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Enterprise Resource

Planning (ERP)
Group 6

Zhenyu Zhu (Adam)


Rich Stansfield
John Palmer
Ryan Kramme

1
What will we cover today?
• The Background Knowledge of ERP--Adam
• One case study of failed ERP implementation
(Raskas Foods)--Rich
• One case study of successful ERP implementation
(Cisco Systems)--John
• ERP Best Practices / Summary--Ryan

2
Background of ERP
• History of ERP
• What is ERP?
• Major ERP suppliers
• Why companies want to implement ERP
• ERP implementation procedures

3
History of ERP
• 1960's-focused on Inventory control issues

• 1970's focused on MRP (Material Requirement


Planning) systems

• 1980's focused on the concept of MRP-II


(Manufacturing Resources Planning) which was an
extension of MRP

• Early 1990's MRP-II was further extended to cover


areas like Engineering, Finance, Human Resources,
Projects Management, etc.
4
• Beginning of ERP as we know it today
History of ERP (Cont.)

ERP
MRP II
MRP
Inventory
control

1960’s 1970’s 1980’s 1990’s


5
The Concept of ERP
• ERP software ties all departments in a company
together into one common system

• ERP allows Information Technology to integrate


with your company's core business processes to
achieve specific business objectives

– Information Technology
– Core Processes
– Specific Business Objectives

6
Enterprise Integration
Purchase
Inventory

Sales Manufacturing
Units
ERP

HR Treasury

7
The Relationship Among Three
Components of ERP
Information
Technology integrates
with your company's
Business core business processes
management
practice
Specific
business
objectives

8
ERP Market Space
• $16 Billion Total Annual Spending (2002)

[The Steady Stream of ERP Investments Fenella Scott, Jim Shepherd AMR research August
24, 2002]

• U.S. Federal Government spending on ERP and


related systems and services will increase at a
compound annual growth rate of 13%
• 2002 = $3.5 Billion
• 2007 = $6 Billion

[http://www.input.com/article_printver.cfm?article_id=606] (Viewed March 18) 9


Major ERP Suppliers
The Top Five ERP Vendors

1. SAP
2. Oracle Corporation
3. Peoplesoft, Inc.
4. JD Edwards & Company
5. Baan International

http://erp.ittoolbox.com/pub/erp_overview.htm#r2 (Viewed March 18, 2003)

Microsoft purchased two ERP vendors; Great Plains in


2001 and Navision in 2002

http://erp.ittoolbox.com/documents/document.asp?i=1662 (Viewed March 18, 2003)


10
Market Share for ERP Suppliers

11
Different Markets
for Different Providers
• 11% of the companies surveyed are still using
homegrown (legacy) applications

• SAP is the market leader in Manufacturing companies


• Oracle shows strength in both Manufacturing and
Service companies
• PeopleSoft is the market leading is Services companies

[The Steady Stream of ERP Investments Fenella Scott, Jim Shepherd August 26, 2002
AMR Research]

12
Leading ERP Companies
General Market Shares

40 SAP
Oracle
20
Peoplesoft
0

50 25
40 20
30 15
20 10
10 5
0 0
Manufacture Service
ERP ERP
13
Benefits of ERP
• Improve productivity
• Increase customer demand (sales)
• Increase competitive advantage
• Increase market share
• Position company for sale

14
Business Drivers for ERP

others im proving
29% productivity
31%
com petitive
custom er
advantage
16% dem and
24%

www.amrresearch.com/Research/Alerts/Pdf/020826alert14775.pdf (viewed March 16, 2003) 15


How Does ERP Improve
the Business?
ERP helps improve information sharing, enhance
business performance, and promote service
efficiency

1. Allow companies to better understand their business.


2. Helps companies standardize business processes and
more easily enact best practices.
3. More efficient processes enable companies to
concentrate their efforts on serving their customers,
maximizing profit, and building a competitive
advantage.
16
ERP Cost/Benefit Analysis
• Average Cost for ERP

Among the 63 companies surveyed—including small, medium


and large companies in a range of industries—the average cost
for an ERP implementation was $15 million.

• Average Payback for ERP (Time & Dollars)

Among the 63 companies surveyed, it took eight (8) months after


the new ERP system was implemented to see any benefits. The
median annual savings from a new ERP system was $1.6 million.

http://www.cio.com/research/erp/edit/erpbasics.html#erp_abc (viewed March 24, 2003)


17
ERP Strategies
1. The Big Bang-companies cast off all their legacy
systems at once and install a single ERP system across
the entire company.
2. Franchising-Independent ERP systems are installed in
each unit, while linking common processes, such as
financial bookkeeping, across the enterprise.
3. Slam Dunk-ERP dictates the process design in this
method; where the focus is on just a few key processes,
such as those contained in an ERP system's financial
module. The slam dunk is generally for smaller
companies expecting to grow into ERP by initially
purchasing only a few modules. 18
ERP Implementation
Procedure
Steps for ERP implementation

• Cost analysis
• Blueprinting of Business Processes
• Staff Training
• Integration
• Data Conversion
• “Going Live” with ERP
19
ERP:
Winner’s Legend, Loser’s
Nightmare
While 9 out of 10 ERP implementations failed in
India, the one success story produced such
spectacular results that it was enough to keep the
entire ERP market alive!

http://216.239.57.100/search?q=cache:ji6Ym4n6lLYC:www.expresscomputeronline.co
m/20020107/focus6.shtml+ERP+market+statistic&hl=en&ie=UTF-8 [2002.Jan 7]
20
Case Study #1
Failed ERP Implementation at
Raskas Foods, Inc.

21
Raskas Foods, Inc.
• One of the 150 Largest Privately held companies
in St. Louis
• Purchased by Schreiber Foods in October, 2002

[St. Louis Business Journal, April 2002]


22
Raskas Foods Background
• Founded in 1888
• Nations first private
label manufacturer of
cream cheese for retail
grocery distribution
• Sales of over $280
million in 2002
• 3 Manufacturing Plants
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Raskas Foods, Inc.
• Dr. Heschel Raskas, President and CEO
• Ed Thibeault, Sr. Vice President – Marketing and
Sales
• Rich Coker, Sr. Vice-President – Operations
• Rich Scheuerman, Sr. Vice-President – Finance

24
Raskas Foods, Inc.
Four Factions to Satisfy:

• Owners
• Marketing
• Operations
• Finance

25
Owners
• Seven owners, all related
• Three were employed by Raskas
• Two had been looking to sell Raskas for over ten
years
• Wanted to position Raskas Foods for sale

26
Marketing
• Finance helped Marketing get Gross-to-Net and
Cognos BI software
• ERP wouldn’t do anything for them
• Since Finance helped Marketing get their programs,
Marketing was willing to back Finance on the ERP
project – provided that Marketing wouldn’t have to
supply any bodies to the implementation process

27
Operations
• Operations has wanted a new plant since 1994
• Operations liked their “homegrown” Excel based
system
• Operations traded support for the ERP system in
exchange for future support from Finance for a new
plant – as soon as certain production levels were
met.

28
Finance
• Finance felt about the legacy Accounting system
that “the wheels were about to come off the cart”
• Wanted an entire package…”It’s time to get into the
Big Leagues”
• Just came off successful implementation of Gross-
to-Net and Cognos for Marketing

29
The ERP Package
• Approved in early 1999
• Adage ERP package
• SCT consultants
• Budgeted $2.2 million
• Anticipated 6 months to 1 year to complete
• Waited until after the Y2K problem to implement
• Completed the Blueprint of Business Processes
• Training for IS
30
Project Personnel
• Mike Doyle (Finance), Project Manager
• Cliff Thomason (Finance), Project Facilitator
• John Lazare (IT), Project Lead
• Wayne Dixon, Director - IT, was left out

31
Problems

• Implementation started in April of 2000


• Employees found that the ERP system didn’t do
things the same way they did things
• Changes approved to keep Operations involved
• Stopped for fall Busy Season September 2000

32
Startup-January, 2001
• No momentum restarting
• Had to upgrade the software to the latest release
• Budget increases to $3.3 million

33
Large Sales Increase
• The number two private label Cream Cheese
manufacturer develops quality and delivery
problems
• Spring 2001, Operations gets approval for a new
plant
• Operations pulls key people from ERP for new
plant startup

34
More Problems….

• Work on the ERP implementation stopped for fall


busy season again
• By February, “something was wrong.”
• March 2002, lack of Upper Level Management
interest in ERP
• April 2002, a successful ERP implementation was
no longer necessary

35
Lessons Learned
• The budget will increase when changes are made
• Senior level personnel have to stay involved
• Everyone involved in the project has to be 100%
dedicated to the project
• The people involved in the ERP project have to be
“key” employees
• ERP has to be the number one priority

36
Case Study #2

Successful ERP
Implementation at Cisco
Systems, Inc.

37
Cisco, NOT Sysco!
Just to clarify, the company I will
be talking about today is not the
food company Sysco, it is Cisco
Systems, Inc.

YES NO
38
Company Background
Corporate Overview

• Worldwide leader in networking for the Internet


• Provide Internet Protocol-based (IP) networking
suite of solutions
• Cisco solutions are in most corporate, education,
and government networks worldwide

http://newsroom.cisco.com/dlls/company_overview.html (viewed March 14, 2003)


39
Company Background-Cont.
• Founded in 1984 by a group of computer scientists
from Stanford University
• Publicly traded starting in 1990 (NASDAQ: CSCO)
– $13.71 per share (as of April 4, 2003 4:00 PM)
• 34,987 employees (as of February 2003)

http://newsroom.cisco.com/dlls/corpfact.html (viewed March 14, 2003)


40
Cisco Systems, Inc. Annual Report 2002, page 1
Company Background-Cont.
• Global company (HQ in San Jose, CA)
• 2002 Net Sales of $18.9 Billion

http://newsroom.cisco.com/dlls/corpfact.html (viewed March 14, 2003)


Cisco Systems, Inc. Annual Report 2002, page 1 41
Core Product Offering
• Cisco provides the broadest line of solutions for
transporting data, voice, and video within
buildings, across campuses, or around the world
• Primary products are “routers” and “switches”
• Main competitors are 3Com and Dlink
• Market share leader with over 75% of the market

http://newsroom.cisco.com//dlls/corpfact.html (viewed March 14, 2003)


Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School 42
Online Case Study #9-699-022 (Rev: May 6, 2002)
Company Structure
• Centralized functional organization
• Manufacturing, customer support, finance, human
resources, IT, and sales are centralized
• Product Marketing and R&D are decentralized
into the following “Lines of Business”:
– Enterprise (Large Corporations)
– Small / Medium Business
– Service Provider

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online
Case Study #9-699-022 (Rev: May 6, 2002) 43
Time for a Change
• January 1993, Cisco was $500 million
company running a Unix-based legacy
software package
• CIO Pete Solvik saw the need for change
• Initially, Cisco avoided an ERP solution

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online
Case Study #9-699-022 (Rev: May 6, 2002) 44
Pete Solvik-CIO
“We wanted to grow to a $5 billion-plus company.
We were not able to make changes to the application
to meet our business needs anymore. The
application had become too customized. The
software vendor did offer an upgrade but we knew
even after the upgrades it would still be a package
for $300 million companies--and we’re a $1 billion
dollar company.”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online
Case Study #9-699-022 (Rev: May 6, 2002) 45
Randy Pond-Dir. of Manuf.
“We knew we were in big trouble if we did not do
something. Anything we did would just run over the
legacy systems we had in place. It turned into an effort
to constantly band-aid our existing systems. None of
us were individually going to go out and buy a
package….the disruption to the business for me to go to
the board and say ‘Okay, manufacturing wants to spend
$5 or $6 million dollars to buy a package and by the
way it will take a year or more to get in….’ was too
much to justify.”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
46
Online Case Study #9-699-022 (Rev: May 6, 2002)
The Final Straw
• System failure in January, 1994
• Company shut down for 2 days
• February, 1994 assembled team in charge of
finding a suitable replacement application
• Decided on the Big Bang implementation strategy

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
47
Online Case Study #9-699-022 (Rev: May 6, 2002)
Carl Redfield-SVP of Manuf.
“I knew we wanted to do this quickly. We were not
going to do a phased implementation, we would do it
all at once. We were not going to allow a lot of
customization either. Also, we wanted to create a
schedule that was doable and make it a priority in the
company as opposed to a second tier kind of effort.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
48
Online Case Study #9-699-022 (Rev: May 6, 2002)
“A Team Effort”
•Team consisted of internal resources (Cisco
employees), consultant (KPMG), and ERP software
vendor (Oracle)

Solvik said, “Our orientation in pulling people out of their


jobs to work on the project was if it was easy then we
were picking the wrong people. We pulled people out that
the business absolutely did not want to give up.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online
Case Study #9-699-022 (Rev: May 6, 2002) 49
Software Vendor Selection
• 20 person team did extensive research on ERP
providers
• 5 vendors in 2 days
• 10 days to draft RFP for vendors
• Visited vendor reference clients
• Scheduled 3 day onsite software demos
• Entire process took only 75 days!
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
50
Online Case Study #9-699-022 (Rev: May 6, 2002)
Why Oracle?
•Win-win situation for both Cisco and Oracle
Pond said, “Oracle wanted this win badly. We ended up
getting a super deal. There are, however, a lot of strings
attached. We do references, allow site visits and in
general talk to many companies that are involved in
making this decision.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School Online 51
Case Study #9-699-022 (Rev: May 6, 2002)
Project Approval
• Target timeline was 9 months
• Projected cost was $15 million
• Largest capital project ever approved by Cisco
Pond said, “Before we even get the first slide up I hear
the chairman speaking from the back of the room. He
says ‘How much?’ I said I was getting to it and he
responded: ‘I hate surprises. Just put up the slide right
now.’ After I put it up he said ‘Oh my God, there better
be a lot of good slides….”
Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
52
Online Case Study #9-699-022 (Rev: May 6, 2002)
Implementation Team
• Expanded from 20 to 100 members (See slide #55)
• Steering committee at top to ensure project
visibility, sponsorship, and motivation
• Split into 5 key areas (Order Entry,
Manufacturing, Finance, Sales/Reporting, and
Technology)
• All areas consisted of internal Cisco
employees, KPMG consultants, and
Oracle consultants

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business 53


School Online Case Study #9-699-022 (Rev: May 6, 2002)
Cisco ERP Implementation Team Structure
Executive Steering
Committee

Project Management
Office

Order Entry Manufacturing Finance Sales/Reporting Technology

Business Lead Business Lead Business Lead IT Lead IT Lead

IT Lead IT Lead IT Lead Business IT Consultants


Consultants
Business Business Business
Consultants Consultants Consultants IT Consultants

IT Consultants IT Consultants IT Consultants

Users Users Users

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business 54


School Online Case Study #9-699-022 (Rev: May 6, 2002)
Initial Challenges
• Hardware failures
• System instability
• Software unable to handle initial volume

Solvik said, “I wouldn’t say the company hit a wall, but I


would say we had major day to day challenges that
needed to be solved quickly to avoid significant impact
to the company.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard


Business School Online Case Study #9-699-022 (Rev: May 6, 2002)

55
Vendor Commitment
• Team effort-overcame problems within 3 months

Solvik said, “So for about 60 days we were in complete


SWAT-team mode, get this thing turned around. For
example, the president of the hardware vendor was our
executive sponsor. This vendor probably had 30 people on
site at one point. They were all over it. They lost money on
this big time. It was great for them to get such a great
reference, but it was a tough experience for them.
Remember we had bought a capability, so everything they
did to add capacity was out of their own pocket.”

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
56
Online Case Study #9-699-022 (Rev: May 6, 2002)
ERP Results
• Project completed on-time (See slide #61)
• Project completed on budget
• Cisco ERP team bonus totaling $200,000
• Overall successful systems replacement
• Minimal company interference

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business School
57
Online Case Study #9-699-022 (Rev: May 6, 2002)
ERP Implementation Dates
• Project Kickoff • June 2, 1994
• Prototype Setup Complete • July 22, 1994
• Implementation Team Training • July 31, 1994
• Process, Key Data, Modification • August 31, 1994
Designs Complete
• Functional Process Approval • September 30, 1994
• Hardware Benchmark and Capacity • October 15, 1994
Plan Validated
• Critical Interfaces, Modifications • December 1, 1994
and Reports Complete
• Procedures and End-User
Documentation Complete • December 16, 1994
• CRP Pilot Complete-Go/No Go • December 22, 1994
• End-User Training Begins • January 3, 1995
• Data Conversion Complete • January 27, 1995
• Go Live! • January 30, 1995

Austin, Robert, “Cisco Systems, Inc.: Implementing ERP”, Harvard Business 58


School Online Case Study #9-699-022 (Rev: May 6, 2002)
Lessons Learned
Why was Cisco’s ERP Implementation a
Success?
• Recognized the problem & developed a realistic
plan of attack
• Project was a high priority in the company
• Upper management supported the project
• All areas of the company were involved
• Diligent vendor/consultant selection
• Limited customization
• Meet target implementation dates
• Stayed within the initial project budget 59
Characteristics of IT Best
Practices
• Knowledge of business process and ERP is
essential to becoming an informed buyer
• Effectively Communicate company goals to the
Software Providers
• Multiple Bids/Proposals
• Effectively Evaluate and Compare Bids
• Active Leadership Role in Project

60
Knowledge is Power
• Thorough knowledge and
understanding of the entire business
process being effected
• Understand which (or all) business
divisions are to be incorporated into
your new ERP system
• Distinguish between Customized
vs. Standard ERP Software

Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, 61
Harvard Business Review, July-Aug 1998.
Multiple Bids
• Unlike most IT
functions an In-
house bid is not
normally an option
• Provide each
potential provider
with identical
information

62
Comparing Bids
• Make sure that you are
comparing Apples to Apples

• Decide which system will


best fit your company’s
needs

• Hire a third party consultant


Source: P.J. Jakovljevic, “The ‘Joy’ Of Enterprise Systems Implementations”,
63
www.TechnologyEvaluation.com, July 8, 2002
Customization vs.
Standard Application
• Decision depends on multiple factors
– Company Goals
• Happy with Current Productivity?
• Desiring Change?
– Employee Willingness to Change
– “Implementing/Upgrading a enterprise system
offers a good opportunity for enterprises to review
their key business processes and resources.”
Source: P.J. Jakovljevic, “The ‘Joy’ Of Enterprise Systems Implementations”,
www.TechnologyEvaluation.com, July 8, 2002 64
Standard Application
• Cheaper
• Requires Company Operational Processes
to Change
• Constantly requires Employees to Change
• “Vendors try to structure the systems to
reflect best practices”

Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business
Review, July-Aug 1998. 65
All the previous factors
discussed can effect the
implementation of an
ERP system, however one
factor has the ability to
outweigh all other
circumstances….
66
Strategies for ERP
Implementation
• Background Research
• Use consultant to:
– Review Business Process
– Narrow down vendors
– Evaluate proposals
• Standard Application
• Strict Contract
• Phased Implementation
• Employee Support – Starting at the Top
67
Questions?

68