Enterprise Resource Planning (ERP) Systems Special Considerations

1. Enterprise Resource Planning (ERP) Systems Special Considerations Information Resources Management College National Defense University

2. Agenda • Background • What is an ERP? • Evolution of ERPs • ERP Vendors • What’s in an ERP? • Why ERP? • Where are ERPs being used?

3. Agenda • Implementation Strategies • ERP Maintenance • Key Issues • Future of ERPs • Lessons Learned • Oversight • Conclusions http://members.aol.com/lpang10473/erp.htm

4. Time of Change Core business applications moving toward... • COTS software modules with graphical development tools • Web-based accessibility • Globalization • Integration between functional modules • Data flow among the business units • Common look-and-feel Source: PricewaterhouseCoopers

5. Stovepiped Systems Strategy decisions decisions decisions decisions decisions Tactics Human Resources Procurement Production Logistics Operations Finance data data data data data

6. Integrated Systems Production Logistics Procurement Human Resources Finance Planning data Other Departments

7. What is an ERP? • Applications of integrated software solutions which support enterprise-wide business requirements. • Consists of modules that focus on specific aspects of the enterprise business.

8. What is an ERP? • Integrates functions across an organization onto a single computer system that serves everyone’s needs • Eases the exchange of data and facilitates communication among departments • Each module works separately performing specific data-processing functions

9. Examples of ERP Modules • Human Resource Management • Financial Management • Supply Chain Management • Procurement • Logistics and Materials Management • Planning and Budgeting • Sales and Distribution • Student Administration • Many, many more…

10. Evolution of ERPs • 1960s and 1970s - Materials Requirement Planning (MRP) Systems – precursor to ERP • 1972 – Five former IBM employees in Mannheim, Germany created an ERP system • 1978 – Mainframe-based Enterprise architecture • 1992 – Client/server platform • 1993 - $319 million in revenue • 1999 - $17.7 billion in revenue (x55 increase) • 1999 – Y2k preparation; Web accessibility • 2003 - $25 billion in revenue

11. ERP Vendors • SAP* • Oracle* • PeopleSoft* • AMS (CGI)* • Baan • Others including Partners * Joint Financial Management Improvement Program (JFMIP) Certified Software – vendor’s financial module meets Federal Government financial system requirements.

12. 25 23 20 17.7 15 13.6 dollars in billions 10.5 10 8.1 6.2 5 0.53 0.69 0.41 0.253 0.318 0.171 0 1995 1996 1997 1998 1999 2000 ERP Rev Planning & Scheduling ERP Growth (North America)

13. Benefits • Integrates organization activities • Employs “best practices” • Enables organizational standardization • Improves information management via single database • Provides on-line and real-time information • Facilitates intra- and inter-organization communication and collaboration

14. ERP Drivers • Business • Customer Satisfaction • Efficient processes requirement (BPR) • Competitive challenges • Labor shortages • Information Technology • Past Y2K Problem • Systems integration - Legacy systems • Modernization of hardware/software • On-line collaboration/Internet

15. Who are Using ERP’s? • Private Sector (70% of 1,000 largest companies) • Microsoft • IBM • General Motors • Hewlett Packard • CSX • Boeing • Mercedes-Benz • Many more…

16. Who are Using ERP’s? • Federal Sector • Defense • OSD – Defense Integrated Military Human Resources System (DIMHRS) • DLA - Business Systems Modernization • Navy – Navy ERP • Army - Logistics Modernization Program (LMP), GCSS-Army, General Fund Enterprise Business System (GFEBS) • Air Force – Defense Enterprise Accounting Management System (DEAMS)

17. Who are Using ERPs? • Federal Sector (cont.) • Interior, HHS, GSA, Labor, VA: Human Resources • Treasury: U.S. Mint - Consolidated Information System (COINS), HR Connect • NASA: Integrated Financial Management Program (IFMP) • Energy: Administration and support; resource management • Transportation, Commerce: Financials

18. Key Issues - Process • Do it OUR way • Considerable business process changes for the organization • OK, don’t do it our way • Customization: cost, maintenance (upgrades), compatibility issues

19. Key Issues - People • Employee resistance • Job Changes • Retraining and re-orientation • Likely more data collection screens than in legacy system • Loss of ERP veterans • Security

20. Key Issues - Technology • Data migration from legacy systems • Lack of interoperability among different vendor products • Maintenance

21. Key Issues - Financial • Cost • Range = $400,000 - $300 million • TCO = $53,320 per user (Meta Group) • Hidden costs • Training • Integration and Testing • Data Conversion • Data Analysis • Consulting Fees • Turnover Source: CIO Magazine

22. Horror Stories • Whirlpool: ERP implementation crippled its shipping system, leaving appliances stacked on loading docks and not delivered to paying customers for a full eight weeks. • Hershey Foods: A 19 percent drop in earnings was caused by an incompetent ERP implementation that wreaked distribution havoc during one of its most profitable seasons: Halloween. • Volkswagen: Significant delays in parts shipments causing product inventories to build up to costly levels. “Half of the issues in ERP disasters are not technical but are people related and culture related.” Source: CIO Magazine

23. Horror Stories • Labor Department: Cost jumped from $26.5 million to $71 million due to underestimating implementation and operating costs • Department of Veteran’s Affairs: Cost jumped from $170 million to $417 million; currently two years behind schedule • NASA: ERP failed to produce accurate financial reports; unable to close year-end books on a Cal Tech contract Source: GAO, Federal Computer Week

24. Process Mapping Generating process flows using the reference models as input tailored to project requirements Select Application SW link software applications that fulfill business process requirements System Implementation Customization and optimization of software e.g. Supply Chain Personnel Finance E-Commerce Manufacturing Distribution Sales Force Auto. Selected software matching selected processes Selected Business Processes Inventory of COTS software Baseline SW for Implementation Implementation Strategies

25. Implementation Steps • Project Preparation – implementation strategy, project team, system landscape, technical requirements, vendor selection • Business Blueprint and Realization – technical design, development system, testing, production system installation Source: Accelerated SAP (ASAP) Method

26. Implementation Steps • Final Preparation – operational system, data transfer, testing, help desk • Go Live and Support – process monitoring, operational help desk, definition long-term release strategy

27. Key Planning and Implementation Decisions • To ERP or not ERP? • What to hold on to? • Customization: Big R or small r? • Big bang or phased implementation? • Single package or best-of-breed? • Which ERP package? • What Enterprise?

28. ERP or not to ERP? • Business Case Rationale • Technology • Disparate Systems • Poor quality existing systems • Difficult to integrate acquisitions • Process • Personnel and IT cost reductions • Productivity improvements • Closing the financial cycle

29. ERP or not to ERP? • Business Case Rationale (cont.) • Strategic • Able to implement new strategies not supported by the current software (eCommerce and portals) • Improving customer service and satisfaction • Competitive • “Competition has it” • Improved customer response

30. What to hold on to? • Outsourcing • Continue to focus on core mission • Avoiding a huge financial commitment • Minimize impact on IT department • In-House • Better match between the software and the business • Applications are optimized for the organization • Security

31. Customization: Big R or Small r? BIG R Potential Failure because of Process Changes and S/W Changes Potential Failure because of Process Changes Extensive Extent of Change to Processes Highest Probability of Successful Implementation Potential Failure because of S/W Changes Minimal Small r Extensive Minimal Extent of Change to Software

32. Big Bang or Phased Implementation? • Big Bang (All modules at all locations implemented at the same time) • No need for temporary interfaces • Limited need to maintain legacy software • Cross-module functionality • No going back • Lower cost if no surprises

33. Big Bang or Phased Implementation? • Phased (Modules implemented one or a group at a time, often at a single location at a time) • Smoothing of resource requirements • Able to focus on a particular module • Legacy system fall back • Reduced risk • Knowledge gained with each phase • Used to demonstrate a working system

34. Other Implementation Approaches • Wave – different waves of change to a different business unit or region • Parallel – both ERP and existing system run together for a period of time • Basis of comparison • Existing system serves as backup • Requires more computing and human resources – more costly • Existing system may not be properly maintained during the period • Reengineering not supported by existing systems

35. Single Package or Best of Breed? • Single Package • High interoperability among modules • Common look and feel • Standardization • Best of Breed • Organization gets required functionality • Higher cost • Incompatibility among modules and among systems

36. Maintenance of an ERP • System bugs • User assistance • Changes to system • Manage different input and output requirements • Documentation • Training • Maintaining and updating software • Budgeting

37. Which ERP Package? • Functional fit with your business practices • Degree of integration among components of the ERP system • Flexibility and scalability • User friendliness • Quick implementation • Ability to support multi-site planning and control • Technology: client/server capabilities, database independence, security • Availability of regular upgrades • Amount of customization required • Local support infrastructure • Costs – license, training, implementation, maintenance, customization, hardware requirements Source: Baan Infosystems

38. Future of ERPs • Web interfaces: eCommerce, portals, XML, web services • Application Service Providers (ASP) • Enterprise Application Integration (EAI) middleware for linking ERP with legacy systems • “ERP II” – next generation of tools • Single Instance • Business Process Management (BPM)

39. What Enterprise? That which is undertaken; something attempted to be performed; a work projected which involves activity, courage, energy, and the like; a bold, arduous, or hazardous attempt; an undertaking Webster's Revised Unabridged Dictionary

40. Enterprise • Factors to Consider: • Functional Relationships • Management Control • Affordability • Achievability • Start at the top - • Agree to Vision • Enterprise Architecture • Shared Information • Common Business Rules

41. Private Sector: Lessons Learned • Define the business value • Set up regular review measures • Don't underestimate the art of "change management" • Make sure that every vendor involved in the project has "skin in the game" • Don't lose sight of the impact on the customer. Source: CIO Magazine

42. Federal Sector: Lessons Learned • Assign a high level business manager to the project • Pro-active, high-level user participation throughout the process • Avoid customization • Ensure that the infrastructure can support the ERP • Outsource

43. Federal Sector: Lessons Learned • Build an enterprise architecture first • Stick with a mainstream vendor • Think through implementation strategy • Perform pilot implementations • Be prepared for transition turmoil • Provide staff training and orientation • Estimate project costs using Best Practices

44. Top 10 ERP Mistakes • Believing “go live” ends the journey • Ignoring the early performance dip • Sacrificing strategic for the tactical • Delaying the data focus • Not engaging the “A Team” • Missing the senior governance council • Ignoring advice from integrator • Overlooking Culture • Focusing on Technical vs. Business • Forgetting the Business Case Deloitte Consulting

45. Oversight • Internal Engagement • Senior Leadership • Regular, Frequent • Ownership • External • Portfolio Perspective • Milestone Adjustment – EI Toolkit • “Go Live”

46. A B C IOC FOC Concept Refinement Technology Development System Development & Demonstration Production & Deployment Operations & Support FDDR Concept Decision Pre-Systems Acquisition Systems Acquisition Sustainment A B C IOC FOC Pre-Initiation Software & Systems Integration Selection, Project Prep & Blueprinting Configuration & Report, Interface, Conversion, Extension (RICE) Development Transition & Cutover Go Live Sustainment & Roll Out FDDR Ltd. Deplt/OT&E Pre-Systems Acquisition Systems Acquisition Sustainment OSD Oversight of ERP DoD 5000 / COTS Alignment Defense Acquisition Management Framework – Traditional Defense Acquisition Management Framework – For COTS Enterprise Systems

47. OSD Oversight of ERP Milestone A Document Requirements for COTS/ERP • Acquisition Strategy (includes Tech Development Strategy & Market Survey) • ICD (based on JCIDS analysis: FAA, FNA, FAA) • Clinger-Cohen Act Compliance/Certification • Core mission determination, AoA, BPR, & outcome- based performance measures (should result from JCIDS analysis) • Outsourcing determination (AoA & Acq Strategy) • Economic Analysis (high level) • Info Assurance Strategy (high level) • Performance goals for the phase (including schedule, cost & exit criteria) • Test & Evaluation Strategy • Concept Baseline • BMMP Certification • ADM (prepared by OASD(NII))

48. OSD Oversight of ERP = Domain Advocacy Criteria = Milestone Decision Component Architecture Evaluation IMPLEMENTATION ACQUISITION CONTINUOUSIMPROVEMENT = Architecture = Domain Owner Advocacy PIII INITIATION Advocacy Criteria II Approval Approval Approval Approval PI Evaluation PII Evaluation Approval Approval Advocacy Criteria I Milestone B Advocacy Criteria III b Advocacy Criteria IVa Production Rollout Process/Funct Enhancements Advocacy Criteria IVb Upgrades Competency Center Approval Milestone C/FRDR Reviews and Training SCR Evaluation Criteria Proposed Integrated Oversight Process for COTS Enterprise Systems SUSTAINMENT Software Systems Integration Services Preparation Preparation Preparation Preparation Initial Go-Live Support Project Close Define Problem/Challenge Requirements (mid-level) Develop and Issue RFP/SOO Blueprint * Ongoing Support Advocacy Criteria V Vendor Evaluations Business Case(High Level) Develop and Issue RFP/RFQ Service Agrmt & Task Order(s) AlternativesAnalysis Requirements(High Level) Vendor Evaluations Design/Build ** License/ Agreement Transition/ Cutover Project Charter Advocacy Criteria IIIa Milestone A Award Award SCRs: Architecture Evaluations and Advocacy Reviews as required during Sustainment / Improvement Stages Go Live * Blueprint = Detailed Requirements and High-Level Design **Design/Build = Detailed Design, Configure/Develop, and Test ***Website =www.deskbook.dau.mil/software/gen/home.html

49. CONTINUOUSIMPROVEMENT ACQUISITION IMPLEMENTATION PIII INITIATION Advocacy Criteria II Approval Approval PII Evaluation PI Evaluation Approval Approval Approval Approval Advocacy Criteria V Advocacy Criteria I Milestone B Advocacy Criteria III b Advocacy Criteria IVa Production Rollout Process/Funct Enhancements Advocacy Criteria IVb Advocacy Criteria IIIa Upgrades Competency Center Approval Milestone C/FRDR Reviews and Training SCR Evaluation Criteria OSD Oversight of ERP Proposed Integrated Oversight Process for COTS Enterprise Systems SUSTAINMENT Software Systems Integration Services Preparation Preparation Preparation Preparation MS B TEMP IA Strategy C4ISP CDD Updated BCA Initial Go-Live Support Project Close Includes ICD Approval by Domain/JCS Define Problem/Challenge Requirements (mid-level) Blueprint * Develop and Issue RFP/SOO Ongoing Support Vendor Evaluations Business Case(High Level) Develop and Issue RFP/RFQ Service Agrmt & Task Order(s) AlternativesAnalysis Requirements(High Level) Vendor Evaluations Design/Build ** MS A Business Case*ASR IA Strategy Test Strategy License/ Agreement Transition/ Cutover Project Charter MS C CPD OT Results PIR Plan Updated- C4ISP Milestone A Award Award SCRs: Architecture Evaluations and Advocacy Reviews as required during Sustainment / Improvement Stages Go Live *Business Case will contain essential elements of AoA, OBM, EA, APB, CCA & CARD

50. OSD Oversight of ERP Proposed Milestone Review Requirements