Enterprise Resource Planning -ERPKevin CowellNatthawut LertpitayakunIsabelle MerthaXiaoguang You 1
What is ERP?The practice of consolidating an enterprise’s planning,manufacturing, sales and marketing efforts into onemanagement system.1Combines all databases across departments into asingle database that can be accessed by allemployees.2ERP automates the tasks involved in performing abusiness process.1Sources: 21. http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 20022. CIO Enterprise Magazine, May 15, 1999.
Evolution of ERPSource: http://www.intelligententerprise.com/020903/514feat2_1.shtml, viewed September 19, 2002. 3
How Do ERP Systems Work? MAapRAnHpeSpalusDiagpcomaeeulleiatmlrciisncovaeeneatnsirntoydns Managers and Financial Stakeholders Applications Sales ForceCustomers And Customer Reporting Manufacturing Back-office Suppliers Service Reps Applications Applications Administrators Central And Workers Database Service Inventory Applications Human And Supply Resource Applications Management Applications EmployeesSource: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 14998.
ERP ComponentsFinance: modules for bookeeping Manufacturing and Logistics: Aand making sure the bills are paid group of applications for planningon time. Examples: production, taking orders and delivering products to the – General ledger customer. Examples: – Accounts receivable – Accounts payable – Production planningHR: software for handling – Materials managementpersonnel-related tasks forcorporate managers and individual – Order entry and processingemployees. Examples: – Warehouse management – HR administration – Payroll – Self-service HRSource: http://www.computerworld.com/printthis/1998/0,4814,43432,00.html, viewed September 19, 2002. 5
An ERP Example: Before ERP Orders Parts Sends report Customer Demographic Sales Dept. Customers FilesAccounting Checks for Parts Files Calls back “Not in stock” “We ordered the parts” Accounting Invoices Sends report accountingSends report Ships parts Vendor Warehouse Order is placed “We Need parts #XX” with VendorPurchasing “We ordered the parts” Inventory Files Files Purchasing 6
An ERP Example: After ERP Orders Sales Dept. Inventory Data Accounting Parts If no parts, Financial Data exchange;Customers order is placed Books invoice against PO through DB Books inventory Order is submitted Database against PO to Purchasing. Warehouse Purchasing record order in DB 7 Order is placed with VendorVendor Purchasing Ships parts And invoices accounting
Who are the main ERP vendors?BaanJD EdwardsOraclePeopleSoftSAP 8
ERP Vendors and Industries They Serve AeDreofsepnascee/ Automotive PacCkoangseuGmoerods Electronic M Iannudfuascttriuarli/ng Oil/Gas PharmaceuticalsBaan 10-15 5-10 35+ 40+ 35 30 20J.BDa. aEndwSearridess& Co. One World, One WorldSoftwareOracle Corp. ApplicationsPeopleSoft, Inc. PeopleSoft 7.5SAP R/3% Planned Penetration Source: Benchmarking Partners Inc. 9
Revenue and Profits of Major ERP Vendors 12 ERP Vendors Revenue 11 10 10.86 10.1 9Billions of Dollars 8 2001 7 6.5 2000 6 5.6 5 2.07 0.394 1.02 4 1.74 0.32 0.894 3 2 PeopleSof t Oracle Law son J.D. Edw ards 1 0 SAP 10
Revenue and Profits of Major ERP Vendors 1000 ERP Vendors R&D Expenditure 900 800 859 700 796 600Millions of Dollars 500 299 321 117 2001 400 PeopleSof t 12 2000 300 52.6 200 44.8 J.D. Edw ards 11 100 0 Law son SAP
ERP Market Total Revenues, 2000Other SAP 36% 32%Geac Computer Peoplesoft Oracle 3% 9% Source: AMR Res1e5a%rch, 2001 J.D. Edwards 12 5%Source: AMR Research, 2001.
ERP Investments Percent of IT Application Budget33.5% 2000 2001 31.0% 20.5% 22.5% 19.0% 19.0% 14.0% 15.5% 14.0% 11.0%ERP SCM CRM E-commerce OtherRoughly 65% of companies surveyed already have ERP in place. Of those, many are still actively spending to upgrade existing systems and to take advantage of new web-oriented features.Source: 13AMR Research Survey of 686 companies with annual revenues ranging from <$50M to >$1B, October 2001.
ERP Investments Have ERP today? Will install next year? No Don't know Yes 33% n=666 10% 28% Yes 67% Yes No Don't knowSource: AMR Research Survey of 686companies with annual revenues ranging from<$50M to >$1B, October 2001 No n=232 62% 14 Yes No Don't know
Why ERP?3 Major Reasons: To integrate financial data. To standardize manufacturing processes. To standardize HR information.Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002. 15
ERP Project and TimeReal transformational ERP efforts will usually run between 1to 3 years, on average.Short implementations (3 to 6 months): – small companies, – implementation limited to a small area of the company, or – the company only used the financial pieces of the ERP system.The important thing is not to focus on how long it will takebut to understand why you need ERP and how you will useit to improve your business.Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002. 16
Total Cost of Ownership of ERPTotal cost of ownership (TCO) is a model developed by Gartner Group to analyze the direct and indirect costs of owning and using hardware and software. TCO essentially helps a company determine whether it wins or loses from specific technology implementations. Metagroup study among 63 companies surveyed showed that: – the average TCO was $15 million (the highest was $300 million and lowest was $400k), – the average TCO per user was $53,320.Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002. 17
Total Cost of Ownership of ERPIt also found that: – it took 8 months after the system was in to see any benefits, – but that the median annual savings from the system was $1.6 million per year.Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002. 18
Hidden Costs of ERP Training 19 Integration and testing Data conversion Data analysis Consultants Replacing best and brightest staff after implementation Implementation teams can never stop Waiting for ROI Post-ERP depressionSource: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002.
Benefits of ERP SystemsImproving integration, flexibilityFewer errorsImproved speed and efficiencyMore complete access to informationLower total costs in the complete supply chainShorten throughput timesSustained involvement and commitment of the topmanagement 20
Benefits of ERP Systems (cont’d)Reduce stock to a minimumEnlarge product assortmentImprove product qualityProvide more reliable delivery dates and higherservice to the customerEfficiently coordinate global demand, supply andproduction 21
Risks with ERP ImplementationExpensive (can costs 100 thousands to millionsof dollars)Time-consuming (can take months to years)Great risk for the organizationTransfer of KnowledgeAcceptance with the company 22
Case Study Nestlé USA 23
Nestlé BackgroundFound in 1866, Switzerland.World's largest food company, # 50 in Fortune magazine’sGlobe 500Nestlé USA was incorporated in 1990; Home Office in Glendale,CA.33 manufacturing facilities, 6 distribution centers and 17salesoffices around the country, 17,300 employees nationwide.$ 11.1 billion in Sales (2001)“…America's most admired Food Company for the fourthconsecutive year” - Fortune Magazine, February 2001Source: http://www.nestle.com/all_about/at_a_glance/index.html , viewed October 14, 2002, and 24http://www.ir.nestle.com/4_publications/pdf/financial_report/final_2001/consolidated_accounts_2001.pdf, viewed October 14, 2002.
Nestlé's products and brandsMilk products, dieteticfoods, infant foods,chocolate andconfections,refrigerated and frozenitems, ice cream, andpet foodsSource: Weller, Joe, “Introduction to Nestle in the USA”, 25http://www.ir.nestle.com/home-frameset.asp?largeur=1024, viewed October 14,2002.
Competitive MarketUSA Food Market in 2001Source: Weller, Joe, “Introduction to Nestle in the USA”, 26http://www.ir.nestle.com/home-frameset.asp?largeur=1024, viewed October 20,2002.
Organizational Chart Joe Weller Chairman & CEO Jeri Dunn Other Board CIO members Tom James Jose Iglesias Dick RamageDir. of Process change Dir. of IS VP of supply chain 27Ben Worthen, “ Nestlé's ERP Odyssey”, May 15, 2002 Issue of CIO Magazine
Business ChallengesAfter the brands were unified and reorganized into Nestle USAin 1991,. Divisions still had geographically dispersed. – For example, Nestle USA’s brands were paying 29 different prices for vanilla - to the same vendor.¹ – Nine different general ledgers and 28 points of customers entry.Years of autonomous operation provided an almost “insurmountablehurdle”.“… Nestle was the world’s NO. 1 food and beverage company– but oneof the least efficient ”²Source: 281. Ben Worthen, “ Nestlé's ERP Odyssey”, May 15, 2002 Issue of CIO Magazine;2. “Nestle: An Elephant Dances”, http://www.businessweek.com/2000/00_50/b3711064.htm, viewed October 20, 2002.
Project Scope – “BEST”Five SAP Modules – purchasing, financials,sales and distribution, accounts payable and accountsreceivable and Manugistics’ supply chain moduleFrom October 1997 to 1st Quarter of 2000.$210 million budget50 top business executives and 10 senior IT professionalsSource: Worthen, Ben, “ Nestlé's ERP Odyssey”, May 15, 2002 Issue of CIO Magazine. 29
Project Objectives - “One Nestle, under SAP”Transforming the separate brands intoone highly integrated company.Internal aligned and united, establishing acommon business process architectureStandardizing master dataSource: Worthen, Ben, “ Nestlé's ERP Odyssey”, May 15, 2002 Issue of CIO Magazine. 30
Process of SAP ImplementationThe new business process confusedmost of employees, then resistance grew intorebellion in 2000.Reconstructed in June 2000 and completed in2001.Source: Worthen, Ben, “ Nestlé's ERP Odyssey”, May 15, 2002 Issue of CIO Magazine. 31
Conclusion of Nestlé CaseChanges and success Common database and business processes lead to more trustworthy demand forecast. – A comprehensive account planning tool. – Nestle can now forecast down to the redistribution center level. – Nestle has improved forecast accuracy by 2% Higher factories utilization – fewer factories = big gains in factories Utilization – Reduce inventory levelSource: Brownson, Jim, and Mitchell-Keller, Lori, Nestle USA, 32Case study: supply chain: Nestle Integrated CRM and SCM Optimize Enterprise Effectiveness,http:www.dci.com/Brochure/crmny/sessions.asp?trackid=1190, viewed on November 06, 2002.
Conclusion of Nestlé CaseSaved $$$ - With ERP in practice , $ 371 million has been saved until 2001. The favorable evolution of COGS continues$USD m in 700600 37 58 6500 1 20044003002001000 1998 1999 200 2001 2002 2003 1997 Annual Incremental Saving Cummulative Annual SavingsSource: Weller, Joe, “Introduction to Nestle in the USA”, 33http://www.ir.nestle.com/home-frameset.asp?largeur=1024, viewed October 20,2002.
Conclusion of Nestlé CaseLessons learned by NestléDon’t start a project with a deadline in mind.Update your budget projection at regular intervals.ERP isn’t only about the software.“No major software implementation is really about thesoftware.” Former Nestlé CIO Jeri Dunn says, “You arechallenging their principles, their beliefs and the way have donethings for many many years”Keep the communication lines open. Remember the integration points. 34Source: Worthen, Ben, “ Nestlé's ERP Odyssey”, May 15, 2002 Issue of CIO Magazine.
Nestlé in the FutureThe Global Business Excellence Program Supported by SAP, contracted in June 2000 and by IBM in July 2002. – To be completed by the end of 2005 – To save cost around CHF 3 billion, with benefits realized from 2003.Source: http://www.idealliance.org/news/2002/mem0307.asp, viewed on November 1, 2002. 35
Case Study 36
What is Agilent Technologies?Agilent Technologies is the world's leadingdesigner, developer, and manufacturer ofelectronic and optical test, measurement andmonitoring systems.Separated from Hewlett Packard and became apublic company in 1999World HQ in Palo Alto, CASource: http://we.home.agilent.com,viewed, viewed November 3, 2002. 37
Around the WorldAgilent has facilities in more than 40 countriesand develops products at manufacturing sites inthe U.S., China, Germany, Japan, Malaysia,Singapore, Australia and the U.K.Approximately 37,000 employees throughout theworldSource: http://www.agilent.com/about/index.html, viewed November 3, 2002. 38
Products and ServicesAgilent operates in three business groups: Test and Measurement – Test instruments and systems, automated test equipment. Semiconductor Products – Semiconductor solutions for wired and wireless communications, information processing. Chemical Analysis – Life sciences and analytical instrument systems.Source: http://www.agilent.com/about/newsroom/features/2002june04_oneit.pdf, viewed November 3, 2002. 39
Agilent revenue for 2001Test and Measurement: $5.4 billionSemiconductor Products: $1.9 billionChemical Analysis: $1.1 billionTotal revenue: $8.4 billionSource: http://investor.agilent.com, viewed November 3, 2002. 40
Agilent’s Customers Served customers in more than120 41 countries around the world1 Electronic component manufacturers Pharmaceutical companies Chemical companies Communication companies2Source:1. http://www.agilent.com/about/index.html, viewed November 3, 2002;2. http://www.agilent.com/about/newsroom/features/2002june04_oneit.pdf, viewed November 3, 2002.
Source: http://www.agilent.com/about/newsroom/execs/org/index.html, viewed November 3, 2002. 42
Project ScopeOracle’s li E-Business Suite softwareStarted September 2000 till 2004Budgetroughly 100 Oracle consultants to install theprogramSource: Songini, Marc L., “ERP effort sinks Agilent revenue” Computerworld, Framingham, August 26, 2002. 43
ERP Project Objective “One IT” organization Supply chain capability; for example, - Suppliers - Customers Migrating 2,200 legacy applications that it inherited from HP to OracleSource: Gaither, Chris, “Watching Oracle For Signs Of Strength” Boston Globe, Boston, Mass., September 16, 2002. 44
One IT Project (Before)IT spend was 8-10% of sales • 80% for business operations • 20% maint. & upgrading legacy systemsFurther autonomy over the IT portfolio wouldhave led to 50% cost increaseSource: http://www.agilent.com/about/newsroom/features/2002june04_oneit.pdf, viewed November 3, 2002. 45
One IT ProjectMarty Chuck, CIO, developed a Vision for One ITorganization in August 2000Moved more than 2,500 IT professionals in thedifferent site, regional and divisional ITorganizationsSource: 46http://www.agilent.com/about/newsroom/features/2002june04_oneit.pdf;http://www.agilent.com/about/newsroom/features/2002june08_chuck.html, viewed November 3, 2002.
One IT Project ObjectiveTo consolidate a large number of independentoperating groups into a single worldwide ITfunctionTo share information quickly and efficientlyTo drive the operational costs down by morethan 20%To combine all IT budgetsSource: http://www.agilent.com/about/newsroom/features/2002june04_oneit.pdf, viewed November 3, 2002. 47
Changes in Supply Chain Process: SupplierMigrating from all existing ERP systems to asingle Oracle-based infrastructure systemThe use of bar code for materials received fromsuppliersThe use of Evaluated Receipt Settlement (ERS)Source: http://www.agilent.com/supplier/default.html, viewed November 3, 2002. 48
The process of migrating ERP systems to OracleSource: http://www.agilent.com/supplier/generalinformation.shtml, viewed October 31, 2002. 49
Evaluated Receipt Settlement (ERS)An automated invoice and payment systemHow does ERS work?Source: http://www.agilent.com/supplier/downloads/ERS_supplier_guide.pdf, viewed November 3, 2002. 50
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