Chapter Two

The Development of Enterprise

Resource Planning Systems
 Introduction
• Efficient, integrated information systems are very
important for companies to be competitive
• An Enterprise Resource Planning (ERP) system
can help integrate a company’s operations
– Acts as a company-wide computing environment
– Includes a database that is shared by all functional
areas
– Can deliver consistent data across all business
functions in real time

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 Identify the factors that led to the
development of Enterprise
Resource Planning (ERP) systems

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The Evolution of Information Systems
• Silos
– Information systems configuration used until recently
– Companies had un integrated information systems
that supported only the activities of individual
business functional areas

Disadvantages:
1-more time consumption
2-data entry errors
3- data rarely up-to-date
4- inconsistent & redundant data

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 ERP development factors
• Current ERP systems evolved as a result of:
– Advancement of hardware and software technology
– Development of a vision of integrated information
systems
– Reengineering of companies to shift from a
functional focus to a business process focus

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 Describe the distinguishing
modular characteristics of ERP
software

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 ERP development cycle

Cross functional Standard SW Idea of SW

Client server
Independent IS process product
environment
required (SAP)developed modules

SAP: SAP’s goals:

1-R or R1 for real-time F/A
2-R2 for mainframe ERP package 1-Develop a standard software
3-R3 for client-server architecture(used for
various platforms, open architecture (add-on
product that could be configured
SW. new HD) to meet the needs of each
company
2-Data available in real time
3-Users working on computer
screens, rather than with
voluminous printed output

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 SAP Begins Developing Software
Modules
• Plattner and Hopp had developed the idea of
modular software development
• Software modules: individual programs that can
be purchased, installed, and run separately, but
that all extract data from the common database
 sales grew rapidly; ERP extended its software’s capabilities and
expanded into international markets
 SAP R/3 system was designed using an open architecture
approach
 Open architecture: third-party software companies encouraged to
develop add-on. software products that can be integrated with
existing software to enhances the thing it is added to.

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 New Directions in ERP (cont’d.)
• PeopleSoft
– Founded by David Duffield, a former IBM employee
– Today, PeopleSoft, under Oracle, is a popular
software choice for managing human resources and
financial activities at universities
• Oracle
– SAP’s biggest competitor
– Began in 1977 as Software Development
Laboratories (SDL)
– Founders: Larry Ellison, Bob Miner, and Ed Oates

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 New Directions in ERP (cont’d.)
 Current ERP system:
• Sales and Distribution (SD) module: records sales orders and scheduled deliveries.
• Materials Management (MM) module: purchasing raw materials from suppliers,
handling of raw materials inventory, shipping of goods to the customer.
• Production Planning (PP) module maintains production information.
production is planned and scheduled, and actual production activities are recorded.
• Quality Management (QM) module plans and records quality control activities
• Plant Maintenance (PM) module manages maintenance resources and planning for
preventive maintenance of plant machinery in order to minimize equipment
breakdowns.
• Asset Management (AM) module helps the company manage fixed-asset
purchases and related depreciation.
• Human Resources (HR) module facilitates employee recruiting, hiring, and training.
• Project System (PS) module facilitates the planning for and control over new
research and development (R&D), construction, and marketing projects.

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 New Directions in ERP (cont’d.)
• Financial Accounting (FI) module This module generates financial
statements for external reporting purposes.
• Controlling (CO) module serves internal management purposes,
• assigning manufacturing costs to products and to cost centers so the
• profitability of the company’s activities can be analyzed. The CO module
• supports managerial decision making.
• Workflow (WF) module It can perform task-flow analysis and prompt
employees (by email) if they need to take action.

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 New Directions in ERP (cont’d.)

Figure 2-5 Modules within the ERP integrated information systems environment

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 ERP Software Implementation
• Not all companies that adopt ERP software use all of the ERP
modules.
• Multiple vendors (business analysis not resistance to
change): When a company uses modules from different vendors,
additional software must be created to get the modules to work
together.
• implementations fails due to:
 Many different departments are involved,
 many users of the system
 top management commitment
• How to configure the system (organization rules)
These configuration options allow the company
to customize the modules it has chosen to fit its needs.

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ERP for Midsized Companies (cont’d.)
• midsized companies (those with fewer than
• 1,000 employees).
• To appeal to this new market, ERP can develop a
single package containing specific, preconfigured
bundles of ERP tailored for particular industries.

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 Discuss the pros and cons of
implementing an ERP system

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 The Significance and Benefits of ERP
Software and Systems
• More efficient business processes that cost less than
those in unintegrated systems
• Easier global integration
• Integrates people and data while eliminating the need to
update and repair many separate computer systems
• Allows management to manage operations, not just
monitor them
• Can dramatically reduce costs and improve operational
efficiency

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 Questions About ERP
• How much does an ERP system cost?
• Should every business buy an ERP package?
• Is ERP software inflexible?
• What return can a company expect from its ERP
investment?
• How long does it take to see a return on an ERP
investment?
• Why do some companies have more success with
ERP than others?

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 How Much Does an ERP System
Cost?
• Size of the ERP software
– Corresponds to the size of the company it serves
• Need for new hardware capable of running complex
ERP software
• Consultants’ and analysts’ fees
• Length of time required for implementation (which
causes disruption of business)
• Training (which costs both time and money)
• Hidden cost

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 ERP: Hidden Costs

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 Questions About ERP
• Should every business buy an ERP package?
• Is ERP software inflexible?
• What return can a company expect from its ERP
investment?
• How long does it take to see a return on an ERP
investment?
• Why do some companies have more success with
ERP than others?

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 Should Every Business Buy an ERP
Package?
Frist:
Business must analyze Size of the firm, budget,
data dependence, business processes,
business strategy, culture, top management’s
commitment
• Some of a business’s operations, and some segments of its
operations, might not be a good match with the constraints of ERP
• Sometimes, a company is not ready for ERP
-ERP implementation difficulties result when management does not fully
understand its current business processes and cannot make implementation
decisions in a timely manner

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 Is ERP Software Inflexible?
• Many people claim that ERP systems, especially
the SAP ERP system, are rigid:
• Options for customization offered by SAP ERP
– Numerous configuration options that help
businesses customize the software to fit their needs
– Programmers can write specific routines using
Advanced Business Application Programming
(ABAP)
• Once an ERP system is in place( before storing
data), trying to reconfigure it while retaining data
integrity is expensive and time-consuming
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 What Return Can a Company Expect
from Its ERP Investment?
 ERP increases revenue and decreases
expenses in ways that are difficult to measure.
• Eliminating redundant efforts
• Reducing time to produce
• Reducing errors
• Real time data and increased satisfaction
• Opportunity cost: (being forced out by competitors)
• Less transaction costs in SCM implies less frustration & increased
satisfaction
• Cost savings distributed for several years
• Long implementation time & difficulty in isolating other business
factors affecting the company’s costs and profitability.

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 How Long Does It Take to See a
Return on an ERP Investment?
• Return on investment (ROI): assessment of an
investment project’s value
– Calculated by dividing the value of the project’s
benefits by the project’s cost
• ERP system’s ROI can be difficult to calculate
• Peerstone Research study
– 63 percent of companies that performed the
calculation reported a positive ROI for ERP
– Most companies felt that nonfinancial goals were the
reason behind their ERP installations

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Why Do Some Companies Have More
Success with ERP Than Others?
• Low ROI & bumpy rollouts caused by people
problems and misguided expectations (not
necessarily computer malfunctions)
– Misguided expectations: ERP solves fundamental
business problems
– Role of top management: No enough analysis time
spent for planning and implementation
– Training: No substantial time /budget for training
– No ownership & accountability assignment
– No top management sponsorship
– Poor change management
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