs are required to communicate between
legacy system and new ERP system and
between ERP systems
Requires sequencing and decision making of
implementing one module at a time
Increase overall cost and time to implement
Higher turnover rate can be expected among
key ERP members because of long
implementation phase
ERP Implementation
Strategies
Parallel
implementation
Keeps
legacy system
and new ERP system active
simultaneously for a length of time
Time ranges from one day to several weeks
Same functional business areas including sw are
operating at same time for both legacy system and
new ERP system
No interruption in business process even if new ERP
system malfunctions.
Parallel approach provides most realistic number to
number comparison to validate new ERP
Considerably more resources are required
Ideally suited for mission critical
applications that cannot survive
major malfunction of an ERP system.
It works well for business
environments that requires utmost
stability in ERP such as
financial(Banking & Insurance)
Pharmaceuticals or medical
companies
Advantages
Good recovery option
No interruption in business process
even if new ERP system
malfunctions.
Validation of new ERP system can be
done in business process flow
Avoids complex integration issues
Disadvantages
Too many resources to support for
the duration of parallel run
At functional interactions , duplicacy
of data
Confusion erupts when people dont
interact with both systems in same
way.
Choosing a Strategy
Factors that causes a company to choose
one ERP strategy over the other
Technical resources available
Number of users
Consultant availability
Structure of ERP team
Deadlines
ERP
Reliability
HW resources
Major Challenges to ERP
Implementation
Limitations of ERP technical capabilities
Inconsistency with existing business
processes
Costs - implementation (hardware,
software, training, consulting) and
maintenance
Impact on organizational structure (front
office vs. back office, product lines, etc.)
Changes in employee responsibilities
Major Challenges to ERP
Implementation
Flexibility of software system upgrades
Implementation timelines
Availability of internal technical
knowledge and resources
Education and training
Implementation strategy and execution
Resistance to change
Failure of ERP
Implementations
Lack of Top management
commitment & support
Change of procedures, reassignment of
manpower
Job security & benefits of ERP
Improper planning and Budgeting
Use of wrong ERP tool
Lack of Training
Work culture of Organization
Hersheys A Brief
Overview
One of the leading chocolate
manufacturer across world.
Large chunk of sales from Valentines
Day, Easter, back to school,
Halloween and Christmas 40% of profit.
Need of an efficient and reliable logistics
system to cater to these large no. of
seasonal requirements .
Reliable product availability is critical.
Old System
A network of 19 manufacturing plants, 8
contract manufacturers and more than
20 co-packers.
The company was running on legacy
systems, and with the impending Y2K
problems, it chose to replace those
systems and shift to client/server
environment.
To tackle Y2K problem Hershey decided
to replace existing legacy systems.
New System- IT Partners
A $112 million worth of combination of
softwares for CRM, ERP and forecasting.
Replace existing mainframe based legacy
systems by SAP R3 Accenture.
Production forecasting, scheduling and
transportation management Manugistics
Group Inc.
Managing customer relations and tracking
effectiveness of marketing activities
Siebel CRM.
Implementation Plan for
Enterprise
48 months
Start Date 21 Jan 1996 Roll out of the plan Tackle Y2K issue by
Replace Mainframe Advanced final date
to Jan 2000 with SAP R/3 April 1999
Jan 1997 - Installed new TCP/IP network
Replaced 5000 desktop computers
hardware
April 1999 Enterprise 21 went live using
BIG BANG
Expected Benefits
Fine-tune deliveries to suppliers.
Upgrade and standardize companies business
processes.
Efficient customer driven processes capable of
managing changing customer needs.
Reduce order cycle times and boost inventory
accuracy.
Reduce inventory costs.
Better execution of business strategy of
emphasizing core mass market candy business.
Actual Scenario
Unable to deliver $100 million worth of
Kisses and Jolly Ranchers for Halloween in
1999.
Stock price down 35%
Earnings drop 18%
Order fulfillment time doubled to 12 days!
Lost prominent shelf space for the season!!!
Several consignments were shipped behind
schedule, and even among those, several
deliveries were incomplete.
Enterprise software isnt just
software.
It requires changing the way
you do business.
What went wrong?
Squeezed deadlines:
Project originally scheduled for 4 years
Company forced the implementation to
30 months
Wrong timing:
The company went live at their busiest
time
Released the solution just before the
Halloween
Big-Bang Approach:
To quicken the implementation process,
Hershey opted for Big Bang
implementation.
Simultaneously implemented a
customer-relations package and a
logistics package even without testing
some of the modules
Increased the overall complexity and
employee learning curve
Un-entered data:
Surge Storage capacity not
recorded as storage points in the ERP
Orders from many retailers and
distributors could not be fulfilled,
even though Hershey had the
finished product stocked in its
warehouses.
TOP reasons for failure
Failed Strategic Decisions
Unrealistic Expectations
Wrong Timings
The Big Bang Implementation
Implementation of Systems from 3
different Companies
No CIO to look after IT before
implementation
A New Challenge
The Turnaround
Hershey made sure to take the time
and resources to thoroughly test the
computer systems.
Testing included putting bar codes on
empty pallets and going through the
motions of loading them onto trucks
so that any kinks would be worked out
before the distribution center opened
for business.
Began work on the upgrade to mySAP
in July 2001.
Hershey Foods said it had completed an
upgrade to mySAP.com completed in
11 months, 20% under budget.
Hershey now has an inventory location
accuracy of 99.96 % and can turn
orders within 24 to 48 hours of
receiving an order as opposed to the
previous 10-plus days that it took.
Eastern Distribution Center,
Opened in 2000,EDC
to helpIII
custom pack some
products at its distribution centers, removing
co-packers from the chain.
To strengthen the overloaded physical
logistics infrastructure.
To help with errors in forecasting.
Enabled by WMS from Mc Hugh DM
In its few short months of operations, EDC III
nearly has halved the companys order-cycle
times of a year ago while dramatically
boosting inventory accuracy.
Hersheys Today
Revenues of nearly $5 billion and almost
13,000 employees worldwide.
In 2005 & 2006, Hershey acquired the
Berkeley, California-based boutique
chocolate-maker Scharffen Berger, Joseph
Schmidt Confections, the San Franciscobased chocolatier and Dagoba Organic
Chocolate, a boutique chocolate maker in
Oregon.
Markets Hersheys, Reeses, Hersheys
Kisses, Kit Kat, Twizzlers, and Ice Breakers.
General Solutions
Justify Enterprise-wide Projects.
Both the Software & Business Processes should FIT
together.
Identify And Implement Strategies For Reskilling
The Existing It Workforce And Acquire External
Expertise Through Vendors And Consultants When
Needed.
Project management team should have both
Business Knowledge And Technology Knowledge.
Make A Commitment To Training.
Manage Change Through Leadership, Effective
Communications And The Role Of A Champion .
Project
Management
Issues
in Implementing
ERP
page 329-333
Introduction
ERP Projects are large and Important projects
Critical in terms of their potential and actual impact
The track record is far from excellent
Benefit realisation is questionable
Preparedness is critical but badly understood
This leads to problems during the implementation
phase that are not solved properly => dysfunctional
ERP
Very low levels of end-user satisfaction are reported
Essentially diffrent from tradition al IS projects =>
need for a diffrent approach in terms of project
management
Project Management &
Monitoring
Project management
identifies 9 knowledge
areas on which project management is based
1.Project Integration Management
2.Project Scope Management
3.Project time Management
4.Project Cost Management
5.Project Quality Management
6.Human Resource Management
7.Communications Management
8.Risk Management
9.Procurement Management
1 Project Integration
Management
2 Project Scope
Management
3 Project Time
Management
1.1 Project Plan Development
2.1 Initiation
3.1 Activity Definition
1.2 Project Plan Execution
2.2 Scope Planning
3.2 Activity Sequencing
1.3 Integrated Change Control
2.3 Scope Definition
3.3 Activity Duration Estimating
2.4 Scope Verification
3.4 Schedule Development
2.5 Scope Change Control
3.5 Schedule Control
4 Project Cost
Management
5 Project Quality
Management
6 Project Human
Resource Management
4.1 Resource Planning
5.1 Quality Planning
6.1 Organisational Planning
4.2 Cost Estimating
5.2 Quality Assurance
6.2 Staff Acquisition
4.3 Cost Budgeting
5.3 Quality Control
6.3 Team Development
4.4 Cost Control
7 Project Communications
Management
8 Project Risk
Management
9 Project Procurement
Management
7.1 Communications Planning
8.1 Risk Identification
9.1 Procurement Planning
7.2 Information Distribution
8.2 Quantitative Risk Analysis
9.2 Solicitation Planning
7.3 Performance Reporting
8.3 Risk Response Planning
9.3 Solicitation
7.4 Administrative
8.4 Risk Monitoring and Control
9.4 Source Selection
9.5 Contract Administration
Case Study organisations
Key Features
Firm A
Firm B
Type of firm
Multinational
Public sector
Industry
Pharmaceutical
Education
Size (emp.)
100,000
2000
Turnover
$21 billion
Euro 200 million (approx.)
Scope of project
Comprehensive
Financials / Procurement / projects
Type of implement.
Worldwide roll out in 4 waves
Single site in 2 phases
Duration
5 years
9 months (expected)
Project leadership
Steering committee
Steering committee
Project managers
Local top managers in sites
Finance officer
Project teams
Approx. 70 at each site + 45 in core team
15 full and part time
Key issues in ERP implementation
Rationale for project
Seeking FDA compliance
Old system crumbling
Key problems
Deserve special mention
Managing differences between sites
Setting up the template and sticking to it
Managing difference versions of SAP
Saving local gains whilst implementing single
instance
Deadlines imposed worldwide
Communicating with staff / negotiating changes to
work practices
No attempts to justify investment beyond compliance
Lack of awareness of magnitude of change needed
Managing expectations
Trade off between doing the right thing and doing it right
Tight budgetary constraints and lack of top management
support
Difficulties in getting every one to agree on specification
Managing different cultures internally
Comprehensive ITT process to select package
Project Integration
Management
General preparedness
Awareness of what projects entails
volume of effort required, effect on staff
assigned to ERP team, budget, training
Setting up of full time team
Special Training Workshop
Firm A: excellent on average but very
uneven between sites
Firm B: no understanding of project / far
too much expected of inexperienced team
Project Scope
Management
Critical for ERP:
number of modules, number of areas, extent of
customisation, number of interfaces with legacy
system, size of user population
Surveys indicate most firms would change scope
during implementation
Change in scope mid way through project responsible
for most cost /time slippages
Companies are unable to reconcile the technological
necessities of the system with their own business
needs
Conflict in logic of system vs Business
Firm A: well defined (template) but imposed by HQ
without consideration of local practices (time
wasted)
Firm B: little thought given to scope / entire
modules added without considering impact
Project Time
Management
ERP projects are amongst the longest
Multi-wave global roll out up to 5 years
Initial sites sometimes are software versions
behind last ones
Multiple sites, lines of Business and countries
Firm A: all deadlines externally decided + no
choice
Some sites failed to keep pace
Firm B: core functionality on time, but difficult
areas (e.g.: research contracts) left behind
Project Cost
Management
ERP projects are costly
ERP cost includes license , training,
implementation, maintenance,
customisation and HW
Much of the costs are hidden to a certain
extent e.g.: training , consultants fee
etc
Firm A: externally decided, but large
enough for all sites (pharmaceutical firm)
Firm B: mean budget throughout
Case Study organisations
Key Features
Firm A
Firm B
Type of firm
Multinational
Public sector
Industry
Pharmaceutical
Education
Size (emp.)
100,000
2000
Turnover
$21 billion (2002)
Euro 200 million (approx.)
Scope of project
Comprehensive
Financials / Procurement / projects
Type of implement.
Worldwide roll out in 4 waves
Single site in 2 phases
Duration
5 years
9 months (expected)
Project leadership
Steering committee
Steering committee
Project managers
Local top managers in sites
Finance officer
Project teams
Approx. 70 at each site + 45 in core team
15 full and part time
Key issues in ERP implementation
Rationale for project
Seeking FDA compliance
Old system crumbling
Key problems
Deserve special mention
Managing differences between sites
Setting up the template and sticking to
it
Managing difference versions of SAP
Saving local gains whilst implementing
single instance
Deadlines imposed worldwide
Communicating with staff / negotiating
changes to work practices
No attempts to justify investment beyond
compliance
Lack of awareness of magnitude of change
needed
Managing expectations
Trade off between doing the right thing and
doing it right
Tight budgetary constraints and lack of top
management support
Difficulties in getting every one to agree on
specification
Managing different cultures internally
Comprehensive ITT process to select package
Project Quality
Management
ERP projects require a serious
transformation process that must be
validated e.g. invoicing, payroll
System is implemented in efficient way and
objectives are met
Many aspects require hard-to-get expertise
Application / organisational knowledge
dilemma (eg: use of consultants)
Firm A: COMPLIANCE
Firm B: old system couldnt sustain
Business processes
Project HR Management
Project team (full time) + business as usual dilemma
Support for project at local level
Assemble best team to plan, execute and control project
Top management commitment
Multi disciplinary , dedicated , IT specialist, Key users and
operations personnel
Team Morale
Firm A: very organised opportunities for promotion after
project no casualties
Firm B: the right people are not there + top management
think they can be on team and pursue their normal duties
Project Communication
Management
Other side of coin:
selling the project internally and
externally
Internal communication each department viewing its
information as its own and reluctant to share it
Implementation team sometimes find it easier to learn
and share with people from outside than within intra
organisation team
Consultants facilitate open & productive communication
Higher level of communication leads to better project
mgmt
Firm A: full time consultant hired + monthly newsletter + many
meetings behind closed doors
Firm B: fragmentation of certain functions makes consultation
process very tricky too many to please (on-going)
Project Risk
Management
ERP projects can
radically change in business processes
of organisations.
Radical change leads to risk. Risk means more time &
money
ERP systems are complex and that requires reliance on
different types of expertise.
They also disturb everyday work over long periods
They can lead to unworkable situations (in 1999 Hershey
after working for 3 years on SAP and 2 other vendors lost
to Mars and Nestle as sales dropped by 12.4% and
earnings by 18.6% - FAILED ERP
Firm A: much to lose (can-do attitude)
Firm B: odds stacked against success => actively
preparing for failure by refusing proper budget allocation
Project Procurement
Management
Which one is the one?
Different packages have different strengths
How are vendors really selected?
Firm A: SAP logical choice (FDA)
Firm B: thorough process of ITT +
comparative analysis
But other cases were not so neat (political
or unethical decisions non-decision
making)
Conclusions
ERP Projects are special
ERP Project Management is tricky
and different
ERP projects Do it right the first
time failure is not an option
Clear simple corporate vision
Group dedicated for business process
improvements
Experienced project managers
Set realistic and achievable dates and
milestones
Designate single leader
When choosing a vendor, put premium
on vertical expertise
Prepare detailed vendor contract
Make business objectives the primary
driver of the project
Proper training of end user
Avoid too much customization
