E(lectronic)-Business

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1 International Management and E(lectronic)-Business Enterprise Resource Planning Systems (ERP) and E-business System Integration Prof. Michael H. Breitner Dipl.-Ök. Nadine Guhr # 1

2 Agenda 1. Enterprise Resource Planning (ERP) Systems 2. ERP systems within the E-business architecture 3. ERP system market and issues in implementation 4. ERP system implementation projects # 2

3 Enterprise Resource Planning Systems # 3

4 System Classification Software Application software System software Standard software Custom software Technical software e.g. CAD or CASE systems Business software e.g. process support for order fullfilment, payroll accounting, accounts receivables and payables etc. Mixed software e.g. CIM systems Internal development External development Sector-specific software Functional software Specific software # 4

5 System Classification ERP Core Modules and their integration Functional vs. sectorspecific classification of ERP systems # 5

6 Integration # 6

7 Integration Data integration Central master data management (data which are continuously used, e.g. product and customer data, manufacturing resources, staff) Central Database Process integration Seamless integration of process execution (Order-to-Cash / Procure-to-Pay ) Pay e.g. Simultaneous booking of financial and inventory streams Incr easing level of integration Structural vs. process organization # 7

8 Functional vs. Process Orientation Integration is a consequence of process thinking! Func ctional think king Sourcing Manufacturing Sales Customer Process objectives Internal customer Internal customer OtC / PtP etc. Process results Customer Process thinking # 8

9 ERP Definition Software providing integrated functions for major business functions such as production, distribution, sales, finance and human resources management (Chaffey 2009). Cross-functional software solutions that manage and evaluate business processes, such as production, sales, logistics, finance and human resources. An ERP system consistently manages different business functions and is therefore a useful instrument for controlling and management. More recent ERP systems can be applied for management and evaluation of external business processes (translated from Enterprise Resource Planning (ERP) are software solutions for management of business processes. Their scope of application spans from organization to administration and controlling of business processes.[ ] ERP systems increasingly use integration via company networks and the internet, in order to support e-commerce, e- procurement and other electronic processes. Among these are customer relations via CRM and enterprise-wide integration of software through Enterprise Application Integration (EAI). (translated from # 9

10 ERP 3-tier architecture ERP Frontend is usually a common user interface for employees from different departments or business functions. Graphical User Interface (GUI) Applications encompass the business logic or business rules for process execution Applications/ Business Logic A common database is the minimal level of integration and ensures consistency and availability of data. Database Management System (DBMS) # 10

11 Evolution of ERP systems ERP II or Enterprise Application Integration (EAI) ERP Enterprise optimisation Manufacturing and distribution Manufacturing, sales and distribution, and finance processes Internal, hidden Web-aware, closed, monolithic Internally generated and consumed Role Domain Function Process Architecture Data ERP II Value chain participation/ e-commerce enablement All sectors/segments Cross-industry, industry sector and specific industry processes Externally connected Web-aware, Open, componentized Internally and externally published and subscribed Source: Gartner Research # 11

12 Process integration in E-business systems Business processes are seamlessly integrated and executed throughout the e-business architecture 1. Log activity > 2. Log opportunity > 3. Check for contract > 4. Check inventory > 5. Check ATP/CTP > 6. Determine price > 7.Quote customer > 8. Create Quote > CRM SCM ERP < Apply payment < Invoice < Ship < Send ASN < Plan and produce < Confirm order < Check credit < Generate order Source: Gartner Research # 12

13 ERP systems within the E-business architecture # 13

14 Role of ERP system in E-business Relation with e-commerce: ERP systems are the backbone for any e-commerce application as they deliver relevant real-time information via interfaces ERP systems are a source of good practice (vs vs. best practice ) which is especially useful when e.g. new e-commerce processes are implemented. Buy-Side In-Side Sell-Side SCM ERP CRM Source: Scheer et al Enterprise # 14

15 Real-time Enterprise (RTE) Concept originates from customer-oriented thinking New enterprise technology has reached the point where unconditional process orientation ti becomes technologically ll possible Business processes should be executed without any time lag Occurring time lags need to be monitored, analyzed and minimized seamless integration of systems and common data exchange standards are necessary in order to link the entire enterprise value chain The ultimate objective is achieving full customer satisfaction through htimely and dhigh-quality h product or service delivery Source: Scheer et al # 15

16 Best-of-breed vs. single source-systems E-business architecture (ERP, CRM, SCM etc.) sourced from a single vendor Standard d interfaces can be used thus lower integration ti costs No necessarily the optimal fit with business requirements sourced from multiple vendors applying a best-fit approach (bestof-breed) Software can be chosen based on business requirements Integration costs need to be evaluated Data standardization for seamless integration # 16

17 Enterprise Application Integration (EAI) EAI enables integration of formally isolated enterprise systems in order to provide seamless integration of data, applications, processes and workflows in a heterogeneous system environment. Multiple systems are integrated via middleware. People GUI Integration via Portals CRM Legacy Systems Applications Processes Business process integration and automation of workflows EAI ERP Middleware Other Business partners Data # 17

18 Integration typologies Peer-to-Peer 1:1 connections Inflexible, low initiation costs; high follow-up costs Hub-and-Spoke n:m connections Flexible, high initial cost; low follow- up costs Source: # 18

19 Enterprise Application Integration (EAI) Example: Company A is a well-established fashion label and uses department stores as their primary sales channel. The sales director and the analyst team decide to introduce a webshop as a direct sales channel. Why does EAI play an important role in extending the company s e-business system architecture? Which h data is required to feed the webshop and where does this data come from? The logistics director supports the webshop. What are the benefits the logistics department can expect from the webshop and which functionalities are required to fulfill them? # 19

20 ERP system market and issues in implementation # 20

21 ERP market in Germany After sales service/support R&D/product management Supplier management 45,00% 56,30% 57,30% Sales and distribution Administration Corporate management and planning Production Order fulfillment 75,30% 75,80% 77,00% 83,00% 84,60% Processes covered by ERP systems in industrial businesses Source: Konradin ERP Studie 2009 Market share of ERP system vendors in medium ( employees) and large enterprises (>499 employees) # 21

22 Issues in ERP Implementation User Training Implementation/customizing 14,90% 29,20% Cost categories and shares for ERP implementation projects Software licences 28,90% Hardware/middleware 27,00% Share of businesses significantly exceeding planned implementation costs User Training Implementation/customizing Software licences Hardware/Middleware 28,50% 37,50% 22,20% 19,40% Source: Konradin ERP Studie 2009 # 22

23 Issues in ERP Implementation Reasons for deviations System extensions 19,40% of implementation/ Planning errors 18,60% customization costs Unexpected efforts 16,70% New/different requirements 16,70% Other unexpected problems 12,20% 25,60% 13,90% 13 months and longer 7 12 months Implementation project duration 28,90% 4 6 months 31,60% shorter than 3 months Source: Konradin ERP Studie 2009 # 23

24 ERP system implementation projects # 24

25 ERP system implementation General IT Project Management Lifecycle Initiating Planning Monitoring and controlling Executing Closing Source: Phillips 2010 # 25

26 Project management basics SMART project goals Project management Triangle Specific: detailed and precise requirements definition Measurable: metrics need to be introduced and measured Achievable: realistic in terms of fthe constraints t of fthe available resources (e.g. project management triangle) Relevant: project goals should benefit the organization (cut cost, increase revenue etc.) Time-bound: short to middleterm requirements Time Cost Project Manage- ment Triangle Scope # 26

27 SAP ERP Implementation: ASAP Methodology Accelerated SAP (ASAP) Methodology Source: SAP # 27

28 ASAP (Accelerated SAP) Comprehensive solution for faster and systematic implementation and continuous optimization (based on experiences) Gives answers for following questions How much will the project cost? How long will the project last? How should the project participants proceed? How can quality be ensured? Which tools are available? Service & Support by vendor (consultancy, training, EarlyWatch, GoingLiveCheck) as accelerators Implementation planning with the help of the ASAP roadmap # 28

29 Benefits of ASAP Faster implementations with streamlined and focused methodology More reliable projects, through proven tools, accelerators, and best practices Lower risk More efficient use of resources Reduced costs Effective project management based on Project Management Institute standards # 29

30 ASAP Tools Key project workstreams: Deliverables Documentation Word and Excel templates # 30

31 ASAP Phase 1: Project Preparation In the project preparation phase, the project team defines project goals, a high-level scope, and a project plan. Executive sponsorship is secured, and the project standards d and organization are set up. The implementation ti strategy t is defined d and approved. At the same time, the project procedures, standards, organization, and staffing are finalized. Roles and responsibilities of the entire project team are agreed upon and documented. The objectives of the project are validated, and all initiation activities are documented in the project charter. Source: SAP # 31

32 ASAP Phase 2: Business Blueprint During this business blueprint phase, solution and technical designs are documented in the business blueprint. Lead by solution o and industry experts from the SAP Consulting organization, a series of structured process workshops are planned and executed to arrive at the to-be delivered" SAP enterprise solution. All available documentation for standard, delivered support for SAP business scenarios and all relevant preconfigured support for best practices are reviewed and discussed with SAP experts. All functional and technical requirements, coupled with project issues and gaps, are documented in the SAP Solution Manager application management solution. Source: SAP # 32

33 ASAP Phase 3: Realization In the realization phase, the SAP software system is configured and tested in a number of cycles. Initially, the baseline configuration, which represents the core business process settings, is performed, tested, and confirmed. This is followed with a series of configuration and development cycles, to implement the entire end-to-end solution. The solution is tested in a number of cycle tests and in a focused end-to- end integration test. Configuration is documented in SAP Solution Manager. All development such as enterprise services, interfaces, data conversion programs, reports, and any required enhancements are built and documented in SAP Solution Manager. Legacy data conversion programs are created and tested. The production system is installed during realization. Source: SAP # 33

34 ASAP Phase 4: Final Preparation Within the final preparation phase, all systems are known to function correctly following the approved integration test. Technically, all integration issues should now be resolved. Detailed transition and cutover plans are created. The customer support organization is put in place. The production system is set up with transports and customer data. At the end of this phase, the production system is switched on and business operations start in the new environment. Source: SAP # 34

35 ASAP Phase 5: Go Live Support The purpose of the go-live support phase is to move from a preproduction environment to live production operation. An easily accessible production support organization must be in place to support the end-user community, not just for the first critical days of production operations, but also for long-term support. Source: SAP # 35

36 Project Management Success Standish group "CHAOS Summary 2009" report shows once again that project failure rates are high Compared to earlier reports the rates have even increased Source: # 36

37 Critical Success Factors in ERP Implementation Critical success factors (CSF) in IT project management: aspects where things have to go right for the project to succeed Limited number ( ) of characteristics, conditions, or variables that have a direct and serious impact on the effectiveness, efficiency, and viability of an organization, program, or project. Activities associated with CSF must be performed at the highest possible level of excellence to achieve the intended overall objectives (BusinessDictionary.com) CSF can be regarded as project risk factors and should be manager accordingly # 37

38 Research Paper on CSF for ERP Implementation Esteves, J., Pastor, J.A., Organizational and technological critical success factors behavior along the ERP implementation phases, Enterprise Information Systems VI, 2006, Part 1, # 38

39 The Unified CSF Model Strategic: related to the organization s mission and long-term goals Tactical: affect business activities with short-term objectives 0 eves/pastor 2000 Source: Este # 39

40 CSF along ASAP Phases Source: Esteves/Pastor 2006 # 40

41 Findings (1) Organizational factors are more important than technological Organizations should consider organizational factors early in the project lifecycle, l during project preparation and business blueprint and at the end. Careful monitoring of CSF throughout the project need to consider the shift from organizational to technological factors and vice versa. ERP project monitoring and controlling involves a dynamic multi-success-factor management since the most relevant CSFs may change along the project. # 41

42 Findings (2) The adequate project manager role is the most relevant CSF along all the ERP implementation phases. Therefore, organizations must put special attention on the selection, motivation and retention of this person and try to select the most adequate person for this role. The project manager requires skills to address both, organizational and technological aspects. # 42

43 Summary # 43

44 Summary ERP systems are integrated business application that support all business functions along end-to-end business processes. ERP systems are the backbone of an e-business architecture and have evolved into comprehensive e-business applications (ERP II). Within the EAI concept ERP systems can be seamless integrated with sell-side (CRM) and buy-side (SCM) applications. ERP system implementation ti is prone to failure and needs to be managed carefully. In research and practice, procedure models have been developed and are continuously extended. CSF can be identified and used for planning, controlling, monitoring and risk management of the implementation project. # 44

45 Recommended Literature O Leary, D.E., Enterprise resource planning systems : systems, life cycle, electronic commerce, and risk, Cambridge University Press, 2000, ISBN , partially available via Google Books Jacob, O. (Ed.), ERP Value : Signifikante Vorteile mit ERP-Systemen, Springer, 2008, via Springerlink Hesseler, M.; Görtz, M., Basiswissen ERP-Systeme : Auswahl, Einführung & Einsatz betriebswirtschaftlicher Standardsoftware, W3L-Verlag, 2008, ISBN , available via Google Books Leon, A., Enterprise Resource Planning, McGraw-Hill Education Ltd., 2007, available via Google Books Scheer, A-W., et al. Real-time Enterprise, Springer Verlag, 2003, available via Google Books Konradin Erp-Studie 2009, Einsatz von ERP-Lösungen in der Industrie, available upon registration via Phillips, J., IT Project Management: On Track from Start to Finish, The McGraw-Hill Company, 2010 Esteves, J., Pastor, J.A., Organizational and technological l critical success factors behavior along the ERP implementation phases, Enterprise Information Systems VI, 2006, Part 1, 63-71, DOI: / _8 Esteves J., Pastor J., "Towards the Unification of Critical Success Factors for ERP Implementations", 10th Annual BIT conference, Manchester, UK., November 2000 # 45

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