ERP and the Future of integration

Transcription

1 ERP: What Is It? Enterprise Resources Planning (ERP) and Integration I303 Session 7, Fall 2003 Thomas Haigh Enterprise resource planning software, or ERP, doesn't live up to its acronym. Forget about planning it doesn't do that and forget about resource, a throwaway term. But remember the enterprise part. This is ERP's true ambition. It attempts to integrate all departments and functions across a company onto a single computer system From the Darwin Executive Guide reading i303, Session 7, Thomas Haigh 1 i303, Session 7, Thomas Haigh 2 The Basic Idea Integration Is Huge Problem Key benefit is INTEGRATION Trade off versus specialized applications for each functional area But Home-grown development efforts have failed See my MIS paper Best of Breed packages are too hard to integrate So Throw everything out Buy one huge, pre-integrated package See the 1996 Koch reading chewing gum and bailer wire approach to systems architecture Ad-hoc connections occupy ever greater amounts of programmer time Begins to prevent changes inside individual systems Quotes Gartner estimate: 35 to 40 percent of IT departments' programming efforts are devoted to reconciling duplicate data contained in various databases around the company i303, Session 7, Thomas Haigh 3 i303, Session 7, Thomas Haigh 4 Old Dream of Total Integration Major Suppliers Unification of all key operational systems Integration is Geographic (multiple sites in USA, Europe & Asia for many large firms) Functional, with modules for Logistics Financial Human Resources And more specialized areas, such as real estate i303, Session 7, Thomas Haigh 5 SAP Oracle J.D Edwards PeopleSoft Siebel Systems i303, Session 7, Thomas Haigh 6

2 SAP Today Biggest ERP supplier 55% global share, and rising fast One of world s most successful software firms Huge web of connections More than 1,000 partners Consulting firms Makers of add-on software, etc, More than 12,000 customers More than 10 million licensed users 22 versions tailored to specific industries Web offering called mysap.com (1999) Boom in 1990s IT budgets were flush & rapidly rising ERP installation became very fashionable i303, Session 7, Thomas Haigh 7 i303, Session 7, Thomas Haigh 8 SAP History Implementation Firm founded in former IBMers in Mannheim, Germany Idea is mainframe software to Avoid needless duplication in inhouse efforts Work interactively, in real time 1979: SAP /R2 for mainframes 1992: SAP /R3 (still current name) Client server version Multiple hardware platforms (Unix, NT, Linux, etc) Uses standard database platforms (Oracle, etc) 1996: First efforts at web version Complex process of configuration of fit business Entering rules and preferences Loading and standardizing existing data Hooking up to remaining applications Writing custom code where needed Also human parts Retraining users Redesigning business processes i303, Session 7, Thomas Haigh 9 i303, Session 7, Thomas Haigh 10 Specialized Field SAP implementations are big business for consulting firms Single implementation might be 24 months, several million dollars in fees At height of boom, many SAP experts go freelance Tend to more from one SAP project to another E.g. SAP leader at Lilly had specialized in SAP installs at Cap Gemini consultants i303, Session 7, Thomas Haigh 11 Benefit: Operational Efficiency Lower cost Data entered only once, used by all processes and departments Better customer service Current data accessible to all participants E.g. customer service rep can see stock levels in other divisions, progress on order, etc. (see Darwin reading) Allows management of processes across organizational boundaries i303, Session 7, Thomas Haigh 12

3 Benefit: Lower IT cost ERP is very expensive But expect long term savings from Elimination of legacy systems Upgrades, maintenance and licensing costs Future maintenance and upgrades cheaper Spread costs over a large base Biggest saving in integration? Huge costs for ad-hoc integration of aging applications i303, Session 7, Thomas Haigh 13 Benefit: Standard Process ERP is managerial means to force global standardization in processes Technological enforcement coded into software Local variation, workarounds eliminated Centralization of control over procedures May bring efficiency Will sacrifice flexibility Lilly example: No customization for local traditions or cultures Only for legal or regulatory reasons i303, Session 7, Thomas Haigh 14 Benefit: Managerial Data Standardizing processes requires standardization of: Product codes Accounting methods Human Resources systems This allows comparisons between divisions Especially using financial measures of effectiveness eg. Economic Value Added (EVA) analysis On global basis SAP at Lilly I Gradual global expansion Began in financial area in 1996 Want consistent data for EVA and compensation Roll out one region at a time Today $750 estimated million total project cost 35,000 or more users, out of 43,000 employees $10 million a month burn rate i303, Session 7, Thomas Haigh 15 i303, Session 7, Thomas Haigh 16 SAP at Lilly II Claimed Lilly Benefits Main Funcational Areas Valuation and Control Includes tax, accounting, financial forecasting Project Management Processes SAP has a module for this Human Resources Personnel, pay, staffing, etc Supply Chain Management Dealing with stuff (getting, making, moving, Biggest area: Better supply chain management (40% of total) Admitted only just getting started in this area Others (diminishing order) Lower procurement costs Better research What-if analysis, porfolio management Lowered taxes Savings on IT spending Dollar values and current accomplishments unclear selling) i303, Session 7, Thomas Haigh 17 i303, Session 7, Thomas Haigh 18

4 Backlash Issue: Cost Davenport (1998) gives nice sense Word of high-profile failures Huge overruns on consulting project Disappointing results when try to plug into unchanged business, or use in inappropriate ways Problems when treat as IT issue Need to reorganize business Good if fits with management goals (e.g. standardization E.g. centralization of control accounting, customer service, order processing across 12 divisions at Elf Atochem Meta Group survey shows Total Cost of Ownership of ERP system over first two years of use is $53,320 per heads down user (Darwin) 23 months work and $15 million dollars Average benefits $1.5 million less than costs Project cost is 2 to 10 times software price High profile implementation failures Darwin cites Hershey and Whirlpool FoxMeyer Drug went bankrupt as result! Davenport mentions several others i303, Session 7, Thomas Haigh 19 i303, Session 7, Thomas Haigh 20 Issue: Complexity Inherent complexity of global project Training costs for users easy to underestimate Existing data often in worse shape than admit Lilly: from 1 million supplier records to 80 thousand ERP team is permanent fixture Rely on to keep business running Will need further work on analysis to deliver promised benefits New system gives short-term efficiency slump Like any major reorganization But may afflict whole business at once Issue: Inflexibility ERP standardizes business processes Will be running business the same way as competitors Wal-Mart, for example, has shunned Sees its processes as core competence Possible problems Can t find better ways to do things Tied to capabilities of software Limits scope for reengineering, etc except as software requires and supports Loss of supports for distinctive culture E.g. Lilly has non-standard payroll practices i303, Session 7, Thomas Haigh 21 i303, Session 7, Thomas Haigh 22 Issue: Dependence Issue: Integration SAP is not just a new program, it s a new way of doing business How to deal with things it won t support? Long-term commitment Can users lobby for new features? What if supplier is taken over? What if supplier raises prices? What if supplier shifts direction of product? When doesn t work well in one area Can try to patch the ERP software Can rely on external application and links Can alter business to fit the software Problems in integrating into other systems Create & maintain custom interfaces Not well suited for data warehouses i303, Session 7, Thomas Haigh 23 i303, Session 7, Thomas Haigh 24

5 Issue: Upgrades Trends in ERP Like all software, frequent new releases Can be a year long project, cost 30% of original installation price Can cause major disruption Likely to break custom code & interfaces to other applications Users resent having to upgrade just because vendor is pulling support i303, Session 7, Thomas Haigh Increased modularization of suites Reduces scale of commitment Supposed to work better with other applications 2. Shift to web based front ends Initially lagged in this area All major vendors now offer Issues with training users for direct access April 2001, Hasso Plattner, SAP CEO says mysap is suite of freestanding components Users will not be locked in, can mix with other apps Broadening of focus to corporate portals, external links i303, Session 7, Thomas Haigh 26 Consolidation of suppliers PeopleSoft buys J.D. Edwards Succeeds, just in time Oracle tries to buy PeopleSoft Initially to prevent merger with J.D. Edwards Announces customers will have to migrate to Oracle applications Still trying to acquire merged firm Baan (earlier leader) is acquired in 2003 SAP profits from chaos Market share continues to rise Customers know will still be around in a decade i303, Session 7, Thomas Haigh 27 Most Big Firms Already Have SAP license revenues Q down 13% From same quarter in 2002 Once exception: Levi s Follows Adidas, Nike, Reebok, Wrangler/Lee Hopes to be finished by 2005 Targeting smaller firms, so try to shrink scale of project for smaller businesses SAP initiative ASAP, etc (See Darwin reading) Shrinking consulting bills crucial i303, Session 7, Thomas Haigh 28 CRM Software Related Topics Customer Relationship Management Idea: centralize all processes and data related to interaction with customers Often offered by ERP suppliers Sold as next big thing, though problems set in fast Hit by slump in IT spending from 2001 Data warehousing IT Governance Role of the CIO i303, Session 7, Thomas Haigh 29 i303, Session 7, Thomas Haigh 30