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University of Missouri at St. University of Missouri at St. LouisLouis
IS:6800 Management Information IS:6800 Management Information SystemsSystems
Enterprise Resource PlanningEnterprise Resource PlanningPresented to Dr. Mary C. LacityPresented to Dr. Mary C. Lacity
Fall 2003Fall 2003
Group VIStephen Azar Paulette Turner Sarah Whitehead Paiching Yen
2
Paulette Turner – Introduction Paiching Yen – Digital China Stephen Azar – Tektronix Sarah Whitehead - Conclusion
ERP Project Team
3
What is ERP?
Enterprise Resource Planning is the process of streamlining and integrating a business operation process. Financials Human Resources Operations and Logistics Sales and Marketing
Source: Reference 1
4
Purpose of ERP The Enterprise Resource Planning
system combines all business departments information into a single, integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other.
Source: Reference 2
5
Anatomy of An Enterprise SystemThomas Davenport
Source: Reference 1
6
Benefits of ERP Single system to support several
smaller systems Access to management information
unavailable across a mix of applications
Access to best practice systems and procedures
More integration hence lower costs More automation of tasks
Source: Reference 3
7
Negatives of ERP High investment cost Less flexibility due to more automation Users will need to become more
computer literate Fewer in house skilled staff maintained Implementation timeframe and hidden
costs
Source: Reference 3
8
Major Companies Providing ERP System Products
BAAN
9
Annual Sales in Millions
2002 2001 2000 1999
SAP 7,785.7
6,534.0 5,881.2 5,146.0
Oracle 9,673.0
10,859.7
10,130.1
-------
Peoplesoft
1,948.9
2,073.3 1,736.5 1,429.1
Source: Reference 4
10
Annual Net Income in Millions
2002 2001 2000 1999
SAP 534.2 517.0 595.5 5,146.0
Oracle 2,224.0
2,561.1 6,296.8 ------
Peoplesoft
182.6 191.6 145.7 (177.8)
Source: Reference 4
11
Implementation Costs A survey of 63 companies by the
Meta Group found the average cost of ownership was $15 million
The same survey found that the average return on invest was $1.6 million. Timeframe 31 months.
Source: Reference 2 and 5
12
Important Role of Management
Provide focus, vision and strategic direction
Play a key role throughout the ERP implementation
Remain the project champion
13
ERP Implementation
DISCOVERY PHASE DESIGN AND DEVELOPMENT
PHASE TESTING AND TRAINING PHASE IMPLEMENTATION PHASE
Source: Reference 5
14
ERP Implementation
DISCOVERY PHASEBusiness processes and practices are evaluated to decided what is needed
DESIGN AND DEVELOPMENT PHASEApplications are chosen and configured for the company
Source: Reference 5
15
ERP Implementation
TESTING AND TRAINING PHASEThe ERP is loaded in a test environment to detect errors and flawsEmployees are trained on the system
IMPLEMENTATION PHASEThe system is rolled out by department, region or globally
Source: Reference 5
16
Best Practices Invest in adequate personnel and
technological resources Establish and maintain operations procedures
to administer network resources Conduct bottleneck analysis to determine
limitations Use enterprise systems tools to monitor an
maintain network integrity Develop a contingency plan Identify IT staff core competencies and ensure
continued knowledge and improvement
Source: Reference 6
17
Case Study
Digital China
18
Digital China Origin: Legend Company
Established in 1984 by the Institute of Computing Technology, a department of the Chinese Academy of Science
Legend Computer--- Distribute foreign brand-name IT products and manufacture self-branded computers
Split: May, 2000 Spun off from the Hong Kong-listed Legend
Group Limited. Separately listed on the Hong Kong Stock
Exchange on 1 June 2001. Digital China becomes an affiliate to Beijing’s
Legend Holdings Limited. The largest IT products distributor in China
Source: Reference 7
19
Company Background Headquarter: Beijing Number of Employees: 3,800 full-time Turnover :HK$12.51 billion or increase
of 18.91% compared to last year Profit: HK$ 181 million Earning per share: HK$ 21.2 cents
2003 2002 2001 2000
Annual Sales
12.5 billion(18.91%)
10.5 billion(22.66%)
8.56 billion(31.49%)
6.51 billion
Net Profit 181.1 million(5.72%)
171.3 million(20.89%)
141.7 million(22.51%)
115.66 million
Year ended 31 March (HK$)
Source: Reference 10
20
Stock History Nov, 2001~Nov, 2003
Issue price: HK$4.00 (June 1,2001)
52 week High/Low: 3.05/1.8
P/E ratio:12.32 Close: HK$2.60 (Nov 7,2003)
Source: Reference 9 and 11
21
Organization ChartChairman: Li Quin
CEO: Guo Wei
Source: Reference 8
22
Digital China Three distinct business:
1.Distribution of IT Products (86.1%) 2.Providing IT Services (12.4%) 3.Manufacturing and distribution of networking
products (1.5%) Honors:
Ranked 4th among “China’s 100 Leading Software Enterprises” - the Ministry of Information Industry, PRC
Ranked 20th among “China’s 100 Largest Public Traded Enterprise”—July 2003 issue, Fortune Chinese edition
Source: Reference 10
23
Digital China Characteristic of Supplier:
Suppliers are mainly foreign companies The largest supplier accounted for 29% of
the group’s purchase Dec31, 2000 The five largest suppliers accounted for
62% Characteristics of Customers:
Broadly distributed - 5 largest customers account for less than 20% of the turnover.
3,000 “core” resellers/retailer plus 2,000 minor channels
Source: Reference 7
24
IT Products Notebook: Toshiba, IBM Printer: Epson, Canon, HP Server and storage Products: IBM, HP, Sun Microsystems Enterprise Networking and application products: Cisco,
Brocade, NetScreen, and Netscout Enterprise Software: Oracle, Microsoft, BEA and
Symantec Mobile phone and PDA Digital Camera: Kodak, Canon, Sony, Olympus
25
Key Statistics Related to IT
Budget of the IT department Employee: 97 Payroll expense of IT dept: 18-20 million RMB Depreciation expense and maintenance/rental fees
of IT dept: 14 million RMB Expected budget: New software, equipment and
service:28 million RMB (September 2001 to August 2002)
Investment in the ERP system (before split) Market value of Hardware:35m RMB Software license fee: 1.2m USD External consulting Services: 2,400 person days
(RMB: Chinese dollar)
Source: Reference 7
26
ERP implementation: Original ERP consisted of 3 phases
After splitting, 2 phases from the perspective of Digital China
1st phase: Nov 9, 1998 ~Oct 1, 1999 (Expected) , Actually finished January 5, 2000 (3 months late)
2nd Phase: Digital China splitting from Legend (Feb, 2000) Feb,2000 ~May 8, 2000 (finished)
Oct 1, the ERP systems of Digital China’s ten platforms went live at the same time
Source: Reference 7
27
ERP Project Organization ERP Project Organization (after Project Reorganiztion)
Team L eader are VPs from business departments
M od u le n am e in S A P R /3S D :S a les an d D is trib u tionF I/C O : F in an c ia l an d m an g eria l accou n tin gM M : M ate ria ls M an ag em en t (p rocu rem en t)
Supervisor's Office BPR Team
SD Team FI/CO Team M M Team Promotion Team Basic Team Database Team
Project M anger
Project Supervisor
Steering Committe
Source: Reference 7
28
Timeline for ERP implementation
1993-1997 The “Old MIS” system based on FoxBase, mainly
used for finance, inventory management and sales. Mar-Apr, 1998 SAP and external consultancy product project evaluation for Leg end. Nov. 9, 1998 Legend singed official agreement with SAP and
external consultancy to implement ERP. Legend chooses the SAP system and planed to go live on October 1, 1999. April, 1999 Reorganization of project team. Jan 5, 2000 ERP system went live (1st Phase; 14 months) February, 2000 Under the direction of the steering committee, Legend began to split its ERP system into two. May 8, 2000 The split of the old ERP system of Legend was finished. May 27, 2000 Digital China ERP system started up officially. Oct 1, 2000 The ERP systems of Digital China’s 10 platforms went
live at the same time Source: Reference 7
29
E-bridge Project e-Bridge–An e-commerce B2B platform, online
transaction system Built by April 2000 and integrated with the ERP
system between April and September Purpose: established to improve operational
efficiency and reduce costs Began to operate on March 21, 2001
Now, agents in over 30 cities in China and over 800 agents use the system for online ordering, accounting for 36% of total distribution sales
Investments in e-Bridge in 2001: 20 million RMB
On average: recorded over 20,000 online visits per day, received a new order every 2 minutes
Source: Reference 7
30
Implementation Problems First 9 months: no real progress was
made Business departments: considered
the ERP as the usual kind of information system and only as a tool
External project manager resigned because of the prevailing attitude within Legend
Project supervisor requested change in the project team
Source: Reference 7
31
Operational benefits: The order-to-delivery process has been shorten from
four to two hours The time for financial closure for all subsidiaries,
including all platforms, has been reduced from fifteen to three days
Inventory and sales data are available in real time rather than with a one-day lag in the previous systems
Accounts receivables for comparable product categories and payment conditions have been reduced
Significant productivity gains, especially in the finance and the sales departments, have been realized
Source: Reference 7
32
ERP and Organizational Change
Management frequently rearranged organizational units by a process of splitting and merging units
ERP system adapted to organizational changes Issues/problems of ERP
ERP system can only provide basic information Integrated information could not be easily analyzed ERP developments become complicated and difficult
when a department is taken apart and integrated with another
Source: Reference 7
33
Digital China Lesson learned:
People from business departments in the project team should be chosen carefully
People participating in implementing ERP project have to be fully dedicated
Top management actively involved in the project
Cooperation and coordination of project manager and project supervisor
The continued organizational changes will hinder the optimal performance of ERP system.
34
Digital China Conclusions:
Overall ERP implementation is successful The way Digital China uses its ERP
system is more important than just implemented it
How to balance ERP development and Organization Changes
Strengthen the vertically and horizontally integrated capabilities of ERP Systems
35
Case Study
6. Industry: Lose no time; be always employ'd in something useful; cut off all unnecessary actions. Benjamin Franklin’s Thirteen Virtues
36
Tektronix Origin: Founded in January 1946
Located in Wilsonville, Oregon One Measurement Business Division
United States (52%) Americas (6%) Japan (7%) Pacific (13%) Europe (22%)
Source: Reference 12
37
4200 Employees down from 7900 in 1996
Invented the world’s first triggered oscilloscope
One of the largest test and measurement firms in the world with Market Cap of $1.5 Billion
Source: Reference 12
Tektronix
38
Corporate strategy is to focus product development on three core markets: computing, communications, and semi-conductors
Large and fast growing markets Mission statement: “Tektronix enables
our customers to design, build, deploy, and manage next-generation global communications networks and advanced technologies.”
Tektronix Strategy
Source: Reference 12
39
Video signal generator
Communications Signal Analyser Handheld oscilloscope Handheld oscilloscope
Sampling Oscilloscope
Oscilloscope Probes and AccessoriesOptical-to-Electrical
Converter
MBD Products Today
Source: Reference 12
40
Tektronix Trading
Source: Reference 14
41
Company business in 1993 was split into three autonomous divisions
Measurement Business Division (53%) Color Printing and Imaging Division (26%) Video and Networking Division (21%) Carl Neun became CFO in 1993 Company was facing increasing global
competition
Tektronix History
Source: Reference 13
42
Larry Bunyard - MBDIT Manager
R ob N icho ls - MBDSenior P rogram M anager
D anie l TerpackPresident MBD
Kathy G oedde lIT D irector - C P ID
R oy BarkerP resident C P ID
Bob VanceTektron ix C IO
C arl N eunTektron ix C FO
R ob B laskowsky - VN DIT D irector
Lucie J. F je ldstadPresident VN D
Jerom e J. M eyersTektron ix C EO
D anie l R . B rophyPresident Am ericas O pera tions
Tim othy Thorste insonPresident Pacific O pera tions
John W . Vo ldPresident European O pera tions
Tektronix Executive Tree 1993
Source: Reference 12
43
50 year legacy hampered operations Gary Allen IT Director called it a “spaghetti factory”
Many different applications and technologies in over 20 countries
Holdover from the old days where there were 26 divisions in the company created need for orders to be input many times in different systems through the order cycle – no Saturday delivery
Opportunity cost high for entry error “Five calls does it” to expedite an order
Tektronix ERP Background
Source: Reference 13
44
“Other weaknesses in the information architecture resulted in inaccurate information on performance, no capacity to effectively manage customer accounts and credit on a global basis, and no potential for customer to get his order calculated at order creation.”
Lack of financial systems integration
Tektronix ERP Background
Source: Reference 13
45
Neun provided vision with “Frankfurt is Orlando” as his model knowing that the world for IT was to get much smaller.
Neun needed a common template for what he described as his sales and distribution businesses and saw no difference in doing business in Germany or Florida beyond language and local laws.
Tektronix ERP Vision
Source: Reference 13
46
President of Computer Printing and Imaging Division Roy Barker provided Neun ERP business justification –citing growth and legacy systems outdated reasoning.
Barker goal was to double CPID size with taking “a volume game” in a mass marketing approach to pc-based corporate customers.
Once Barker called for the IT upgrade in his division the others came on board.
Tektronix ERP Vision
Source: Reference 13
47
Color Printing and Imaging Division to receive new IT upgrade first and the others would follow in waves.
Neun vision for ERP had three components: Separability of the Businesses
3 divisions had different distribution and selling methods Neun demanded standardization – order execution in a
common system and database – Frankfurt=Orlando Leveraging shared services
One worldwide financial and accounts receivable system Staying as “plain vanilla” as possible
Minimize changes to software purchased
Tektronix ERP Vision
Source: Reference 13
48
Neun and Vance had experience with Oracle Manufacturing had its own newly
implemented package and was kept separate
Small team spent two months in Oracle capability
Steering committee formed to refine company’s vision and develop “global business model”
“Business Practices and Guiding Principles” written for ERP direction
Tektronix ERP Planning
Source: Reference 13
49
Division presidents and Neun acted to resolve major project management problems
Set up coordinating teams with personal input One change program with many “waves” Waves were scheduled to deliver a specific
functionality with feedback expected Schedules strictly adhered to that gave
“handles” to the project momentum
Tektronix ERP Planning
Source: Reference 13
50
Tektronix ERP System Architecture
Source: Reference 13
51
Tektronix ERP Project Team and Roles
Source: Reference 13
52
Tektronix ERP Global Rollout Schedule
Source: Reference 13
53
Split into five major sub-projects First wave: Financials implemented at Color
Printing and Imaging Division in parallel with Order Management/Accounts Receivable Standardization and Simplification – standardized
charts-of-accounts and eliminated complex xfer pricing
Implementation and Support – Aris Consulting for each of major modules initially on a fixed-price contract than to time and materials. Low cost technical consultants for minor roles. Small firm for manufacturing interface to Oracle - contractor granted right to resell interface.
Tektronix ERP Implementation
Source: Reference 13
54
Second wave: Order Management/Accounts Receivable at Color Printing and Imaging Division – Roy Barker, President First because highest business velocity and most
commodity-type with most need to deal with growth Color Printing and Imaging Division made small
number of built-to-stock products More difficult than Financials and Oracle
customization “Multilingual engine” built to ride on Oracle to
specific country language and practices Rest of system read it in English Months spent debugging “Beta” version of Oracle
Tektronix ERP Implementation
Source: Reference 13
55
Order Management/Accounts Receivable at Color Printing and Imaging Division – Roy Barker, President Initially a large consulting firm contracted -
unsatisfied Turned to Aris, Oracle and other consultants based
on good Financials Color Printing and Imaging Division implementation
successful and took longer than expected
Tektronix ERP Implementation
Source: Reference 13
56
Order Management/Accounts Receivable at Measurement Business Division – Larry Bunyard, IT Manager Leveraged Color Printing and Imaging
Division experience to save costs Met a lot of resistance MBD made built-to-order products –
order processing more complex and much more code work
Tektronix ERP Implementation
Source: Reference 13
57
Tektronix ERP Implementation
Order Management/Accounts Receivable at Measurement Business Division – Larry Bunyard, IT Manager Oracle consultant reliance for their technical
support Four independent test conversions and six
systems tests MBD shutdown entire $190M OMAR for week to
reconcile open line items OMAR at MBD took twice expected time
Source: Reference 13
58
Third wave: Order Management/Accounts Receivable at Video and Networking Division – Rob Blaskowsky, IT Manager Division was smallest division and benefited
from prior work No aggressive resistance Division made most complex built-to-order
products – more complex order processing and special Bills of Materials
Rapid implementation achieved
Tektronix ERP Implementation
Source: Reference 13
59
Fourth wave: Europe EU and Non-EU nations Many meetings on how to rollout Distribution center (DC) in Holland – everyone uses it Success showed quicker shipments Oracle implemented in EU and Non-EU pilot countries “Big Bang” approach to rest of European countries in
all three divisions at once Similarly for Americas and Asia/Pacific Australia required special consideration due to older
systems EU pilot to Australia took 500 days
Tektronix ERP Global Rollout
Source: Reference 13
60
Improved Days Sales Outstanding and Reduced Inventory Levels
Worldwide Finished Goods Visibility Same day shipments increased from 15%
to 75% in at least one division Credit approval cycle time over 24 hrs
eliminated Time freed up for analysis Book closing at end of financial period
accelerated
Tektronix ERP Realized Benefits
Source: Reference 13
61
Division Net Sales
0
200000400000
600000
8000001000000
1200000
1999 1998 1997 1996 1995 1994
Year
Ne
t S
ale
s (1
,000
US
$)
MBD CPID VND
Total Sales
0
500000
1000000
1500000
2000000
2500000
1999 1998 1997 1996 1995 1994 1993 1992
Year
Ne
t S
ale
s (1
,000
US
$)
Domestic vs International Net Sales
0
200000400000
600000
8000001000000
1200000
1999 1998 1997 1996 1995
Year
Ne
t S
ale
s (1
,000
US
$)
United States International
Net Earnings
-75000
-25000
25000
75000
125000
1999 1998 1997 1996 1995
Year
Ne
t E
arn
ing
s (1
,000
US
$)
Tektronix ERP Contributed Benefits in Thousand US$
Source: Reference 12
62
Tektronix Lessons Learned What reasoning do you think Tektronix used
in deciding not to do a cost/benefit analysis before deciding to do ERP?
Oracle was chosen without much comparison do you agree or disagree with their decision?
Did you learn anything else from this case? Should a firm care about social
responsibility when implementing ERP?
63
ERP Conclusion
64
Successful ERP Implementation
Organizational Commitment Change Management Clear Communication of Strategic
Goals View ERP as a Company-wide
Venture Select a Compatible ERP System Ensure Data Accuracy
Source: Reference 16
65
Outsourcing ERP
Advantages Gives the company time to focus on
mission instead of software Charges a monthly fee (usually between
$300 and $1000 per user) Helps with IT talent shortage Increases in sales, acquisitions, and
proposed buyouts between big ERP companies
Source: Reference 16
66
Outsourcing ERP
Disadvantages Gray areas in contracts Loss of internal control
Source: Reference 16
67
References1. Davenport, T., “Putting the Enterprise into the Enterprise System”
Harvard Business Review, July-August 1998, pp. 121-131.2. Koch, C., “The ABC’s of ERP”, Enterprise Resource Planning Research
Center, URL: http://www.cio.com/research/erp/edit/erpbasics.html. viewed September 14, 2003
3. Turbit, N. “ERP Implementation: The Trials and Tribulations” World Trade, Vol. 16, Iss. 7, 2003, pg. 39
4. URL: http://fundamentals.nasdaq.com5. URL: http://www.du.edu/~atanner/whatiserp.htm6. Savin, J., Silberg, D., and Schoumaker, D., “Best Practices in Enterprise
Network Systems”, Manufacturing Systems, Vol. 17, 9, 1999, Iss. 9, Pg 63-67
7. F. Warren Mcfarlan, Guoqing Chen, and Kai Reimers, “Digital China Holdings Limited: ERP as a Platform for Building New Capabilities”, Harvard Business Review, May 21, 2002
8. http://www.digitalchina.com.hk/servlet/template?series=54, viewed Oct 10, 2003
68
References:9. http://hk.finance.yahoo.com, viewed Nov 7, 200310. http://www.digitalchina.com.hk/servlet/template?series=63&arti
cle=3812002/2003, Digital China Annual Report , viewed Oct 10, 2003
11. http://www.hkex.com.hk/index.htm, Stock Exchange of Hong Kong, viewed Nov 7, 2003
12. www.tek.com, viewed 10/23/0313. Cottelier, Mark J. and Westerman, George, “Tektronix, Inc.:
Global ERP Implementation” Harvard Business School, Vol. 9-699-043, 1999
14. www.ameritrade.com, viewed 10/24/0315. Umble, Elisabeth J and Umble, M Michael, “Avoiding ERP
Implementation Failure” Industrial Management, Jan/Feb 200216. DePompa, Barbara, “Time to Outsource ERP?” Computerworld,
August 4, 2003 Vol 37, Iss 31;Pg. 33