The document provides an overview of enterprise resource planning (ERP) systems, including their evolution, components, benefits, and limitations. It discusses how ERP systems integrate various organizational functions and processes through a single database. The document also outlines the ERP implementation lifecycle and key factors for a successful implementation, such as change management, vendor selection, and project management.

1. Learning Objectives
• Understand the information systems evolution and its
historical role in the organization leading to systems
integration and Enterprise Resource Planning (ERP).
• Learn about ERP systems and evolution, components,
and architecture; understand the benefits and
drawbacks of implementing ERP systems and how they
CHAPTER 1 can help an organization improve its efficiency and
worker productivity.
• Gain an overview of the implementation process (e.g.,
Introduction to the ERP life cycle, business process reengineering
Enterprise Systems for project management, and change management).
Management Understand the role of people, vendors, consultants,
and the organization in making the ERP implementation
process successful.
• Comprehend the ethical, global, and security challenges
while implementing an ERP system, and look at the
ERP vendors and industry trends.
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Preview Information Systems in Organizations
• In the early days of ERP implementation most
management did not understand the magnitude of • Information Systems are a critical component of a
successful organization today.
issues an organization has to consider before, during,
and after implementation.
• Information Systems provide a high level of computer
automation to support business functions such as:
• ERP systems are very different from conventional - Accounting
- Finance
packaged software, such as Microsoft Office and others. - Marketing
- Customer Service
• There are no shortcuts when it comes to implementing - Human Resource Management
- Operations
an enterprise system.
• Information Systems play a major role in primary and
secondary activities of an organization s value chain
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2. Information Systems in Organizations (Cont’d) Information Systems in Organizations (Cont’d)
• Information systems include hardware, software, data • Information Technology is thus a component of
processes, and people. Information Systems.
• Information Technology includes only the hardware and • Information systems generally use a three-phased
software components. model of input, process, and output.
• The role of an information system is to process data into
information using information technology, business
processes, and people resources.
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Figure 1-1 Information System Components Figure 1-2 Phases of an Information System
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3. Figure 1-3 Management Pyramid with Information
Role of Information Systems in the Enterprise
Requirements
• Business organizations have become more complex
due to increased layer of management hierarchy and
increased level of coordination across departments.
- Each department has different information needs.
• No single information system can support all the
business needs of an organization.
• Management is generally categorized into three levels-
Strategic, Middle, and Operational.
- Each management level has different information requirements.
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Current Scenario
Information Silos and Systems Integration
• Over time, Information Systems create a hodgepodge of
independent nonintegrated systems ultimately creating • Islands of Information
bottlenecks and interfering with productivity. • Difficult to get timely & accurate information
• Heterogeneous Hardware & Software platforms & practices
• Organizations need to be agile and flexible and will • Poor connectivity between different organizational locations
require their information systems to have integrated
• Sticking with obsolete technology
data, applications, and resources from across the
organization. • Resist to change
• Lack of proven man-power to develop integrated software
• To compete effectively, organizations have to be
customer focused.
- This requires cross-functional integration among the
accounting, marketing and other departments of the
organization.
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4. WHAT IS AN ERP SYSTEM?
Enterprise Resource Planning (ERP) Systems
WHAT IS AN ERP SYSTEM?
• Enterprise Resource Planning Systems are the first
generation of enterprise systems meant to integrate
data and support all the major functions of
organizations.
• ERP systems integrate various functional aspects of the
organization as well as systems within the organization
of its partners and suppliers.
• The goal of an ERP system is to make the information
flow dynamic and immediate, therefore, increasing its
usefulness and value.
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Integrated Data Model
Figure 1-4 Integrated Systems - ERP • The heart of any ERP exercise is to create an integrated
data model
• The ERP application must be capable to provide true
integration capability over the entire enterprise system to
provide data for employees, suppliers and customers
• General accounting to provide for multiple ledgers/sub-
ledgers on a division by division basis. Online management
summaries and consolidation eliminate extensive
paperwork handling
• Ability to drill down through successive levels of data
provided
• ERP and execution model and its flexible sets of integrated
applications will keep the operations flowing efficiently
• ERP should be looked upon as the acquisition of an asset
and not as an expenditure
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5. Enterprise Resource Planning (ERP) Systems (Cont’d)
Why ERP ?
• Another goal of ERP is to integrate departments and
functions across an organization into a single • For Management - to know what is happening in the
infrastructure sharing a common database and serving company
the needs of each department. • One solution for better Management
• For cycle time reduction
• ERP systems replace an assortment of systems that • To achieve cost control & low working capital
typically existed in organizations. Moreover, ERP solves • To marry latest technologies
critical problem of integrating information from different • To shun the geographical gaps
sources and makes it available in real-time.
• To satisfy the customers with high expectations
• To be Competitive & for survival
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What are some of the Enterprise
ERP Characteristics
system drivers?
• Systems Not Y2K Compliant
• Disparate Systems • Links all business processes automatically
• Poor/Uncompetitive Performance • Reduces the number of legacy systems
• Poor Quality/Visibility of Info • Reduces inter-processing time (transactions occur one
• Cost Structure Too High time at the source)
• Not Responsive Enough to Customers • Maintains an audit trail of all transactions
• Complex, Ineffective Business Processes • Utilizes a common database
• Business Processes or Systems Not Integrated • Performs internal conversions automatically
• Unable to Implement New Business Strategies
• (tax, foreign currency, legal rules for payroll)
• Business Becoming Global
• Improves customer service by putting data at the
• Difficult to Integrate Acquisitions fingertips of employees
• Obsolete Systems
• Involves employees in the entire functional cycle
• Inconsistent Processes
• Unable to Support Growth
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6. Evolution of ERP Evolution
Timeline System Platform
1960s Inventory Management Mainframe legacy systems using third
& Control generation software-(Cobol, Fortran)
1970s Materials Requirements Mainframe legacy systems using third
Planning (MRP) generation software-(Cobol, Fortran)
1980s Materials Requirements Mainframe legacy systems using fourth
Planning (MRP-II) generation database software and
manufacturing applications.
1990s Enterprise Resource Mainframe client-server systems using fourth
Planning generation database software and package
software.
2000s Extended ERP or ERP- Client-server systems using Web platform,
II open source with integration to fifth generation
applications like SCM, CRM, SFA.
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Core and Extended ERP Components
Figure 1-5 ERP Components
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7. ERP Systems Components Figure 1-6 ERP Components Integration
• An ERP system consists of:
Hardware Servers and peripherals
Software Process Operating systems and database
Information Organizational data from internal and
external sources
Process Business processes, procedures, and
policies
People End users and IT staff
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Figure 1-7 Example of Architecture of ERP at Large
ERP Architecture
University
• The architecture of an ERP system influences the cost,
maintenance, and the use of the system.
• The ERP architecture helps the implementation team
build the ERP system for the organization.
• If purchased, ERP architecture is often driven by the
vendor (Package-Driven Architecture).
• There are two types of architectures.
- Logical focuses on the supporting needs of the end users.
- Physical focuses on the efficiency of the system.
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8. Figure 1-9 Tiered Architecture Example of ERP
Figure 1-8 Logical Architecture of an ERP System
System
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System Benefits of an ERP System
System Limitations of an ERP System
• Integration of data and applications across functional
areas (i.e., data can be entered once and used by all
applications; thus improving accuracy and quality of the • Complexity of installing, configuring, and maintaining the
data). system increases, thus requiring specialized IT staff,
hardware, and network facilities.
• Improvements in maintenance and support as IT staff is
centralized. • Consolidation of IT hardware, software, and people
resources can be cumbersome and difficult to attain.
• Consistency of the user interface across various
applications means less employee training, better • Data conversion and transformation from an old system
productivity, and cross-functional job movements. to a new one can be tedious and complex process.
• Security of data and applications is enhanced due to • Retraining of IT staff and end users of the new system
better controls and centralization of hardware. can produce resistance and reduce productivity
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9. Business Benefits of an ERP System Business Limitations of an ERP System
• Agility of the organization in terms of responding to • Better customer service due to quicker information flow
across departments.
changes in environment for growth and maintaining
market share
• Efficiency of business processes are enhanced due to
the re-engineering of business processes.
• Sharing of information across functional areas helps
collaboration between employees. • Retraining of all employees with the new system can be
costly and time consuming.
• Linking and exchanging information in real-time with • Change of business roles and department boundaries
supply-chain partners improves efficiency leading to can create upheaval and resistance to the new system.
lower costs.
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ERP and Business Processes ERP and Business Processes
ERP and
Cross-Functional Business Processes Cross-Functional Business Processes
35 36

10. ERP and Business Processes ERP Implementation
• Before implementing ERP, an organization has to plan
and understand the life cycle of these systems.
• The key to a successful implementation is to use a
proven methodology, take it one step at a time, and
begin with an understanding of the ERP life cycle.
• ERP system implementations are very risky, and using a
well-defined project plan with a proven methodology will
assist in managing those risks.
ERP and Business Process Change
• There must be a strong well-communicated need to
make the change from the existing information
systems/applications to an ERP system.
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37
Figure 1-11 ERP Life Cycle Figure 1-12 ERP Implementation Methodology
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11. Software and Vendor Selection Vendor Evaluation
• Business functions or modules supported by their software
• It is best for an organization that does not have the • Features and integration capabilities of the software
experience in developing ERP systems to purchase one • Financial viability of the vendor as well as length of time
on the market. they have been in business
• Licensing and upgrade policies
• Before selecting a vendor, the organization must • Customer service and help desk support
carefully evaluate its current and future needs in • Total cost of ownership
enterprise management systems.
• IT infrastructure requirements
• Third-party software integration
• Review the organization’s existing hardware, network,
• Legacy systems support and integration
and software infrastructure, and the resources available
for the implementation. • Consulting and training services
• Future goals and plans for the short and long term
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Operations and Post-Implementation
Figure 1-14 Project Management
• Going live (“Go-live”) is one of the most critical points in
a project’s success.
• It is vital to focus the efforts of all project teams to
ensure that task and activities are completed before
going live.
Five areas of stabilization are important:
• Training for end-users
• Reactive support (i.e., help desk for troubleshooting)
• Auditing support to make sure data quality is not
compromised by new system
• Data fix to resolve data migration and errors revealed by
audits
• New features and functionalities to support the evolving
needs of the organization
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12. ERP Implementation Budget People and Organization
Project Management
For an ERP system to be implemented successfully,
project management must provide strong leadership, a
clear and understood implementation plan, and close
monitoring of the budget.
Consultants
It is often the case for organizations without much ERP
implementation experience to use implementation
Hammer 2000
partners such as consultants.
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People and Organization (Cont’d) ERP Vendors
Change Management SAP
SAP is the recognized global leader among ERP vendors
Role is essential because it prepares for changes to with over 12 million users. Its solutions are for all types of
how business is done. In implementing new systems, industries and for every major market. www.sap.com
communicating, preparing, and setting expectations is
as important as providing training and support.
Oracle/Peoplesoft
Business Process Re-engineering As the second largest ERP vendor, Oracle provides
Business processes will need to be changed, solutions divided by industry category and promises long-
adjusted, or adapted to the new system to use the term support for customers of PeopleSoft- (acquired in
functionality of an ERP system fully. 2004). www.oracle.com
Global, Ethical and Security Management
Infor
Outsourcing overseas, ethical issues, and problems The world’s third largest provider of enterprise software. It
with system security have also attracted a lot of delivers integrated enterprise solutions in supply chain,
attention in ERP implementation customer relationship and suppliers management
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13. ERP Vendors (Cont’d) Implications for Management
Microsoft Dynamics
Formerly Microsoft Business Solutions or Great Plains, • ERP systems implementation is a complex
Microsoft Dynamics is a comprehensive business- organizational activity.
management solution built on the Microsoft platform. - It is important to evaluate and learn from the successes and
failures.
Lawson
Industry-tailored software solutions that include • ERP systems implementation requires strong project
enterprise performance management, distribution,
management oversight.
financials, human resources, procurement, and retail
operations. www.Lawson.com
• ERP systems provide improved and added functionality
SSA Global for an organization.
Acquired Baan in 2004.They claim to offer solutions that
accomplish specific goals in shorter time frames and are
more efficient with time.
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Summary Summary (Cont’d)
• ERP components consist of hardware, software,
• Whereas the risks for implementing an ERP are greater, information, process, and people to perform the
the payoff is very high for organizations. fundamental phases of an information system: input,
process, and output.
• ERP system architecture is a blueprint of the actual ERP
• The integration of data helps an organization to better
system. There are two types of architecture: physical
meet the demands of a fast and dynamic business
and logical.
world.
• The selection of a system must be based on these
needs and how well a vendor meets those needs now or
• The use of ERP systems provides for integrated data in the future.
and business processes, thereby creating opportunities
• To be successful in implementing an ERP system, an
for organizations to expand and change as their
organization and its management must clearly
business changes.
understand the implementation process.
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14. Review Questions
1. How is the role of ERP system different from traditional
TPS, MIS, DSS, and others? Can an ERP system
support all levels of management?
2. Discuss the role of ERP in organizations. Are ERP
tools used for business process reengineering (BPR) or
does BPR occur due to ERP implementation?
3. Why is the design and selection of ERP architecture
crucial for the implementation project? What are the
long-term implications of selecting a wrong
architecture?
4. Discuss the criteria for selecting ERP vendors. Which is
the most important criteria and why?
5. What are the critical steps of the ERP project cycle?
Discuss the critical success factors?
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