Group VI Stephen Azar Paulette Turner Sarah Whitehead Paiching Yen

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


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%)


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


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


39

Video signal generator

Communications Signal Analyser Handheld oscilloscope Handheld oscilloscope

Sampling Oscilloscope

Oscilloscope Probes and AccessoriesOptical-to-Electrical

Converter

MBD Products Today


40

Tektronix Trading


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


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


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


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


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


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.



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



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


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


50

Tektronix ERP System Architecture


51

Tektronix ERP Project Team and Roles


52

Tektronix ERP Global Rollout Schedule


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


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



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



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



57


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


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



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


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


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$


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


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


66

Outsourcing ERP

Disadvantages Gray areas in contracts Loss of internal control


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

Group VI Stephen Azar Paulette Turner Sarah Whitehead Paiching Yen

Documents

Transcript of Group VI Stephen Azar Paulette Turner Sarah Whitehead Paiching Yen