MIS490 1
An.
MIS490CH2.pdf
Enterprise Systems Configuration for Business
MIS 490
CHAPTER 2
The Development of Enterprise Resource Planning (ERP) Systems
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Objectives
After completing this chapter, you will be able to:
• Identify the factors that led to the development of Enterprise Resource Planning (ERP) systems
• Describe the distinguishing modular characteristics of ERP software
• Discuss the pros and cons of implementing an ERP system
• Summarize ongoing developments in ERP
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Introduction
• Efficient, integrated information systems are very important for companies to be competitive
• An Enterprise Resource Planning (ERP) system can help integrate a company’s operations • Acts as a company-wide computing environment
• Includes a database that is shared by all functional areas
• Can deliver consistent data across all business functions in real time
The Evolution of Information Systems
• Silos • Information systems configuration used until recently
• Companies had unintegrated information systems that supported only the activities of individual business functional areas
• Current ERP systems evolved as a result of: • Advancement of hardware and software technology
• Development of a vision of integrated information systems
• Reengineering of companies to shift from a functional focus to a business process focus
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Management’s Impetus to Adopt ERP
Figure 2-2 Information and material flows in a functional business model
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ERP Software Emerges: SAP and R/3
• 1972: five former IBM systems analysts in Mannheim, Germany formed Systemanalyse und Programmentwicklung (Systems Analysis and Program Development, or SAP)
• SAP’s goals: • Develop a standard software product that could be configured to meet the
needs of each company
• Data available in real time
• Users working on computer screens, rather than with voluminous printed output
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SAP R/3
• 1982: SAP released its R/2 mainframe ERP software package
• 1988: SAP began development of its R/3 system to take advantage of client-server technology
• 1992: first version of SAP R/3 released
• SAP R/3 system was designed using an open architecture approach
• Open architecture: third-party software companies encouraged to develop add-on software products that can be integrated with existing software
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Developments in ERP
• Late 1990s: Year 2000 (or Y2K) problem motivated many companies to move to ERP systems
• By 2000, SAP AG had 22,000 employees in 50 countries and 10 million users at 30,000 installations around the world
• By 2000, SAP’s competition in the ERP market: • Oracle
• PeopleSoft
• Late 2004: Oracle succeeded in its bid to take over PeopleSoft
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New Directions in ERP (cont’d.)
• PeopleSoft • Founded by David Duffield, a former IBM employee
• Today, PeopleSoft, under Oracle, is a popular software choice for managing human resources and financial activities at universities
• Oracle • SAP’s biggest competitor
• Began in 1977 as Software Development Laboratories (SDL)
• Founders: Larry Ellison, Bob Miner, and Ed Oates
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New Directions in ERP (cont’d.)
Figure 2-5 Modules within the SAP ERP integrated information systems
environment (Courtesy of SAP AG)
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SAP ERP Software Implementation (cont’d.)
• Tolerance groups • Specific ranges that define transaction limits
• SAP has defined the tolerance group methodology as its method for placing limits on an employee
• Configuration allows the company to further tailor tolerance group methodology
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SAP ERP Software Implementation (cont’d.)
• Features of SAP ERP • First software that could deliver real-time ERP integration
• Usability by large companies
• High cost
• Automation of data updates
• Applicability of best practices • Best practices: SAP’s software designers choose the best, most efficient ways in which
business processes should be handled
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The Significance and Benefits of ERP Software and Systems • More efficient business processes that cost less than those in
unintegrated systems
• Easier global integration
• Integrates people and data while eliminating the need to update and repair many separate computer systems
• Allows management to manage operations, not just monitor them
• Can dramatically reduce costs and improve operational efficiency
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The Continuing Evolution of ERP
• Understanding the social and business implications of new technologies is not easy
• ERP systems have been in common use only since the mid-1990s
• ERP vendors are working to solve adaptability problems that plague customers
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Questions About ERP
• How much does an ERP system cost?
• Should every business buy an ERP package?
• Is ERP software inflexible?
• What return can a company expect from its ERP investment?
• How long does it take to see a return on an ERP investment?
• Why do some companies have more success with ERP than others?
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Summary
• Speed and power of computing hardware increased exponentially, while cost and size decreased
• Early client-server architecture provided the conceptual framework for multiple users sharing common data
• Increasingly sophisticated software facilitated integration, especially in two areas: A/F and manufacturing resource planning
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Summary (cont’d.)
• Growth of business size, complexity, and competition made business managers demand more efficient and competitive information systems
• SAP AG produced a complex, modular ERP program called R/3 • Could integrate a company’s entire business by using a common database
that linked all operations
• SAP R/3, now called SAP ERP, is modular software offering modules for Sales and Distribution, Materials Management, Production Planning, Quality Management, and other areas
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Summary (cont’d.)
• ERP software is expensive to purchase and time-consuming to implement, and it requires significant employee training—but the payoffs can be spectacular • For some companies, ROI may not be immediate or even calculable
• Experts anticipate that ERP’s future focus will be on managing customer relationships, improving planning and decision making, and linking operations to the Internet and other applications through service-oriented architecture
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