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MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 1: Introduction to Enterpr...
ERP Background 
• Introduction of PC led to narrowly focused 
information systems 
• Duplicate data across the enterprise ...
Legacy Systems: 
The case for not changing 
• The system works fine and the company sees no reason for 
changing it. 
• Th...
What is ERP? 
• An ERP system is an integrated suite of 
information technology applications that 
support the operations ...
ERP-Supported Business Processes 
* Core ERP Processes
Typical Modules in an ERP System 
Operations (Core) 
· Engineering · Bills of Material · Scheduling 
· Capacity · Process ...
Who Uses/Needs to know about ERP? 
• End User 
– Purchasing 
– Manufacturing 
– Sales 
– Accounting/Finance 
– Human Resou...
ERP Value – Integration 
 The value of ERP is the opportunity to integrate an 
entire organization by having a single poi...
Before and After ERP 
•Legacy systems (islands of automation) may be connected with 
enterprise application integration (E...
ERP Diffuses Best Practices 
• ERP systems are based on best practices 
• For instance, SAP has thousands of best practice...
ERP Facilitated Adoption of Client 
Server Computing 
• In the early 1990’s ,client server computing became available 
and...
Technical ERP System Benefits 
• Integrated processes and information systems 
• More effective and efficient business pro...
ERP System Benefits 
– Integrate financials 
– Have one view of the customer 
– Standardize manufacturing processes 
– Red...
ERP System Disadvantages 
• Standardized way of conducting business 
can be a disadvantage too because levels 
the playing...
Implementation Issues 
• Employee resistance 
– They develop “work arounds” 
– Sabotage implementation process 
– Caused b...
ERP Evolution 
• Roots are in Manufacturing Requirements Planning (MRP) 
& Manufacturing Resource Planning (MRP II) 
– Add...
ERP Market 
• Billion dollar industry and growing 
– 10% growth rate through 2012 
• Growth drivers 
– Globalization 
– Ce...
ERP Tiers 
• Tier 1 Vendor – “Enterprise Space” - multi-site, multi-national 
corporations, government entities with 1000 ...
ERP Tiers 
• Tier 2 Vendors 
– Market towards medium sized companies, few sites, 100-999 employees 
– Largest of all ERP t...
An Enterprise System - Reality 
In reality, an ERP implementation is usually just one part of a 
more complex environment,...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 2: ERP Technology
IT Infrastructure for ERP 
• Early systems 
mainframe based 
• 1990’s client server, 
three-tier 
– Client – fat 
client/t...
ERP Interface 
• With ERP software, the GUI can take the form 
of a dashboard customized to suit the needs 
and preference...
SAS Portal 
Figure 2-2: SAS Institute Dashboard 
Source: SAS Institute, Inc.
Back Office/Front Office 
• Back-office software (Core 
ERP) –HR, Financials, and 
Operations 
• Front-office software 
in...
Relational Database Terminology 
• Tables are relations 
– Tables and forms (visuals of tables) show up on 
screens in ERP...
Entity-Relationship Diagram 
• ERDs are a type of system diagramming that show 
relationships between tables. 
– Relations...
Relational Database Example 
Figure 2-4: Relational Database Overview
Database Query and Manipulation 
• A query is a question asked of the database. Again, ERP 
systems have many standard que...
Configure vs. Customize ERP 
• Configuration involves “setting switches” during 
implementation that determine how the sys...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 3: ERP and Business Proces...
Business Process Reengineering 
• Concept coined by Michael Hammer Reengineering 
the Corporation… 
• Business Process Ree...
Benefits vs. Challenges of BPR 
Benefits 
• Cost Reductions 
• Improved Customer 
Satisfaction 
• Improved Agility 
• Incr...
Types of Reengineering 
• Clean Slate Reengineering 
– Process design starts with 
a clean slate 
– Also referred to as 
“...
Clean Slate Reengineering 
Advantages: 
• Not constrained by a 
particular tool 
• Not constrained to a 
limited set of pr...
Technology-Enabled Reengineering 
Advantages: 
• ERP provides the tool and 
structure to facilitate 
change 
– Roadmaps le...
Business Process Reengineering Principles 
• Have those who use the output of the process, 
perform the process 
• Empower...
Targets for Reengineering 
• Process as Part of a Core Competency 
– A core competency is a company’s process that transfo...
Lessons Learned through BPR 
• Low cost labor 
• Scalability – both up and down 
• Think outside the functional box – usin...
Reengineering Challenges 
• Resistance from employees 
• Cost 
• Job losses 
• Tradition and culture 
• Time requirements ...
Constituents for Reengineering 
• Customers 
• Employees 
• Information Technology Staff 
• Business Partners 
• Upstream ...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 4: ERP: Systems Diagrammin...
Systems Documentation 
• Basic Purposes for Systems Documentation 
1. Describing business processes 
2. Assessing internal...
Importance of Systems Diagramming 
• A recent study found that 72% of private and 82% of 
public companies have increased ...
Process Maps 
• A process map, also known as a cross-functional flowchart, is 
used by many organizations seeking to docum...
Process Map Symbols 
• Activities (or events): transform 
inputs into outputs 
• Decision points: yes/no 
(positive/negati...
Gathering Information for a Process Map 
• Group interview method – all people involved in the 
process are interviewed as...
Guidelines to Developing a Process Map 
• Have a defined purpose for mapping a process and explain it to those 
participat...
Process Map Example 
Figure 4 – 2: Electric City Order Fulfillment Process Map
Hints for Constructing Process Maps 
• Make sure every area of the map contains approximately the 
same amount of effort 
...
Advanced Process Map Example 
Figure 4 – 3: Monster Furniture Process Map (Page 1)
Advanced Process Map Example 
Figure 4 – 4: Monster Furniture Process Map (Page 2)
Process Problems to Uncover 
• Handoffs – transferring of responsibility from one role to another 
– Provides the opportun...
Process Problems to Uncover Issues 
• Cycle time – the time consumed during process flow from 
start to finish..how long i...
Process Decision Issues to Uncover 
• Authority ambiguity –clearly defines who owns the decision 
– Eliminate a potential ...
Developing the “To-be” Process 
– Who is the customer? What is the customer willing to pay for? 
What does the customer re...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 5: ERP Life Cycle: Plannin...
Why Change Information Systems 
• Obsolescence 
• High operational costs 
• Lack of vendor support 
• Lack of compliance 
...
The ERP Life Cycle 
• Planning (Chapter 5) 
• Package Selection (Chapter 5) 
• Implementation (Chapter 6) 
• Maintenance (...
ERP Life Cycle: Planning 
• Need a rationale grounded in a business case (high level reason 
why a company undertakes an E...
ERP Life Cycle: Planning 
• Executive Leadership – rally support, distribute resources, and 
delegate management of implem...
ERP Life Cycle: Planning 
• Project Team 
– Given the discretion to make all important decisions regarding 
the implementa...
ERP Costs 
• Total cost of ownership (TCO) – total costs that will likely be 
incurred throughout the system’s life cycle ...
ERP Costs 
• Database License – based on the number of simultaneous users that 
will log into the system or the number/typ...
ERP Benefits 
• Integrate financial information – creates one version of the 
truth, which can not be questioned because e...
ERP Life Cycle: Package Selection 
• Package selection 
presumes that a high-level 
organizational group has 
approved fun...
ERP Life Cycle: Package Selection 
• Market Survey – to determine which vendors’ systems might 
be potential alternatives ...
ERP Life Cycle: Package Selection 
• Site Survey – invitation for each of the prospective vendors to 
meet with the projec...
ERP Life Cycle: Package Selection 
• Demo Days – vendor must “walk the walk” and “talk the talk” 
– Must be detailed, show...
ERP Life Cycle: Package Selection 
• Reference Visits – visit to a “like” customer site of the final short-lived 
vendors ...
ERP Life Cycle: Package Selection 
• Implementation Methodology Discussion – discussion of the 
understanding of implement...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 6: ERP Life Cycle: Impleme...
ERP Life Cycle Stages 
– Planning (Chapter 5) 
– Package Selection (Chapter 5) 
– Implementation (Chapter 6) 
– Operation ...
ERP Life Cycle: Implementation 
• Installation – mechanics from changing from one 
software package to another while keepi...
ERP Life Cycle: Implementation 
• Configuration – business and functional settings in the ERP 
system are changed to make ...
ERP Life Cycle: Implementation 
• Customization – alterations to support a business 
process that may be unique or provide...
ERP Life Cycle: Implementation 
• Testing – confirms that the software behaves as expected and 
customer expectations are ...
ERP Life Cycle: Implementation 
• Change Management – body of knowledge that has evolved to 
address change within the con...
Top Ten Principles of Change 
Management 
1. Address the “human side” systematically 
2. Start at the top 
3. Involve ever...
ERP Life Cycle: Implementation 
• Interfacing with Other Systems – because of time and cost 
constraints, gaps in function...
ERP Life Cycle: Implementation 
• Consultants - Assist the project team with various activities 
including: 
– Developing ...
Benefits and Risks of Using Consultants 
Table 6-4: Benefits and Risks of Using Consultants 
Benefits Risks 
Unbiased and ...
Implementation Methodologies 
• Phased Implementation – ERP system is rolled out by 
functionality (by module), division, ...
Comparison of Different ERP Implementation Approaches 
Table 6-5: Comparison of Different ERP Implementation Approaches 
A...
ERP Life Cycle: Operation and Maintenance 
• The operation and maintenance stage begins 
with a period of stabilization 
–...
Five Ways to Reduce ERP Maintenance and Support Costs 
Table 6-6: Five Ways to Reduce ERP Maintenance and Support Costs 
N...
ERP Life Cycle: Operation and Maintenance 
• Upgrading – applying fixes and updates to the ERP system 
• Reasons for updat...
Reasons Why Companies Do Not Upgrade Systems 
Figure 6-1: Reasons Why Companies Do Not Upgrade Systems 
Source: Aberdeen G...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 7: ERP: Sales, Marketing a...
ERP Sales Order Processing 
• Objective – capture and fulfill the customer order, the 
document that begins the order fulf...
Sales Related Activities 
• Lead Generation 
• Contact 
• Qualification – applicability, affordability, and authority 
• O...
Transactions versus Events 
• Transactions have financial implications (things are 
debited and credited, so will affect t...
Customer Relationship 
Management 
• Customer relationship management (CRM) bolt-on to 
ERP. Helps an organization with cu...
Where CRM and ERP Meet 
Figure 7-2: Where CRM and ERP Meet
Three Elements of a Successful CRM Strategy 
• People – Company employees, from the CEO to the front-office 
customer serv...
Principles for CRM Success 
1. CRM is not a software purchase – it’s a strategy 
2. CRM must fit the way you work now and ...
Benefits of CRM 
• Knowing your customers better – personalization and 
segmentation 
– Using analytics 
• Increase revenu...
CRM Advanced Analytics 
• Event monitoring 
• Segmentation 
• Personalization 
• Pricing 
• Trending 
• Advertising 
• For...
CRM: On-Premise vs. On-Demand 
• On-Premise – installing the software on-site on the 
company’s own servers 
– Traditional...
Knowledge Management (KM) and CRM 
• Knowledge Management (KM) – directed process of figuring 
out what information a comp...
Identifying Knowledge to Manage 
• Skills and knowledge that a company has developed 
about how to make its goods and serv...
Reasons for Knowledge Management Systems 
• Sharing of best practices 
• Restructuring, downsizing, and outsourcing 
• Kno...
Obstacles to Successful Knowledge Management 
• Starting too big 
• Relying on technological shortcuts 
• Not modeling the...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 8: ERP Financials
Financial Accounting 
• Objective: to provide the information needed for sound economic 
decision making 
• Must conform t...
Financial Accounting 
• General Ledger – an accumulation of balances from 
transactions and postings 
• Monthly, quarterly...
Financial Accounting 
• Accounts Payable subledger – identifies the balances owed to 
every vendor calculated from purchas...
Financial Accounting 
• Accounts Receivable subledger – records all account postings 
generated as a result of customer sa...
Management Accounting 
• Focus: taking revenue and expense items generated through 
financial accounting and “slicing and ...
Management Accounting 
• Overhead Costing – helps with planning, allocating, and 
controlling indirect costs, or costs tha...
Management Accounting 
• Profitability Analysis – considers certain segments of the 
organization and determines: 
– Profi...
Asset Management 
• Planning – dedicating 
resources to the project and 
establishing expectations 
about the execution of...
Asset Management 
• Settlement and Capitalization – since the overhaul may have 
affected the value of the machine, this n...
Investment Management 
• Investment Management – 
provides the tools for pre-investment 
analysis during 
the planning sta...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 9: Human Capital Managemen...
Human Capital Management 
• Human Capital Management (HCM)– methods and strategies 
embraced to optimize the value of huma...
Human Capital Management Modules 
• Personnel Management Module (PM) 
– Most legal and financial responsibilities of the w...
Human Capital Management Modules 
• Time and Labor Management Module 
– Allows workers to submit timecard data online and ...
Human Capital Management Modules 
• Recruitment Management Module (RM) 
– Helps convert job candidates into favorable resu...
Human Capital Management Modules 
• Employee Performance Management (EPM) 
– Streamlines employee appraisals from goal pla...
Human Capital Management 
Modules 
• Learning Management (LM) 
– Administering employee learning, thereby managing talent ...
Employee Self-Service 
• Employee Self-Service (ESS) 
– Addresses and minimizes non value-adding activities by allowing 
e...
Manager Self-Service 
• Manager Self-Service (MSS) 
– Empowers managers to make departmental decisions that align 
with st...
Employee and Manager Self-Service 
• Travel management – automates the planned trip-to-payment 
process 
– Reduces travel ...
Outsourcing Human Capital Management Activities 
• Companies choose to outsource HR related functions such as 
compensatio...
Outsourcing Human Capital Management Activities 
Table 9-2: Seven Signs That Your Company May Be Ready for HR Outsourcing ...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 10: Manufacturing Systems ...
Manufacturing Systems Evolution 
• Economic Order Quantity (EOQ) – inventory management 
technique in which each raw mater...
Material Requirements Planning 
• Materials Requirements Planning (MRP) 
– With the MPS, the BOM, and the Inventory Status...
Production Process 
130 
©2010 by Marianne Bradford. All rights 
reserved
Manufacturing Systems Evolution 
• Capacity Planning – uses the planned manufacturing schedule 
to analyze the requirement...
ERP Manufacturing Modules 
• Production Planning – enables the creation of 
realistic production plans across multiple 
ma...
ERP Manufacturing Modules 
• Materials Management– supports inventory-related activities 
such as the tracking and control...
ERP Manufacturing Modules 
• Plant Maintenance –used by large organizations in capital-intensive 
industries. 
– Directs t...
ERP Manufacturing Modules 
• Service Management – manages the lifecycle changes to existing 
services or installed product...
ERP Manufacturing Modules 
• Lean Manufacturing – philosophy of production that 
emphasizes the maximizing an enterprise’s...
Supply Chain Management 
Enablers 
• Supply Chain Management (SCM) systems optimize 
production to meet, but not exceed, d...
Supply Chain Management Enablers 
• Radio Frequency Identification (RFID) – use of tiny computer 
chips and antennas embed...
Supply Chain Management Enablers 
• Electronic Data Interchange (EDI) – use of computerized 
communication to exchange bus...
Supply Chain Management Enablers 
Table 10-1: Benefits of Electronic Data Interchange 
Customer Supplier 
Purchase orders ...
Supply Chain Management Enablers 
• Vendor Managed Inventory (VMI) – outsourcing the 
replenishment of an organizations’ i...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 11: Auditing ERP
What is Internal Control? 
• Internal Control – includes policies and procedures effected by an 
organization’s management...
Internal Control Regulation 
• Sarbanes-Oxley Act of 2002 (SOX) – requires 
management of publically traded companies to: ...
The Integrated Audit 
• Integrated Audit – a holistic approach to 
auditing that entails more than just 
testing and verif...
IT Application Controls 
IT Application Controls – 
are performed 
automatically by systems 
ensuring accurate data 
entry...
IT General Controls 
Figure 11 – 2: Relationship between IT General Controls and Application Controls 
Source: Deloitte an...
Program Change Controls 
• Program Change Controls – controls that govern the changes made to 
information systems and dat...
Program Change Controls 
• Program changes initiated only with a valid IT or business justification 
• An IT manager or ma...
Information Security Controls 
• Information security controls – help prevent 
unauthorized access to information systems ...
Controls for Information Security 
• Authentication – verifying the identity of the users (you are 
who you say you are) 
...
Computer Operations Controls 
• Computer Operations Controls – focus on the 
physical access to IT resources that run a 
c...
Computer Operations Controls 
• Some example controls in a data center are: 
– Batch computer jobs are monitored by 
manag...
Evaluating Deficiencies in ITGC 
• Nature and significance 
• Pervasiveness of deficiency 
• Complexity of systems environ...
Controls over Outsourcing Business 
and IT Functions 
• Types: 
– Application outsourcing – contracting for a data center ...
Statement on Auditing Standards No. 
70 • Two types of SAS 70 Service Auditor’s Reports: 
– Type 1 Service Auditor’s Repor...
ISACA Certifications for IT Audit, 
Security, and Governance 
• Certified Information Systems Auditor (CISA) 
– qualifies ...
ISACA Certifications for IT Audit, 
Security, and Governance 
• Certified in the Governance of Enterprise IT (CGEIT) – 
ce...
ISC2 Certification for IT Audit, 
Security, and Governance 
• What is ISC2 ?- International Information Systems 
Security ...
COBIT 
• Control Objectives for 
Information and related 
Technology (COBIT) – 
governance framework 
and supporting tools...
COBIT Domains and IT processes 
• Plan and Organize – provides management with tactics and strategy 
concerning how IT can...
Governance, Risk, and Compliance 
• Governance, Risk, and Compliance (GRC) – enables 
organizations to maximize strategic ...
MODERN ERP 
SELECT, IMPLEMENT & USE TODAY’S ADVANCED 
BUSINESS SYSTEMS 
Second Edition 
Chapter 12: Business Intelligence ...
Business Intelligence 
• Business Intelligence (BI) – a discipline that includes a collection of 
practices and technologi...
Degree of Intelligence in BI Tools 
Figure 12-2: Reactive vs. Proactive Decision Making 
Source: SAS Institute, Inc. 
165 ...
Modern ERP Select Implement and Use Today's Advanced Business Systems Author Marianne Bradford
Modern ERP Select Implement and Use Today's Advanced Business Systems Author Marianne Bradford
Modern ERP Select Implement and Use Today's Advanced Business Systems Author Marianne Bradford
Modern ERP Select Implement and Use Today's Advanced Business Systems Author Marianne Bradford
Modern ERP Select Implement and Use Today's Advanced Business Systems Author Marianne Bradford
Modern ERP Select Implement and Use Today's Advanced Business Systems Author Marianne Bradford
Modern ERP Select Implement and Use Today's Advanced Business Systems Author Marianne Bradford
Modern ERP Select Implement and Use Today's Advanced Business Systems Author Marianne Bradford
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Modern ERP Select Implement and Use Today's Advanced Business Systems Author Marianne Bradford - SAP University Alliance. Target Audience - Fresh Off Campus Graduates and Post Graduates looking for direct SAP Consulting Career. Book is for College Students. Copy Rights of Marianne Bradford.

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Modern ERP Select Implement and Use Today's Advanced Business Systems Author Marianne Bradford

  1. 1. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 1: Introduction to Enterprise Resource Planning Systems
  2. 2. ERP Background • Introduction of PC led to narrowly focused information systems • Duplicate data across the enterprise not shared between departments • Mid – late 1990’s many large companies implemented Enterprise Resource Planning (ERP) which would integrate the data across the enterprise and replace outdated systems (legacy systems).
  3. 3. Legacy Systems: The case for not changing • The system works fine and the company sees no reason for changing it. • The costs of redesigning or replacing the system are prohibitive because it is large, monolithic, and/or complex. • Retraining on a new system would be costly in lost time and money, compared to the anticipated appreciable benefits of replacing it (which may be zero). • The system requires near-constant availability, so it cannot be taken out of service, and the cost of designing a new system with a similar availability level is high. Examples include systems to handle customers' accounts in banks, computer reservation systems, air traffic control, energy distribution (power grids), nuclear power plants, military defense installations, etc. • The way that the system works is not well understood. Such a situation can occur when the designers of the system have left the organization, and the system has either not been fully
  4. 4. What is ERP? • An ERP system is an integrated suite of information technology applications that support the operations of an enterprise from a process perspective. – Cross-Functional – serves many functions – Process-Centered – organized around processes • Built upon relational database systems – There is one data store, one source of the truth • Sold in modules – Don’t need to purchase/implement all modules – More modules implemented leads to more integration and ROI • Can cost millions of dollars and take years to implement (for larger companies – less for
  5. 5. ERP-Supported Business Processes * Core ERP Processes
  6. 6. Typical Modules in an ERP System Operations (Core) · Engineering · Bills of Material · Scheduling · Capacity · Process Manu. · Quality Control · Cost Management · Discrete Manu. · Shop Floor Mgmt. · Inventory · Order Entry · Purchasing · Product Configuration · Supply Chain Planning · Supplier Scheduling · Quality Control · Demand Management · Sourcing Financials (Core) · General Ledger · Cash Management · Accounts Payable · Accounts Receivable · Fixed Assets · Controlling Projects · Project Costing · Project Billing · Time and Expense · Activity Management · Resource Availability · Project Contracts Human Resources (Core) · Human Resources · Payroll · Training · Time & Attendance · Benefits · Recruiting Customer Relationship Management · Sales and Marketing · Commissions · Service · Customer Contact · Call Center Support · Analytics Plus: Various Self-Service Interfaces for Customers, Suppliers, and Employees
  7. 7. Who Uses/Needs to know about ERP? • End User – Purchasing – Manufacturing – Sales – Accounting/Finance – Human Resources – etc • Internal/external auditor – Verify that the ERP system is secure and maintains privacy over individuals. Also has proper segregation of duties (SoD). • Consultant – Assist in implementation and or maintenance of ERP systems • Developers – Customize the system
  8. 8. ERP Value – Integration  The value of ERP is the opportunity to integrate an entire organization by having a single point of entry and sharing of data across the enterprise. • ERP becomes the authoritative data source: a recognized or official data production source with a designated mission statement to publish reliable and accurate data for subsequent use by users.  Creates less need to reconcile data and rekey which causes inefficiencies and delays  Inefficient business processes that were disjointed become much more efficient.
  9. 9. Before and After ERP •Legacy systems (islands of automation) may be connected with enterprise application integration (EAI) - the process of linking such applications within a single organization together in order to simplify and automate business processes to the greatest extent possible, while at the same time avoiding having to make sweeping changes to the existing applications or data structures. Not as optimal as having an integrated system, common database, and common technical infrastructure.
  10. 10. ERP Diffuses Best Practices • ERP systems are based on best practices • For instance, SAP has thousands of best practices embedded in their applications. – This means that any firm that installs has access to a wide range of best practices. • Further, business practices are being added all of the time. As new best practices are found and embedded in particular applications, they can become available for inclusion in new versions of software. • As a result, there is a cycle of finding best practices, building them into the software and diffusing them out to new users. – Vertical solutions – industry specific version of
  11. 11. ERP Facilitated Adoption of Client Server Computing • In the early 1990’s ,client server computing became available and offered many advantages over existing mainframe solutions. • Client/server describes the relationship between two computer programs in which one program, the client, makes a service request from another program, the server, which fulfills the request. • ERP became one of the dominant, initial corporate applications of client server computing.
  12. 12. Technical ERP System Benefits • Integrated processes and information systems • More effective and efficient business processes • Enables organizational standardization • Eliminates information asymmetries • Provides on-line and real-time information • Facilitates intra- and inter-organization communication and collaboration • Can reduce complexity of application and technology portfolios
  13. 13. ERP System Benefits – Integrate financials – Have one view of the customer – Standardize manufacturing processes – Reduce inventory/better visibility into inventory – Standardize information such as HR and Customer data there are others……depends on company
  14. 14. ERP System Disadvantages • Standardized way of conducting business can be a disadvantage too because levels the playing field somewhat between companies • Lack of employee/user acceptance • Complex solution • Maintenance of hardware and software • Costly and time consuming implementations
  15. 15. Implementation Issues • Employee resistance – They develop “work arounds” – Sabotage implementation process – Caused by lack of training (“how”) or understanding of organization’s motivation for adoption (“why”) – Need Change Management to lower resistance • Technical Issues – Complex system to implement – configuration issues and possible customization issues – Sometimes need expensive external consultants
  16. 16. ERP Evolution • Roots are in Manufacturing Requirements Planning (MRP) & Manufacturing Resource Planning (MRP II) – Addressed needs of just the manufacturing environment – ERP manages resources for entire enterprise • With Y2K looming, companies began implemented new state of the art systems (ERP) that ran on client server technology • Now many companies outsource called Software as a Service (SaaS) – Multi-tenancy – serve many clients from a single instance via the Internet • Open Source ERP systems are evolving – where’s the help desk though!?
  17. 17. ERP Market • Billion dollar industry and growing – 10% growth rate through 2012 • Growth drivers – Globalization – Centralization – Competition – Best practices etc Figure 1-2: ERP Application Revenue Estimate 2007-2012 in Billions Source: AMR research
  18. 18. ERP Tiers • Tier 1 Vendor – “Enterprise Space” - multi-site, multi-national corporations, government entities with 1000 or more employees – #1 SAP • Stands for Systems, Applications and Products in Data processing • Formed by 5 former IBM engineers in 1972 in Walldorf Germany • SAP AG, SAG UK, SAP North America etc • Nearly 200,000 customers, over 50,000 employees • Service over 20 different industries – #2 Oracle • More than 380,000 customers—including 100 of the Fortune 100—and with deployments across a wide variety of industries in more than 145 countries around the globe, • In 2003 acquired PeopleSoft, Hyperion and Siebel
  19. 19. ERP Tiers • Tier 2 Vendors – Market towards medium sized companies, few sites, 100-999 employees – Largest of all ERP tiers in number of potential customers – Tier 1 vendors moving into this area and below by reducing prices and simplifying product – Some vendors – QAD and SSA • Tier 3 Vendors – Market towards small, single site, family run corporations, sales under $40 million and less than 100 employees – Vendors – Microsoft Dynamics GP, NetSuite, Made-2-Manage, SAP Business by Design, SAP Business All in One • Tier 4 Vendors – Market towards small companies that can manage with basic accounting software – Vendors – Peachtree, Accpac, Quickbooks, SAP Business One, SAP Business by Design
  20. 20. An Enterprise System - Reality In reality, an ERP implementation is usually just one part of a more complex environment, including bolt-ons, legacy applications retained, possible data warehouse(s), enterprise application integration (EAI) solutions and connections to external business partners.
  21. 21. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 2: ERP Technology
  22. 22. IT Infrastructure for ERP • Early systems mainframe based • 1990’s client server, three-tier – Client – fat client/thin client – Application (business logic) – Database Figure 2-1: Three-Tier Architecture
  23. 23. ERP Interface • With ERP software, the GUI can take the form of a dashboard customized to suit the needs and preferences of a set of users or a specific user. • Can include: – Business process activity based on production or logistics information. – Tasks, reminders and other notifications. – Calendaring and scheduling resources. – Messaging including email, instant messaging and telephone traffic. – Official communications from designated sources.
  24. 24. SAS Portal Figure 2-2: SAS Institute Dashboard Source: SAS Institute, Inc.
  25. 25. Back Office/Front Office • Back-office software (Core ERP) –HR, Financials, and Operations • Front-office software integrates with customers and suppliers – supply chain management and customer relationship management • Bolt-ons are used to integrate more functionality to Core ERP Figure 2 -3: Core ERP and ERP Bolt-Ons
  26. 26. Relational Database Terminology • Tables are relations – Tables and forms (visuals of tables) show up on screens in ERP menus. • Fields are attributes in the table (in columns) • Records are instances in the table (in rows) • Each table has a primary key that is the unique. – Usually the primary key is some sort of code. – Can not be null or empty – Entity integrity rule • The primary key in one table becomes the foreign key in another table so the tables can connect and querying can take place.
  27. 27. Entity-Relationship Diagram • ERDs are a type of system diagramming that show relationships between tables. – Relationships are rules that show how tables relate to one another. • Types of relationships – One-to-one: the primary key of one table is associated with only one record in another table – One-to-many: the primary key of one table is associated with more than one record in another table – Many-to-many: the primary key in one table is associated with more than one record in a second table and the primary key in the second table is associated with more than one record in the first table
  28. 28. Relational Database Example Figure 2-4: Relational Database Overview
  29. 29. Database Query and Manipulation • A query is a question asked of the database. Again, ERP systems have many standard queries coded into the software in the form of menus. Menus can be customized to add/change/delete queries. – Structured Query Language (SQL) is a database querying language • Simple Query – returns a response without changing the database • Update Query – changes records in a database • Data Manipulation – operations alter the database – Inserting new rows into tables – Updating existing rows – Deleting rows from tables
  30. 30. Configure vs. Customize ERP • Configuration involves “setting switches” during implementation that determine how the system will execute business processes. – Example of configuring: reporting relationships, options having to do with how business processes work, auditing mechanisms, organizational structure. • Customization is changing software code. – This is expensive and time consuming. – Only do if necessary and believed to lead to a competitive advantage. – Don’t customize because you feel your employees will resist a new way of work….that is the point of ERP! – Vanilla is not customizing the software.
  31. 31. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 3: ERP and Business Process Reengineering
  32. 32. Business Process Reengineering • Concept coined by Michael Hammer Reengineering the Corporation… • Business Process Reengineering is the fundamental, radical, redesign in business processes to achieve dramatic improvements in key measures of performance such as cost, quality, speed, and service • The focus of BPR is not on how a process is done, but WHY it is done
  33. 33. Benefits vs. Challenges of BPR Benefits • Cost Reductions • Improved Customer Satisfaction • Improved Agility • Increased Profitability and Reputation Risks • Resistance from employees • Cost • Job losses • Tradition and culture • Time requirements • Lack of management support • Risks to managers • Retraining
  34. 34. Types of Reengineering • Clean Slate Reengineering – Process design starts with a clean slate – Also referred to as “starting from scratch” – Theoretically, no limits • Technology-Enabled Reengineering – A particular technology (or portfolio of technologies) is chosen as a tool to facilitate reengineering – The technology drives the reengineering
  35. 35. Clean Slate Reengineering Advantages: • Not constrained by a particular tool • Not constrained to a limited set of processes • Evolution is not limited by a particular technology • Can result in unique processes (which gives a competitive advantage) • Encourages a free flow of ideas Disadvantages:  Costly  Excess time and resources (makes it difficult for smaller companies in an industry to afford)
  36. 36. Technology-Enabled Reengineering Advantages: • ERP provides the tool and structure to facilitate change – Roadmaps lead to less time • ERP bounds the design which eliminates difficult decisions • Design is feasible and we know it works (it’s been proven) – Less risk • Designs likely can be implemented in a timely Disadvantage  Constrained by a technology, evolution limited by that technology, limited by certain best practices in that technology  Not unique – no competitive value perhaps (which incidentally is why orgs may customize); other companies have access to the design
  37. 37. Business Process Reengineering Principles • Have those who use the output of the process, perform the process • Empower workers • Treat geographically dispersed resources as though they were centralized • Link parallel activities instead of integrating their results • Organize around processes, not tasks or functional areas • Self service • Put the decision point where the work is performed and build controls into the process • Capture information once and at the source
  38. 38. Targets for Reengineering • Process as Part of a Core Competency – A core competency is a company’s process that transforms generic inputs into uniquely developed products or services that provide it with a competitive advantage – Key Performance Indicators - allow the company to compare its performance to industry best practices • High Volume, Low Margin Activities • High Defect, High Reward Activities – Quality Controls – reduce error rate, but can be costly • High Skill, Time Intensive Activities • High Complexity, Specialized Resource Activities – “KISS” or “keep it simple stupid” • Process Built around Obsolete or Changing Technology
  39. 39. Lessons Learned through BPR • Low cost labor • Scalability – both up and down • Think outside the functional box – using BPR techniques to connect silos • Look at other companies for similar solutions to similar processes • Recognize that a process is just one aspect of success • Deliver sooner rather than later – setting and meeting more short-term goals
  40. 40. Reengineering Challenges • Resistance from employees • Cost • Job losses • Tradition and culture • Time requirements • Lack of management support • Risks to managers • Retraining
  41. 41. Constituents for Reengineering • Customers • Employees • Information Technology Staff • Business Partners • Upstream Supply Chain • Auditors • Regulators • Interested Parties
  42. 42. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 4: ERP: Systems Diagramming and the Process Map
  43. 43. Systems Documentation • Basic Purposes for Systems Documentation 1. Describing business processes 2. Assessing internal control procedures 3. Evaluating, designing, or changing information systems • Systems Diagram – a graphical representation of systems – Flowcharts – ER Diagrams – Other techniques
  44. 44. Importance of Systems Diagramming • A recent study found that 72% of private and 82% of public companies have increased emphasis on reading or preparing systems documentation since the passage of the Sarbanes-Oxley Act of 2002 • A 2006 research study found that: – The ability to read systems diagrams was “very important” or “somewhat important” – 77% – The ability to prepare systems diagrams was “very important” or “somewhat important” – 66%
  45. 45. Process Maps • A process map, also known as a cross-functional flowchart, is used by many organizations seeking to document, analyze, streamline, and redesign business activities • Benefits: – Defining the “as is” business process and clarifying the changes necessary to transform the present process into the “to be” process – Determining whether “as is” measures are appropriate – Promoting awareness of employees’ responsibilities – Showing the impact a certain role’s performance has on upstream and downstream activities in the process – Highlighting workflow inefficiencies – Identifying opportunities to streamline and improve processes – Pinpointing internal controls that need to be tested during an audit
  46. 46. Process Map Symbols • Activities (or events): transform inputs into outputs • Decision points: yes/no (positive/negative) outcome that depicts the alternatives • Process flow lines: connect symbols and are labeled with the type of information flowing into or out of the activities • Data stores: support the process • Termination: points at which the process ends • On-page connector: reduce clutter on a page • Off-page connector: when processes span multiple pages
  47. 47. Gathering Information for a Process Map • Group interview method – all people involved in the process are interviewed as a group – Employs a skilled facilitator to promote and focus the discussions, questioning conventional wisdom and providing an unbiased, objective point of view • One-on-one interview method – each person involved in the process is interviewed separately – Less effective than the group interview method • Walkthrough – physically reviewing a process in scope – To confirm if a documented process is accurately reflecting current workflow
  48. 48. Guidelines to Developing a Process Map • Have a defined purpose for mapping a process and explain it to those participating • Identify the scope of the process • Determine the roles participating in the process – Roles become horizontal bands called swim lanes • Determine the trigger, the event that must occur to get the process started – The trigger should be in the first swim lane • Events should move left to right/top to bottom to indicate the passage of time • The information being exchanged is entered on the process flow lines • Decision descriptors should end with a question mark, and the process flow lines coming out of the decision are labeled with outcomes • The last swim lane is reserved for the information systems that support the process
  49. 49. Process Map Example Figure 4 – 2: Electric City Order Fulfillment Process Map
  50. 50. Hints for Constructing Process Maps • Make sure every area of the map contains approximately the same amount of effort • Start with a high level process map, then use a detailed documentation worksheet to back up activities • Take notes while mapping and create a glossary of acronyms • Use humps when flow lines intersect on the process map • Allow swim lanes to retain the same role throughout the map even if the map spans multiple pages • Terminate the process in the swim lane where the process ends
  51. 51. Advanced Process Map Example Figure 4 – 3: Monster Furniture Process Map (Page 1)
  52. 52. Advanced Process Map Example Figure 4 – 4: Monster Furniture Process Map (Page 2)
  53. 53. Process Problems to Uncover • Handoffs – transferring of responsibility from one role to another – Provides the opportunity for mistakes, miscommunications, and delay • Bottlenecks – a number of process flows lead to a single activity – Limit the performance or capacity of the entire system, delaying or completely stopping the process • Rework – people spending time fixing errors or remediating problems • Role ambiguity – people not knowing what they are responsible for and others do – Eliminating confusion among the participants in the process • Data duplication – flows that point to and from information systems can be analyzed, to identify the extent to which the necessary data and the activities that create or use the data can be shared among the organization’s many processes
  54. 54. Process Problems to Uncover Issues • Cycle time – the time consumed during process flow from start to finish..how long is it and how long should it be? – Should be at the heart of performance measurement • Flow time – time between activities can be measured to identify substantial contributors to delay and underutilization • Non value-added steps – looking at processes from the customer’s point of view provides focus on roles or activities that add little or no value – Unnecessary or repetitive steps – process flows that dead end with suboptimal results or wind back around to the same event or role a number of times
  55. 55. Process Decision Issues to Uncover • Authority ambiguity –clearly defines who owns the decision – Eliminate a potential source of confusion • Decision necessity – when decision point output flows lead toward the same or similar events, the process may include unnecessary decisions that may generated unwarranted delays • Decisions too early – when decision point output flows continue for a long time before encountering subsequent events, the decision point may, in fact, be made too early – Leads to unnecessary downstream complications • Decisions too late – when decision point output flows lead to errors or rework, decision points might need to be moved to earlier to provide quality assurance or confirmation of customer satisfaction and eliminate costly remediation
  56. 56. Developing the “To-be” Process – Who is the customer? What is the customer willing to pay for? What does the customer receive? – What level of performance does the customer expect? How well are we satisfying the customer? How can we increase customer satisfaction? – What is our first interaction with the customer that starts the process? Where do our processes end and which endings are optimal? – What are the most important value-added steps? – What activities are in scope that we can change and what activities are out of scope that we cannot change?
  57. 57. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 5: ERP Life Cycle: Planning and Package Selection
  58. 58. Why Change Information Systems • Obsolescence • High operational costs • Lack of vendor support • Lack of compliance • Changing business model • Different or enhanced functionality • Lack of scalability • Too many business problems and unanswered questions • More
  59. 59. The ERP Life Cycle • Planning (Chapter 5) • Package Selection (Chapter 5) • Implementation (Chapter 6) • Maintenance (Chapter 6)
  60. 60. ERP Life Cycle: Planning • Need a rationale grounded in a business case (high level reason why a company undertakes an ERP implementation) • Types of rationales: – Technology rationale – IS are failing, desperately need new technology. • Too expensive to patch and maintain old, outdated systems, need better visibility of data. – Competitive rationale – adopting a system because the competition has it, need to keep up – Strategic rationale – reasons why ERP is needed to support the organization’s strategic direction • Drive growth, support mergers and acquisitions, market diversification, globalization – Business process rationale – benefits in key processes (KPIs) • Attain targeted, specific, and measureable performance improvements
  61. 61. ERP Life Cycle: Planning • Executive Leadership – rally support, distribute resources, and delegate management of implementation to team – CEO, CFO, or other high level sponsor should take ownership of the project and be actively involved in its activities . – This is not a technical project, so CIO not the top sponsor. • Project Scope – project team should determine the scope and the procedures to enforce against the “never ending project” syndrome – Project scope includes: business processes that will be included in the implementation, the ERP functionality that will support these business processes, the divisions or business units that will be included in the roll-out, and the technical infrastructures that will be replaced – Scope management – define and control what is and what is not included in the project; guard against scope creep – changes to the scope of the project.
  62. 62. ERP Life Cycle: Planning • Project Team – Given the discretion to make all important decisions regarding the implementation – Consists of key process owners, end users, managers, IT people, and executives who span functional boundaries, business units, and organizational levels  Project Manager  Understand both technology and business processes  Knowledge of the effect of ERP on the business  Work with professionals to organize a smooth transition from the “as is” state to the “to be” state  Envision the end results and make tough decisions
  63. 63. ERP Costs • Total cost of ownership (TCO) – total costs that will likely be incurred throughout the system’s life cycle that are influenced by: – Transaction volume – Number of users – Functionality • Application license – govern the software’s use – Named users – company identifies the total number of users who will access the system – Site license – blanket contract covering the use of the ERP system at a particular location – Concurrent users – maximum number of users who would potentially access the system at a given time – Heavy users – those who use more of the systems functionality and may be charged a higher license fee than casual users who may only view reports or run occasional queries
  64. 64. ERP Costs • Database License – based on the number of simultaneous users that will log into the system or the number/type of database servers required • Hardware – varies depending on the scope of implementation and platforms – Will need database and application servers, storage systems, network components, wiring, power, user workstations, and redundancy • Implementation Services – often a multiplier of software license costs – Ratio of services to software costs provides an indication of a system’s ease of implementation or support for more advanced or custom functionality • Internal HR Costs – varies among companies and projects – Full time equivalents • Ongoing Maintenance – typically 20 – 30% of the software license costs per year • Hidden Costs – scope creep, training, customization, data conversion, and developing interfaces between the ERP system and other systems
  65. 65. ERP Benefits • Integrate financial information – creates one version of the truth, which can not be questioned because everyone uses the same system • Integrate customer order information – customer order travels from the salesperson through credit, picking, packing, shipping, invoicing and cash receipt • Standardize and speed up manufacturing processes • Reduce inventory – help manufacturing process flow more smoothly, improving visibility of the order fulfillment process • Standardize human resource information – consolidates employee information into a single system and provides self-service accessibility to manages and employees
  66. 66. ERP Life Cycle: Package Selection • Package selection presumes that a high-level organizational group has approved funding based on the business case outlined by the project team • Choosing the “best” application for a company is based on: functionality, affordability, user-friendliness, customizability, and vendor support  Key steps in selecting an ERP system:  Market Survey  Request for Information  Narrowing Down the Choices  Site Survey  Requirements Analysis  Request for Proposal  Demo Days  Reference Visits  Fit-Gap Analysis  Implementation Methodology Discussion  Proposal  Decision and Negotiations
  67. 67. ERP Life Cycle: Package Selection • Market Survey – to determine which vendors’ systems might be potential alternatives – Websites, industry magazines, trade exhibits, suppliers, competitors, etc. • Request for Information – issue a request for information to the vendors indentified in the market survey – Request for information (RFI) – vendors supply written information about the capabilities of their solutions and the skills they offer • Narrowing Down the Choices – project team should narrow down the ERP vendor candidates based on criteria important to them
  68. 68. ERP Life Cycle: Package Selection • Site Survey – invitation for each of the prospective vendors to meet with the project team on-site so that the vendor’s sales team can better understand the buyer’s functional requirements and the peculiarities of their business • Requirements Analysis – detailed analysis to determine all the functionalities they need and desire • Request for Proposal – formal document developed by the potential buyer that details requirements in order to seek vendor offerings – Enables the requestor to evaluate and compare various proposal fairly
  69. 69. ERP Life Cycle: Package Selection • Demo Days – vendor must “walk the walk” and “talk the talk” – Must be detailed, showing how key business process work using the prospective customer’s own data Figure 5-2: ERP Weighted Score Sheet Vendor A B C ERP Selection Criteria Importance (1-3) Rating (1-10) Weighted Rating Rating (1-10) Weighted Rating Rating (1-10) Weighted Rating Manufacturing Functionality 3 8 24 10 30 7 21 Planning Functionality 2 6 12 7 14 8 16 Distribution Functionality 2 6 12 5 10 4 8 Financials Functionality 3 4 12 7 21 6 18 Ease of use 3 6 18 9 27 3 9 Customizability 1 5 5 9 9 6 6 Compatibility with Existing Applications 2 6 12 7 14 8 16 Matched to Our Growth 3 4 12 6 18 5 15 Pricing Structure 2 6 12 5 10 4 8 Implementation Costs & Time 3 2 6 8 24 6 18 Single Source - Total Solution 2 6 12 7 14 8 16 Integration with Third Party Applications 1 4 4 6 6 8 8 Commonly Used in Our Industry 2 8 16 5 10 3 6 Quality, Accessibility & Cost of Support 3 3 9 5 15 7 21 Partnership Potential 1 3 3 8 8 10 10 Understands Our Business 3 7 21 7 21 2 6 Understands Our Processes 3 5 15 9 27 4 12 Business Stability 2 5 10 8 16 9 18 R & D Resources 1 5 5 8 8 7 7 Implementation & Training Resources 3 4 12 8 24 10 30 Totals: 232 326 269 Table 5-2: 10 Rules to Make an ERP Demo as Smooth as Possible Use the same team to view all vendor demonstrations Agree the agenda with vendor well in advance and stick to it Confirm the “must haves” first and then the “nice to haves” and lastly the “bells and whistles” Compare fits and identify gaps Focus on the system’s operation avoiding the influence of freebies, a flashy appearance, and slick suits Notice their culture Allow the vendors to share their new ideas Leave enough time for a post-demo Q&A Use a weighted score sheet for scoring and ranking vendors Cover implementation and support/maintenance separately
  70. 70. ERP Life Cycle: Package Selection • Reference Visits – visit to a “like” customer site of the final short-lived vendors – Before making a decision the project team should visit one or more of the vendor’s customer sites to observe how the ERP system works in real life – Issues to discuss with “like” customers include: • Satisfaction with functionality and performance • Satisfaction with look and feel of the system • Implementation time and cost • Impression of the vendor as an implementation partner • Local vendor support • Lessons learned from issues that were not anticipated but arose after the implementation began • Fit-Gap Analysis – used to compare the company’s requirements with what the ERP systems under consideration offer – The more functionality “gaps” the less attractive a system is to the customer; however process gaps are opportunities to reengineer to best practices
  71. 71. ERP Life Cycle: Package Selection • Implementation Methodology Discussion – discussion of the understanding of implementation needs – Project and implementation teams should agree on project scope, roles and responsibilities of customer and implementation team, implementation methodology and defined deliverables that will be used to guide the project and gauge its success • Proposal – includes the recommended modules for the defined scope, annual fees for support and software assurance, a high level project plan, and the defined hardware, network, and software requirements necessary to support the new ERP systems • Decision and Negotiations – the team should discuss all critical information obtained from demos and reference visits, then rate each vendor, a selection is made, and a contract is signed by both parties
  72. 72. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 6: ERP Life Cycle: Implementation and Operation and Maintenance
  73. 73. ERP Life Cycle Stages – Planning (Chapter 5) – Package Selection (Chapter 5) – Implementation (Chapter 6) – Operation and Maintenance (Chapter 6)
  74. 74. ERP Life Cycle: Implementation • Installation – mechanics from changing from one software package to another while keeping problems at a minimum – ERP software cannot be installed until there is an instance to run it – Sandbox instance (or development instance) – where configuration testing and the development of customizations happens (even after go live) – Testing instance (where testing/QA happens) – Production instance – live system
  75. 75. ERP Life Cycle: Implementation • Configuration – business and functional settings in the ERP system are changed to make the “out of the box” software support the customer’s business needs • Does not make changes to the core software code but instead uses configuration tables that enable a company to tailor a particular aspect of the system to the way it chooses to do business – Allows the company to specify thousands of options for business process and organizational setup: • Pricing methods • Credit management • Default currency
  76. 76. ERP Life Cycle: Implementation • Customization – alterations to support a business process that may be unique or provide them with a competitive advantage – May be necessary due to compliance, regulatory, reporting, or legislative requirements that the software does not meet -requires programming – Alternative to vanilla implementation, or the use of only the default options in the ERP system and the best practices built into the software – Two main types of customization: • Enhancement – used to add a field, change the look of the screen, or add and extra step to the process • Modification – change to the core code because the software does not have the capability to address the requirement and needs to be changed in the way it works – Disadvantages to customization – custom coding can be time
  77. 77. ERP Life Cycle: Implementation • Testing – confirms that the software behaves as expected and customer expectations are met – A dedicated development instance is used for testing – The production instance will run the firm’s operations – Conference room pilot (CRP) – sessions where conference rooms are designated as temporary locations to support development and testing, and employees can execute transactions with the proposed system configurations – Specific types of testing include: • Unit testing – testing small increments of functionality or a single development object • Integration testing – testing end-to-end business processes • Customer acceptance testing – users test the system using realist business scenarios, to their approval or acceptance • Security testing – testing all of the user roles and
  78. 78. ERP Life Cycle: Implementation • Change Management – body of knowledge that has evolved to address change within the context of an organization • Getting employees from Point A, prior to change, to Point B, where all employees are fully trained and new processes are in operation. • Change agent – individual designated to lead change in the organization • Someone with clout, conviction, and charisma to make things happen and the keep employees engaged
  79. 79. Top Ten Principles of Change Management 1. Address the “human side” systematically 2. Start at the top 3. Involve every layer 4. Make the formal case 5. Create ownership 6. Communicate the message 7. Assess the cultural landscape 8. Address culture explicitly 9. Prepare for the unexpected 10.Speak to the individual
  80. 80. ERP Life Cycle: Implementation • Interfacing with Other Systems – because of time and cost constraints, gaps in functionality, and political issues, there are usually interfaces to other systems that must be developed and maintained • Training – teaching a new set of processes, not just a new software interface – The project team should be prepared to develop a training curriculum – Six Keys to Effective ERP Implementation Training for Employees: 1. Focus on business processes, not transactions 2. Relate new business processes to the existing environment 3. Leverage a multitude of tools for ERP training 4. Use train the trainer approach 5. Allocate plenty of time for ERP implementation training 6. Reinforce training with more comprehensive organizational change management activities
  81. 81. ERP Life Cycle: Implementation • Consultants - Assist the project team with various activities including: – Developing a business case – Package selection – Process documentation – Change management – Training – Project management – Functional knowledge • When choosing a consultant, the project team should consider: – Do they have experience in the company’s particular industry? – How many successful implementations have the completed? – Do they provide ongoing service and support? – Do we need consultants to train us to continue rolling out the software without their help after the first implementation, or do we need a single implementation configured for our use?
  82. 82. Benefits and Risks of Using Consultants Table 6-4: Benefits and Risks of Using Consultants Benefits Risks Unbiased and objective - Fixed contracts tend to reduce bias Biased - Association with particular software vendors and participation in technical communities may result in bias toward favorite packages Knowledge of vendors - Consultants can offer valuable knowledge regarding suitable software providers and their relative strengths and weaknesses Lack of knowledge of the client’s business processes and culture - Consultants must get up to speed and learn on company time Knowledge of best practices - Consultants can provide expertise designing processes to address best practices and to include them in implementation plans Advocacy of best practices - This may threaten company differentiators and competitive advantage Implementation experience - Familiarity with technical details eliminates many potential points of failure Expensive - Consultants with proven track records command market power Big picture focus Unaware of process details Innovative - Able to envision valuable opportunities to integrate company processes with software functionality Knowledge may not be transferred to company employees - Inadvertently handing over project ownership to consultants Senior management endorsement May hesitate to offer legitimate criticism of management actions and decisions Source: strategy+business.com
  83. 83. Implementation Methodologies • Phased Implementation – ERP system is rolled out by functionality (by module), division, or geographical area – Project team can focus on certain functional areas of the company while remaining areas continue with their normal operations • Big Bang Implementation – replaces all business processes and/or entire legacy system all at once • Franchising Implementation – independent ERP systems are installed in each business unit, while common processes are linked across the organizations • On-Demand Implementation – uses the hosted Software as a Service (SaaS) model – No software to install on-premise
  84. 84. Comparison of Different ERP Implementation Approaches Table 6-5: Comparison of Different ERP Implementation Approaches Approach Time Interna l Cost External Cost Amt of Change ROI Balanced - A cooperative approach between the company and vendor providing a shared effort for all implementation aspects. Med Med Med High High Risk: Internal resource capacity Turnkey - An accelerated, delivered solution, reducing internal investment by minimizing customer contribution. Low Low High Med Med Risks: User acceptance, change management Customer Driven - An approach that maximizes the customer’s involvement and minimizes involvement from consultants. High High Low Low Med Risks: Missed opportunities, maintaining momentum over time, internal resource capacity A la carte - Customer owns High High Low Low Med the process, with consultant involved as requested. Risks: Implementation success, lack of control & guidance, missed opportunities, maintaining momentum over time, internal resource capacity Source: mcaConnect
  85. 85. ERP Life Cycle: Operation and Maintenance • The operation and maintenance stage begins with a period of stabilization – Companies will experience a dip in performance due to continued training needs and fine-tuning of “to be” processes – Project team should conduct a “postmortem session” • Maintenance Activities – Preventative maintenance – regularly scheduled tasks that must be performed to keep the system functioning properly – Emergency maintenance – tasks that must be performed immediately – Software updates – ERP vendors constantly fix bugs, implement new best practices, and incorporate the feedback of customers in their software
  86. 86. Five Ways to Reduce ERP Maintenance and Support Costs Table 6-6: Five Ways to Reduce ERP Maintenance and Support Costs Negotiate lower software license fees - Ongoing maintenance fees are commonly tied to net license costs, so negotiating less costly ERP licenses can reduce ongoing maintenance and support. Limit software customization during ERP system implementation - Although it may be tempting to customize the software to create an exact fit with business processes, manufacturers should understand that software customization will cause long-term maintenance costs to escalate. Explore third-party support and maintenance options - Software vendors make a good deal of profit on annual maintenance fees. These alternative support options can even provide an alternate price point to consider during negotiations with your vendor. Negotiate lower ongoing professional service rates - Upgrades and other changes to your software over time will typically require additional vendor services, so it is useful to negotiate these rates, which are a source of high margins for vendors. Quantify your total direct and indirect maintenance and support costs - Over time, these costs escalate and consume a significant portion of manufacturer's IT budget. Source: SearchManufacturingERP
  87. 87. ERP Life Cycle: Operation and Maintenance • Upgrading – applying fixes and updates to the ERP system • Reasons for updating ERP systems: – Competitive advantage – new features and capabilities • Edge over other competitors – Globalization – features and updates designed to increase the flow of information to customers and business partners • Increased ability to operate globally – Integration – enhancing the flow of information between the ERP system and other systems within the company • Increased operational efficiency and improved communications – Best practices – incorporating new best practices • Operate more efficiently – Cost reduction – lowering administrative overhead and improving the support offered by the ERP vendor • Lower operating costs
  88. 88. Reasons Why Companies Do Not Upgrade Systems Figure 6-1: Reasons Why Companies Do Not Upgrade Systems Source: Aberdeen Group
  89. 89. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 7: ERP: Sales, Marketing and CRM
  90. 90. ERP Sales Order Processing • Objective – capture and fulfill the customer order, the document that begins the order fulfillment process • Ways to refer to Sales Order Processing 1. Contact-to-contract-to-cash 2. Quote-to-cash 3. Order-to-cash
  91. 91. Sales Related Activities • Lead Generation • Contact • Qualification – applicability, affordability, and authority • Opportunity/Inquiry • Quote – estimate with an expiration date • Sales Order – quote that turns into a contract • Customer Order/Order Acknowledgement – confirmation of order receipt • Order Fulfillment – includes pick, pack, and ship activities • Billing – invoice is sent to the customer (A/R) • Cash Collection – payment is received from the customer
  92. 92. Transactions versus Events • Transactions have financial implications (things are debited and credited, so will affect the financial statements directly) • An event, or activity, is any step in the business process and may or may not have financial implications. • Thus, transactions are a subset of events. Transactions Events
  93. 93. Customer Relationship Management • Customer relationship management (CRM) bolt-on to ERP. Helps an organization with customer demands: – “Know me and know my business” – “Help me solve my business problems” – “Make it easy for me to do business with you” Table 7-1: What is CRM About? Acquiring customers Keeping customers Growing your customers Gaining customer insight Interacting with your customers across all touch points Building lasting relationships with your customers Delivering value to your customers Achieving a sustainable competitive advantage Growing your business SAP 2007
  94. 94. Where CRM and ERP Meet Figure 7-2: Where CRM and ERP Meet
  95. 95. Three Elements of a Successful CRM Strategy • People – Company employees, from the CEO to the front-office customer service representatives, sales and marketing, need to buy into and support CRM. • Processes - A company's business processes must be reengineered to reinforce its CRM initiative, often from the viewpoint of “How can this process best serve the customer?” • Technology - Firms must select the right technology to drive the processes, provide high quality data to employees, and be user friendly.
  96. 96. Principles for CRM Success 1. CRM is not a software purchase – it’s a strategy 2. CRM must fit the way you work now and in the future 3. Define measureable CRM business benefits 4. Consider total cost of ownership carefully 5. Think beyond features: pick the right partner
  97. 97. Benefits of CRM • Knowing your customers better – personalization and segmentation – Using analytics • Increase revenues by acquiring new customers and retaining current customers • Increased customer satisfaction • Decrease selling expenses by – making fewer yet more productive sales calls – speeding data analysis – lowering communication and transactions costs – eliminating data redundancy – reducing personnel headcount
  98. 98. CRM Advanced Analytics • Event monitoring • Segmentation • Personalization • Pricing • Trending • Advertising • Forecasting • Profiling • Association
  99. 99. CRM: On-Premise vs. On-Demand • On-Premise – installing the software on-site on the company’s own servers – Traditional method of software implementation • On-Demand – software is hosted by a third party service provider – Software as a Service (SaaS) Table 7-5: Comparison of Hosted vs. On-Premise Systems Advantages of Hosted Solutions Advantages of On-Premise Solutions Faster deployment Easier to customize Lower up-front costs Easier to integrate with other applications and data Reduced upgrade/maintenance requirement Generally less-expensive long-term - typically treated (capitalized) as an investment rather than an ongoing expense Simpler remote/field support Easier to use with more complete functionality in disconnected/remote environments
  100. 100. Knowledge Management (KM) and CRM • Knowledge Management (KM) – directed process of figuring out what information a company has that could benefit others in the company, the devising ways of making it easily available • Companies integrate their CRM systems with KM because they realize that knowledge plays a key role in CRM success. • Creating a Knowledge Management System: – Recognize what employees know, that is valuable and not being shared – Create formal procedures to implement the system – Create a knowledgebase including best practices, expertise directories, and market intelligence – Make the knowledge available to people that need it – Give employees incentives for both sharing their knowledge as well as using others’ knowledge
  101. 101. Identifying Knowledge to Manage • Skills and knowledge that a company has developed about how to make its goods and services • Individual employees or groups of employees whose knowledge is deemed critical to a company’s continued success • A company’s aggregation of documents about processes, customers, research results, and other information that might have value for a competitor
  102. 102. Reasons for Knowledge Management Systems • Sharing of best practices • Restructuring, downsizing, and outsourcing • Knowledge can command a premium price in the market • Globalization and competition • Successful innovation
  103. 103. Obstacles to Successful Knowledge Management • Starting too big • Relying on technological shortcuts • Not modeling the behavior • Treating KM as a one-off project or quick-win • Ignoring the power of rewards • Ongoing maintenance
  104. 104. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 8: ERP Financials
  105. 105. Financial Accounting • Objective: to provide the information needed for sound economic decision making • Must conform to GAAP (Generally Accepted Accounting Principles) Table 8-1: Benefits of ERP Financials Benefits Description Improve corporate performance The ability to quickly read, evaluate, and respond to changing business conditions strategically – such as defining financial targets, developing a suitable business plan, and monitoring costs and revenue during execution Faster time to close the books Streamline consolidation, process scheduling, workflow, and collaboration Improve corporate governance and transparency Provides broader support of accounting standards, federal regulations, and improved administration of internal controls Shorten days sales outstanding Automate dispute, credit, and collections management including electronic invoicing and payment capabilities that supplement traditional AR and AP functions Optimize global cash management Report, analyze, and allocate cash in real time, and establish in-house banks or payment centers. Improve financial and managerial reporting Report performance by business unit, organization, or cost center Improve process integration between finance and treasury Integrate risk and treasury transactions with core accounting and financial reporting processes Make finance costs more competitive Innovate processes, collaborate with supply chain partners, and establish global shared-service operations Source: SAP
  106. 106. Financial Accounting • General Ledger – an accumulation of balances from transactions and postings • Monthly, quarterly, and yearly financial statements are generated • Parallel accounting – enables a company to keep several GLs simultaneously according to different accounting principles to ensure that local and international reporting requirements are met • Consolidation – enables the combining of financial statements for multiple entities within an organization
  107. 107. Financial Accounting • Accounts Payable subledger – identifies the balances owed to every vendor calculated from purchases, returns and allowances, purchase discounts, payments, and other adjustments – Information regarding vendor invoicing and payment due dates – Support international methods of payment, track open items, provide account analyses, due date forecasts, and risk assessments – Three-way match – payment authorization whereby the ERP system will attempt to “match” every incoming invoice to a valid purchase order and an approved packing slip or receiver – AP aging report – used to group vouchers by due date in 30-day increments, providing focus on those payable items that may be past due
  108. 108. Financial Accounting • Accounts Receivable subledger – records all account postings generated as a result of customer sales activity – Identifies the balances owed by customers – Credit management – supports alarm reports for various issues including over credit limit and non-payments the automatic update of AR balances – AR aging report – groups receivables into 30 day increments, supporting cash flow projections and providing focus on those balances that are oldest • Cash Management – functionality related to investments, cash flow, and the accounting requirements these cycles generate – Other functionalities: using cash to generate greater returns, cash flow analysis in any currency and in multiple time periods, and capital budgeting
  109. 109. Management Accounting • Focus: taking revenue and expense items generated through financial accounting and “slicing and dicing” them to add even more meaning for management (does not have to conform to GAAP) – Used for applications including strategic management, risk management and performance management, designing, evaluating and optimizing business processes, budgeting and forecasting, and implementing and monitoring internal controls – Cost accounting – establishes budget and actual costs of operations, processes, departments or product and analyzes variances and profitability
  110. 110. Management Accounting • Overhead Costing – helps with planning, allocating, and controlling indirect costs, or costs that cannot be directly assigned to a specific product (Direct costs – costs that have true origins and are more easily assigned to the proper product) • Activity Based Costing – helps to more objectively assign costs by tracing overhead based on the cause and effect of relevant cost drivers, or activities that cause a cost to be incurred • Product Costing – help determine the cost of products manufactured or services provided (using direct materials, direct labor and overhead)
  111. 111. Management Accounting • Profitability Analysis – considers certain segments of the organization and determines: – Profit generated by a certain product line – Sales made to certain industries – Margins supported by specific distribution channels – Performance of specific regions, decentralized sales offices, or other semi-automated business units • Cost/Profit Center Accounting – Cost centers are units in which the manager is responsible only for controlling costs because the unit it is not revenue-generating. Examples are the accounting, IT or HR departments. – Profit center are units where the manager is responsible for both revenues and costs of the center. Examples of profit centers would be the manufacturing units that produce products for sale to consumers or other businesses.
  112. 112. Asset Management • Planning – dedicating resources to the project and establishing expectations about the execution of steps • Approval – sanctioning the project and requesting the budget assignment and approval • Budgeting – ensuring sufficient cash will be available to meet expenses as they arise • Implementation – executing and validating the steps of the PP&E project plan Figure 8-3: Asset Management Life Cycle Source: SAP Consultant, Rick Lombana , North Carolina State University Presentation
  113. 113. Asset Management • Settlement and Capitalization – since the overhaul may have affected the value of the machine, this new value will impact the PP&E account and related future depreciation • Maintenance and Use – maintenance costs associated with that asset are continually monitored • Retirement – provides information for an asset retirement such as its accumulated depreciation, salvage value, and whether the asset could be overhauled and put back in service • Replacing Investment – case to replace an asset is based on maintenance and operation costs
  114. 114. Investment Management • Investment Management – provides the tools for pre-investment analysis during the planning stage of the asset management life cycle – Cost savings or revenue increases – Enterprise image improvement – Future payoff of the investment (Internal rate of return, pay-back period, and net present value) Figure 8-4: Fixed Asset Investment Decisions
  115. 115. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 9: Human Capital Management, Self-Service and Outsourcing
  116. 116. Human Capital Management • Human Capital Management (HCM)– methods and strategies embraced to optimize the value of human capital, or the set of skills that employees acquire in their jobs through training and experience which increase their value in the marketplace – Used by the Human Resources Department to facilitate a coherent and strategic approach to the way a firm manages and supports the people that both empower the organizations and burden the organization – Reasons to implement HCM: • People Matter • HR activities are data intensive • HR data is extremely sensitive • HR data is valuable to the rest of the organization – Recruit-to-retire process – management of all aspects of an employee’s relationship, or life cycle collectively
  117. 117. Human Capital Management Modules • Personnel Management Module (PM) – Most legal and financial responsibilities of the whole organization – Captures employee master data – Personnel manager responsibilities: • Staffing– screening and interviewing applicants, with an eye to placing individuals with the right skill sets into the right position within the company • Overseeing the creation of entry-level training programs as well as continuing education opportunities for existing employees • Determining company policies and procedures as they relate to personnel • Benefits Administration Module – Involves management of benefits for qualified employees – Administer and track employee participation in benefits programs including: health and life insurance plans, flexible spending plans, 401(k) plans, profit sharing plans, stock plans, retirement plans, and leave plans
  118. 118. Human Capital Management Modules • Time and Labor Management Module – Allows workers to submit timecard data online and supervisors to review and approve time online – Helps control costs and time worked, consolidate timecard information, prepare information relevant for the payroll process, and support forecasting of labor requirements and utilization based on forecast demands • Compensation Module – Automates accounting and preparation of payroll checks for employees, including salaries and wages and benefit deductions – Manages direct deposits, which help minimize security risks associated with issuing paper checks
  119. 119. Human Capital Management Modules • Recruitment Management Module (RM) – Helps convert job candidates into favorable results by supporting the steps along the way that ensure an organization finds the right candidate including: • Communicating career opportunities to broad, qualified applicant pools • Streamlining application methods for job seekers • Evaluating an applicant’s suitability as an employee • Matching applicants with job descriptions • Onboarding • Talent Management (TM) – Analyze personnel usage within an organization and help retain good employees – Aligning each employee’s contribution with organizational needs – Building a talent database, succession planning – Optimizing employee contribution
  120. 120. Human Capital Management Modules • Employee Performance Management (EPM) – Streamlines employee appraisals from goal planning and coaching to performance assessments and rewards Table 9-1: Ten Things You Cannot Do Without an EPM System Increase Rating Accuracy and Workplace Productivity by Differentiating Employee Performance Enforce Goal Alignment Actually Do Something with Employee Development Plans Enforce Consistent HR Performance Guidelines Provide Enterprise-Wide Access to Performance Information Get Better Data and Better Results Encourage Proactive Communication Beat the "Annual Because it's Manual" Mantra Improve Employee Engagement with "Social Networking" Collaboration Retain Key Contributors Source: SumTotal Systems
  121. 121. Human Capital Management Modules • Learning Management (LM) – Administering employee learning, thereby managing talent and increasing intellectual capital in the organization – Includes: employee training profiles, courses, instructors, on-line scheduling, and course/teacher evaluations • Environment, Health, and Safety (EHS) – Provides the necessary tools to administer compliance and manage risks associated with health and safety regulations that arise from local, state, and federal agencies – Help overcome the inherent problems of disparate systems, regions, and business units
  122. 122. Employee Self-Service • Employee Self-Service (ESS) – Addresses and minimizes non value-adding activities by allowing employees and managers to enter and update their own employee records and instigate documents and procedures related to them – Accessed via the corporate Intranet – Advantages of ESS: • Improved service for and communication with employees • Streamline administrative processes and reduced costs for HR • Employee sense of ownership of their personal information and a renewed sense of trust in their employer • Error reduction • More timely updates
  123. 123. Manager Self-Service • Manager Self-Service (MSS) – Empowers managers to make departmental decisions that align with strategic business objectives in areas such as compensation, staffing, budgeting, and cost management
  124. 124. Employee and Manager Self-Service • Travel management – automates the planned trip-to-payment process – Reduces travel costs, centralizes travel planning, and incorporates corporate travel policies – Includes submitting travel requests, online booking, and submitting and settling travel expenses
  125. 125. Outsourcing Human Capital Management Activities • Companies choose to outsource HR related functions such as compensation because of the intricacies of keeping up with various country, state, city, and local taxes • Service organizations take on the responsibility for activities such as time and attendance, payroll, payroll tax deposits, GL interface and 401(k) administration • Outsourcing non-core functions allows companies to focus exclusively on their core business, while recognizing significant savings and increased expertise
  126. 126. Outsourcing Human Capital Management Activities Table 9-2: Seven Signs That Your Company May Be Ready for HR Outsourcing Spiraling Costs: Rising payroll and benefit costs are primary drivers to outsource HR. Missed Deadlines: If many employees are complaining about getting critical documents late, like W-2s and paychecks, this is a sign that the current system is not working correctly. A service provider may identify the problems and fix them without hiring additional HR employees. System Overloads: If the HR system starts to overwhelm the current IT system, it might be a good idea to rely on an HR outsourcer. Usually, they use their own system, enabling in-house systems to operate more efficiently. Increasing Mistakes: Your organization won't have a perfect HR system, but increasing number of problems could suggest that it’s time to use an outsourcer. Assigning mistake-prone work to an HRO can lower the pressure on in-house staffers. Poor Quality Work: Consistent problems with HR occurring for a long period of time may be a sign that HR is overworked. Instead of hiring new staff, it may be simpler to outsource HR to a third party. Disgruntled HR Workers: An HRO can step in during busy seasons to take on the extra time-consuming tasks that drive up HR workloads and staff discontentment. Competitors' Moves: Ask around and find out what benefits your rivals are gaining from outsourcing HR work. You may discover that these same issues apply to your organization. Source: HRWorld.com
  127. 127. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 10: Manufacturing Systems and Supply Chain
  128. 128. Manufacturing Systems Evolution • Economic Order Quantity (EOQ) – inventory management technique in which each raw material item is analyzed for its ordering and carrying costs to determine optimum ordering quantities • Materials Requirements Planning (MRP) – computerized production planning and inventory control system used to control ordering and manufacturing processes. Needs following information. – Bill of material (BOM) – full list of raw materials necessary to produce a single item – Master production schedule (MPS) – production schedule for finished goods based on current orders plus forecasted requirements – Inventory status file – contains on-hand inventory balances of every part held in inventory • Open orders – orders not yet filled • Lead time – time that elapses between placing an order for raw materials and receiving them 128 ©2010 by Marianne Bradford. All rights reserved
  129. 129. Material Requirements Planning • Materials Requirements Planning (MRP) – With the MPS, the BOM, and the Inventory Status Report, MRP systems: • Identify raw materials needed • Calculate lead times and safety stock levels • Determine the most cost-effective order quantities • Produce a detailed schedule of accurate purchase orders – Benefits • Reduce inventory levels, production, and delivery lead times by improving coordination and avoiding delays • Make finished goods commitments to customers more realistic • Increase efficiencies in the raw material procurement process and ensuring production process 12 9 ©2010 by Marianne Bradford. All rights reserved
  130. 130. Production Process 130 ©2010 by Marianne Bradford. All rights reserved
  131. 131. Manufacturing Systems Evolution • Capacity Planning – uses the planned manufacturing schedule to analyze the requirements that will be placed upon manufacturing work centers such as personnel, machines, and warehouse capacity • Manufacturing Resource Planning (MRPII) – effectively plans all resources of a manufacturing operation including the operational planning in unites, financial planning in dollars, and a simulation capability to ask “what it” questions 131 ©2010 by Marianne Bradford. All rights reserved
  132. 132. ERP Manufacturing Modules • Production Planning – enables the creation of realistic production plans across multiple manufacturing locations and subcontractors to fulfill demand in a timely manner and according to standards expected by the customer – Production with production orders, repetitive manufacturing, Kanban. Discrete or process manufacturing 132 ©2010 by Marianne Bradford. All rights reserved
  133. 133. ERP Manufacturing Modules • Materials Management– supports inventory-related activities such as the tracking and control or raw materials, stocked items, WIP, and finished goods in a single, integrated inventory control environment – Specifies the activities needed to maintain adequate inventory levels – Purchasing and inventory valuation • Quality Management – assists in configuring specific parameters that define what goods to inspect, when to inspect, and tolerance limits (the extreme values that are considered acceptable – Alerts those responsible when quality deviations occur and specifies what course of action to take – Benefits of quality management include: • Capture data regarding material quality of products • Record quality tests in a consistent and controlled way • Minimize time spent inspecting material, collecting 133 ©2010 by Marianne Bradford. All rights reserved
  134. 134. ERP Manufacturing Modules • Plant Maintenance –used by large organizations in capital-intensive industries. – Directs the activities required to maximize the availability and operability of equipment; reduces costs for inspections, repairs, and maintenance – Provide a real-time, detailed view of the costs, reliability, and impact of each piece of equipment on the manufacturing floor – Extend the useful life of fixed assets in the plant – Minimize downtime and maximize uptime of fixed assets in the plant – Support Six Sigma and other quality methods – Increase collaboration between production and maintenance staffs – Monitor equipment performance 134 ©2010 by Marianne Bradford. All rights reserved
  135. 135. ERP Manufacturing Modules • Service Management – manages the lifecycle changes to existing services or installed products after the initial customer order is filled – Goal – optimize service-intensive supply chains – Benefits of employing service management include: • Lower service costs by integrating the services and products supply chains • Lower service parts inventory levels • Optimize customer service and parts/service quality • Increase service revenue • Improve customer satisfaction • Minimize technician visits • Warehouse Management – automates the flow of materials into, through, and out of the warehouse – Automate processes including receiving, put away, order picking, shipping, and inventory control 135 ©2010 by Marianne Bradford. All rights reserved
  136. 136. ERP Manufacturing Modules • Lean Manufacturing – philosophy of production that emphasizes the maximizing an enterprise’s resources and attempts to reduce inventory and eliminate waste, the costs that add no value to a product – Just-in-time – materials are supplied just when needed – Reduces or eliminates overproduction, transport, motion, waiting, inventory, over-processing, and defects – Lean planning and operations (LPO) – helps lean manufacturers plan production in smaller batches across volume and mix, handle product transitions efficiently and tightly integrate production activities on the plant floor • Supplier Relationship Management – enables businesses to manage the relationship between procurement personnel and suppliers – Helps companies with each phase of the procurement cycle – Allows for supplier selection (i.e. comparing vendors based on factors such as price, past performance etc) 136 ©2010 by Marianne Bradford. All rights reserved
  137. 137. Supply Chain Management Enablers • Supply Chain Management (SCM) systems optimize production to meet, but not exceed, demand for products • SCM technologies that eliminate much of the guesswork between suppliers, manufacturers, retailers, and consumers by enabling more visibility up and down the supply chain include: – Radio Frequency Identification (RFID) – Electronic Data Interchange (EDI) – Vendor Managed Inventory (VMI) 137 ©2010 by Marianne Bradford. All rights reserved
  138. 138. Supply Chain Management Enablers • Radio Frequency Identification (RFID) – use of tiny computer chips and antennas embedded in products and packaging that enable better tracking of objects using wireless networks – Tags – chips and antennas which transmit data – RFID tags do not require line of sight technology, but need only be within range of the reader to be read – RFID can track goods from supplier’s factory floor, through shipment and customer delivery, to the retailer’s store shelves – Two main types of tags: • Active tags – have an internal battery that allows continuous transmission of data and permits reading from a greater distance • Passive tags – do not have a battery and only transmit data when a transceiver activates them by coming within a certain range 138 ©2010 by Marianne Bradford. All rights reserved
  139. 139. Supply Chain Management Enablers • Electronic Data Interchange (EDI) – use of computerized communication to exchange business event data between companies, or trading partners – Allows companies to create electronic documents, transmit them over private networks or the Internet to their customers’ and suppliers’ computers, and receive electronic acknowledgements in return – Generally used for high volume transactions running in batch mode or in situations where critical, just-in-time information is required – Used as a standardized format, or common language, that is read by trading partners’ information systems • Recognized standard for EDI: ANSIX12 • Developed by the American National Standards Institute (ANSI) – an organization that has served as administrator and coordinator of the United States private sector voluntary standardization system for more than 90 years 139 ©2010 by Marianne Bradford. All rights reserved
  140. 140. Supply Chain Management Enablers Table 10-1: Benefits of Electronic Data Interchange Customer Supplier Purchase orders take less time to transmit, lowering required inventory levels Supplier is relieved of the process of rekeying and verifying orders Since there is quicker order acknowledgement, customers can find an alternative supplier if current supplier cannot provide the desired product when needed Elimination of problems and delays caused by data order entry errors. Errors in order entry mean missed ship dates, shipment of incorrect items or quantity, and lower customer satisfaction Reduced time spent matching supplier invoices to purchase orders and entering accounts payable information Time is reduced from invoicing/payment cycle improving the cash flow of the supplier Reduced back-orders or out of stock situations Inventory reductions Source: 1EDISource Inc. 140 ©2010 by Marianne Bradford. All rights reserved
  141. 141. Supply Chain Management Enablers • Vendor Managed Inventory (VMI) – outsourcing the replenishment of an organizations’ inventory to suppliers – Creates purchase orders based on the demand information sent by the retailer – Backward replenishment model – the supplier does the demand creation and demand fulfillment Table 10-2: Benefits of Vendor Managed Inventory Retailer Supplier Reduced stock-outs because supplier keeps track of inventory movement and takes over responsibility for product availability Better forecasting because of real-time demand information from customer Increased customer satisfaction and sales due to fewer stock-outs Reduced purchase order errors and purchase returns by customer because of fewer mistakes Reduced forecasting and purchasing activities Improvements in service level agreements since supplier knows the need for item and thus orders right product at right time, leading to supply chain cooperation Reduced inventory due to lower safety stock since the supplier can control lead time better than customer Reduced inventory because supplier knows how much and when customer is going to buy Source: Tata Consulting Service 141 ©2010 by Marianne Bradford. All rights reserved
  142. 142. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 11: Auditing ERP
  143. 143. What is Internal Control? • Internal Control – includes policies and procedures effected by an organization’s management to monitor assets, prevent fraud, minimize errors, verify the correctness and reliability of accounting data, and promote operational efficiency • Management uses these policies to provide reasonable assurance that only accurate, complete, and valid information is entered into company systems, and the information in the system is properly processed to produce reliable output • Internal controls meets objectives in the following areas: • Reliability of financial reporting • Effectiveness and efficiency of operations • Compliance with applicable laws and regulations • The report desired by management is an unqualified audit report that displays a “clean bill of health” from their auditors 143 ©2010 by Marianne Bradford. All rights reserved
  144. 144. Internal Control Regulation • Sarbanes-Oxley Act of 2002 (SOX) – requires management of publically traded companies to: – Establish, document, and maintain internal controls and procedures over financial reporting – Audit their effectiveness of internal controls over financial reporting – Assess the deficiencies to determine the effectiveness of its internal controls over financial reporting • Public Company Accounting Oversight Board (PCAOB) – private sector, non-profit organization to oversee the auditors of public accounting firms – Auditing Standard No. 5 – states that the objective of an audit of internal controls over financial reporting is “to express an opinion on the effectiveness of the company’s internal control over financial reporting” 144 ©2010 by Marianne Bradford. All rights reserved
  145. 145. The Integrated Audit • Integrated Audit – a holistic approach to auditing that entails more than just testing and verifying the accuracy of the balances in the financial statements – Substantive test – an audit procedure designed to test the validity, accuracy, and completeness of account balances in terms of dollar amounts – Tests of internal controls – are looking for a yes/no answer as to whether of not a control is effective (e.g., is a control within SAP turned on and configured correctly?) 145 ©2010 by Marianne Bradford. All rights reserved
  146. 146. IT Application Controls IT Application Controls – are performed automatically by systems ensuring accurate data entry, processing, and system output. – Programmed controls – automated controls configured within the application such as the three-way match. – IT dependent manual controls procedures that are reliant on output from information systems – Edit Checks – occur at the point of data entry to verify that no errors are present and that the data adheres to specific standards – Transaction numbers – unique for every transaction and provide an audit trail Table 11 - 1: Examples of Application Controls over Typical Business Processes Purchase to Pay Three-way match of purchase order, receiving report and vendor invoice Duplicate vendor invoices Financial Closing & Reporting Integration with other ERP modules Automated roll-up of financial statements Fixed Assets Depreciation calculation Gain/loss on fixed asset sale calculations Payroll Integrated timekeeping with payroll Payroll deduction calculations Inventory Monitoring of inventory levels Matching of receipt to purchase orders Tolerance limits Integration of inventory with shipping Order to Cash Automated credit checking Automated pricing of orders Integration with Electronic Data Interchange On-line approval of AR adjustments Integration of orders with shipping Invoice and discount calculations All Processes On-line edit checks of data entry Sequential numbering of documents On-line approvals of entries 146 ©2010 by Marianne Bradford. All rights reserved
  147. 147. IT General Controls Figure 11 – 2: Relationship between IT General Controls and Application Controls Source: Deloitte and Touche IT General Controls –represent the foundation of the IT control structure. They help ensure the reliability of data generated by IT systems and support the assertion that systems operate as intended and that output is reliable. ITGC support the application controls. They are the first line of defense. However, if they don’t work, then you can’t assume application controls work. 147 ©2010 by Marianne Bradford. All rights reserved Typical business processes More application controls
  148. 148. Program Change Controls • Program Change Controls – controls that govern the changes made to information systems and databases. These changes are configuration changes, customizations, patches, minor upgrades etc. We use various instances of ERP to effect these changes • Common deficiencies when making changes to programs: – Program changes are not authorized by ERP steering committee, team, IT managers (depending on what is going on) prior to development – Program changes are not tested prior to moving to production – Program changes are not authorized by management prior to moving to production – The same person or person that developed the change is allowed to move the change to production (bad!) – Insufficient documentation exists to show proper approvals and procedures in the change control process 148 ©2010 by Marianne Bradford. All rights reserved
  149. 149. Program Change Controls • Program changes initiated only with a valid IT or business justification • An IT manager or management in the business area requesting the program change approves changes prior to development • Application programmers should make changes in the development environment • Once work is completed, programmers (e.g., SAP Basis) move changed programs in the testing area for users or IT staff to test • IT and/or management of business area perform an impact analysis prior to moving the change to production • The change moved to production is scheduled, and users impacted by the change are notified • After testing and sign-off of quality assurance are complete, an IT staff member not involved in the change moves the change to production • Programmers should not have direct access to the production instance and should not make changes directly into production • Firefighter role – one-time use passwords can be used to make urgent ©2010 changes by Marianne Bradford. All rights 149 reserved
  150. 150. Information Security Controls • Information security controls – help prevent unauthorized access to information systems resources • Common deficiencies in information security controls: – Access to IS resources not properly managed, and rights are granted without adequate justification – Access privileges to IS resources are not monitored to assure that they remain current, complete, and accurate – Improper Segregation of Duties(SoD) is allowed within IS resources – Improper SoD is present when setting up user 150 ©2010 by Marianne Bradford. All rights reserved
  151. 151. Controls for Information Security • Authentication – verifying the identity of the users (you are who you say you are) – Two-factor authentication – combining two forms of ID – Multifactor authentication – combining more than two forms of ID – RSA SecureID – an authentication token that uses a built-in clock and factory encoded random key – Biometric software – links a user’s unique physical attributes to the data they are allowed to access • Proper authorization of the nature and extent of user access privileges • Data encryption and firewalls • Defined roles and responsibilities, including notifications when roles are changed, transferred, or terminated 151 ©2010 by Marianne Bradford. All rights reserved
  152. 152. Computer Operations Controls • Computer Operations Controls – focus on the physical access to IT resources that run a company; designed to protect against both environmental and man-made hazards – Common deficiencies related to computer operations & data centers include: • Poor job scheduling procedures • Insufficient system or back-up and recovery • Unmanaged third party service level agreements (e.g., maintenance, backup) • Poor physical security over the data center 152 ©2010 by Marianne Bradford. All rights reserved
  153. 153. Computer Operations Controls • Some example controls in a data center are: – Batch computer jobs are monitored by management – Automated job scheduling tools – Automated data retention tools – ERP database is backed up at least once a week or an off-site location – Obtain a SAS 70 for outsourced IS functions – Uninterrupted power source/generator – Minimize entry and exit points – Monitor entry/exit points with surveillance cameras 153 ©2010 by Marianne Bradford. All rights reserved
  154. 154. Evaluating Deficiencies in ITGC • Nature and significance • Pervasiveness of deficiency • Complexity of systems environment • Proximity of control to applications and data • Susceptibility to fraud • Cause and frequency of known exceptions • History of misstatements • Competency of business and IT management 154 ©2010 by Marianne Bradford. All rights reserved
  155. 155. Controls over Outsourcing Business and IT Functions • Types: – Application outsourcing – contracting for a data center to host a company’s ERP system – Business process outsourcing – service provider performs a function for the company (e.g., outsourcing a company’s HR processes, such as benefits and compensation) – IT outsourcing – outsource maintenance of hardware • Statement on Auditing Standards No. 70 (SAS 70) – the authoritative guidance for service organizations and mandates that they disclose their internal control activities and processes to their customers in a uniform reporting format – Must identify the applicable data centers, operating environments, and applications – Service Auditor’s Report – issued at the conclusion of a SAS 70 engagement to the service organization for distribution to its customers who request ©2010 by it Marianne for auditing Bradford. All purposes rights 155 reserved
  156. 156. Statement on Auditing Standards No. 70 • Two types of SAS 70 Service Auditor’s Reports: – Type 1 Service Auditor’s Report – includes the service auditor’s opinion on the description of controls over the outsourced function evident at the service organization and the suitability of the designee of these controls to achieve the specified control objectives • Does not present an opinion on the operating effectiveness of these controls • Can not serve as first hand testing in conjunction with the financial statement audit – Type 2 Service Auditor’s Report – includes the service auditor’s opinion on whether the specific controls were operating effectively during the 156 ©2010 by Marianne Bradford. All rights reserved
  157. 157. ISACA Certifications for IT Audit, Security, and Governance • Certified Information Systems Auditor (CISA) – qualifies an individual as globally proficient in the areas of IS audit, control, and security • Certified Information Security Manager (CISM) – targets the information security management audience and bridges the knowledge gap between business strategy and IT security 157 ©2010 by Marianne Bradford. All rights reserved
  158. 158. ISACA Certifications for IT Audit, Security, and Governance • Certified in the Governance of Enterprise IT (CGEIT) – certification for professionals charged with satisfying the IT governance needs of an enterprise – What is IT governance? –leadership, organizational structures, and processes that ensure that an organization’s technology sustains and extends the organization’s strategies and objectives; aligns IT with organizational objectives – IT Governance Institute (ITGI) – ISACA formed this to focus on original research, publications, resources, and symposia on IT governance and related topics • Certified in Risk and Information Systems Control (CRISC) – newest certification; recognizes IT and business professionals for their knowledge of enterprise risk and their ability to design, implement, monitor, and maintain systems controls to 158 ©2010 by Marianne Bradford. All rights reserved
  159. 159. ISC2 Certification for IT Audit, Security, and Governance • What is ISC2 ?- International Information Systems Security Certification Consortium, Inc., (ISC)²®, is the global leader in educating and certifying information security professionals throughout their careers. They administer the CISSP. • Certified Information System Security Professional (CISSP) – certification encompassing information security and assurance tenets of confidentiality, integrity, and availability – More technical than the other certifications 159 ©2010 by Marianne Bradford. All rights reserved
  160. 160. COBIT • Control Objectives for Information and related Technology (COBIT) – governance framework and supporting toolset that provides best practices management guidelines for implementing IT governance as required by audits and SOX Section 404 • COBIT is developed by ISACA and ITGI Figure 11 – 4: COBIT Cube Source: ISACA 160 ©2010 by Marianne Bradford. All rights reserved
  161. 161. COBIT Domains and IT processes • Plan and Organize – provides management with tactics and strategy concerning how IT can best contribute to the achievement of the business objectives – Examples of Processes: Define a Strategic IT Plan and direction; Define the Information Architecture • Acquire and Implement – includes identifying IT requirements, acquiring IT, and implementing IT within the company’s current business processes – Examples of Processes: Acquire and Maintain Application Software; Acquire and Maintain Technology Infrastructure • Deliver and Support – focuses on the delivery aspects of IT, as well as the support processes that enable the effective and efficient executing of systems – Examples of Processes: Manage Third-party Services; Manage the Configuration; Ensure Systems Security • Monitor and Evaluate – addresses performance management, monitoring of internal controls, regulatory compliance, and governance – Examples of Processes: Monitor and Evaluate Internal Control; Ensure Regulatory Compliance; Provide IT Governance 161 ©2010 by Marianne Bradford. All rights reserved
  162. 162. Governance, Risk, and Compliance • Governance, Risk, and Compliance (GRC) – enables organizations to maximize strategic and operational performance by cost-effectively managing regulatory and policy compliance, while proactively mitigating all types of business risk – Corporate governance – the structure and relationships that dictate how a corporation is directed, administered, and controlled – Risk management – assesses the areas of exposure and potential impacts, – Compliance is the tactical action to mitigate risk; conforming to stated requirements • GRC provides access control, risk management and regulatory compliance (for audits etc) – User provisioning, de-provisioning, segregation of duties, continuous monitoring of SODs, analysis and management of risks etc 162 ©2010 by Marianne Bradford. All rights reserved
  163. 163. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 12: Business Intelligence and Performance Management
  164. 164. Business Intelligence • Business Intelligence (BI) – a discipline that includes a collection of practices and technologies used to explore raw data extracted from various business systems and data sources in order to reveal meaningful knowledge – Used to mine customer data and purchasing histories for associations, personalization, segmentation, and forecasting demand – Exposes areas that are most profitable and improve business processes by finding bottlenecks and inefficiencies – Many ERP systems now include BI as a bolt-on Figure 12-1: Major Business Intelligence Vendor Consolidation 164 ©2010 by Marianne Bradford. All rights reserved
  165. 165. Degree of Intelligence in BI Tools Figure 12-2: Reactive vs. Proactive Decision Making Source: SAS Institute, Inc. 165 ©2010 by Marianne Bradford. All rights reserved

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