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- 2. What is ERP? •The practice of consolidating an enterprise’s planning, manufacturing, sales and marketing efforts into one management system. • Combines all databases across departments into a single database that can be accessed by all employees. • ERP automates the tasks involved in performing a business process. 2
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- 4. 4 Employees Managers and Stakeholders How DoERP Systems Work? Central Database Reporting Applications Human Resource Management Applications Financial Applications Manufacturing Applications Inventory And Supply Applications Human Resource Management Applications Service Applications Sales and Delivery Applications Sales Force And Customer Service Reps Customers Back-office Administrators And Workers Suppliers
- 5. 5 ERP Components • Finance:modules for bookeeping and making sure the bills are paid on time. Examples: • General ledger • Accounts receivable • Accounts payable • HR: software for handling personnel-related tasks for corporate managers and individual employees. Examples: • HR administration • Payroll • Self-service HR • Manufacturing and Logistics: A group of applications for planning production, taking orders and delivering products to the customer. Examples: • Production planning • Materials management • Order entry and processing • Warehouse management
- 6. 6 An ERP Example:Before ERP Customers Customer Demographic Files Sales Dept. Vendor Orders Parts Accounting Accounting Files Purchasing Purchasing Files Order is placed with Vendor Invoices accounting Inventory Files Warehouse Checks for Parts Calls back “Not in stock” “We ordered the parts” “We Need parts #XX” “We ordered the parts” Sends report Sends report Sends report Ships parts
- 7. 7 An ERP Example:After ERP Database Customers Sales Dept. Purchasing Warehouse Accounting Vendor Inventory Data If no parts, order is placed through DB Orders Parts Order is submitted to Purchasing. Purchasing record order in DB Order is placed with Vendor And invoices accounting Financial Data exchange; Books invoice against PO Books inventory against PO Ships parts
- 8. 8 Who are themain ERP vendors? • Baan • JD Edwards • Oracle • PeopleSoft • SAP
- 9. 9 ERP Vendors andIndustries They Serve A e r o s p a c e / D e f e n s e A u t o m o t i v e C o n s u m e r P a c k a g e G o o d s E l e c t r o n i c I n d u s t r i a l / M a n u f a c t u r i n g O i l / G a s P h a r m a c e u t i c a l s Baan Baan Series J.D. Edwards & Co. One World, One World Software Oracle Corp. Applications PeopleSoft, Inc. PeopleSoft 7.5 SAP R/3 % Planned Penetration 10-15 5-10 35+ 40+ 35 30 20 Source: Benchmarking Partners Inc.
- 10. 10 Why ERP? 3 MajorReasons: To integrate financial data. To standardize manufacturing processes. To standardize HR information.
- 11. 11 ERP Project andTime Real transformational ERP efforts will usually run between 1 to 3 years, on average. Short implementations (3 to 6 months): small companies, implementation limited to a small area of the company, or the company only used the financial pieces of the ERP system. The important thing is not to focus on how long it will take but to understand why you need ERP and how you will use it to improve your business.
- 12. 12 Total Cost ofOwnership of ERP Total cost of ownership (TCO) is a model developed by Gartner Group to analyze the direct and indirect costs of owning and using hardware and software. TCO essentially helps a company determine whether it wins or loses from specific technology implementations. • Metagroup study among 63 companies surveyed showed that: • the average TCO was $15 million (the highest was $300 million and lowest was $400k), • the average TCO per user was $53,320.
- 13. 13 Total Cost ofOwnership of ERP • It also found that: • it took 8 months after the system was in to see any benefits, • but that the median annual savings from the system was $1.6 million per year.
- 14. 14 Hidden Costs ofERP Training Integration and testing Data conversion Data analysis Consultants Replacing best and brightest staff after implementation Implementation teams can never stop Waiting for ROI Post-ERP depression
- 15. Benefits of ERP Systems •Improving integration, flexibility • Fewer errors • Improved speed and efficiency • More complete access to information • Lower total costs in the complete supply chain • Shorten throughput times • Sustained involvement and commitment of the top management 15
- 16. Benefits of ERP Systems (cont’d) •Reduce stock to a minimum • Enlarge product assortment • Improve product quality • Provide more reliable delivery dates and higher service to the customer • Efficiently coordinate global demand, supply and production 16
- 17. Risks with ERP Implementati on 17 Expensive(can costs 100 thousands to millions of dollars) Time-consuming (can take months to years) Great risk for the organization Transfer of Knowledge Acceptance with the company
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- 19. 19 Nestlé Background • Foundin 1866, Switzerland. • World's largest food company, # 50 in Fortune magazine’s Globe 500 • Nestlé USA was incorporated in 1990; Home Office in Glendale, CA. • 33 manufacturing facilities, 6 distribution centers and 17sales offices around the country, 17,300 employees nationwide. • $ 11.1 billion in Sales (2001) • “…America's most admired Food Company for the fourth consecutive year” - Fortune Magazine, February 2001
- 20. 20 Milk products, dietetic foods, infantfoods, chocolate and confections, refrigerated and frozen items, ice cream, and pet foods Nestlé's products and brands
- 21. 21 Competitive Market USA FoodMarket in 2001
- 22. 22 Organizational Chart Joe Weller Chairman& CEO Jeri Dunn CIO Other Board members Tom James Dir. of Process change Jose Iglesias Dir. of IS Dick Ramage VP of supply chain
- 23. 23 Business Challenges • Afterthe brands were unified and reorganized into Nestle USA in 1991,. Divisions still had geographically dispersed. • For example, Nestle USA’s brands were paying 29 different prices for vanilla - to the same vendor.¹ • Nine different general ledgers and 28 points of customers entry. • Years of autonomous operation provided an almost “insurmountable hurdle”. • “… Nestle was the world’s NO. 1 food and beverage company– but one of the least efficient ”²
- 24. 24 Project Scope –“BEST” • Five SAP Modules – purchasing, financials, sales and distribution, accounts payable and accounts receivable and Manugistics’ supply chain module • From October 1997 to 1st Quarter of 2000. • $210 million budget • 50 top business executives and 10 senior IT professionals
- 25. 25 Project Objectives - “OneNestle, under SAP” Transforming the separate brands into one highly integrated company. Internal aligned and united, establishing a common business process architecture Standardizing master data
- 26. 26 Process of SAPImplementation The new business process confused most of employees, then resistance grew into rebellion in 2000. Reconstructed in June 2000 and completed in 2001.
- 27. 27 Conclusion of NestléCase Changes and success • Common database and business processes lead to more trustworthy demand forecast. • A comprehensive account planning tool. • Nestle can now forecast down to the redistribution center level. • Nestle has improved forecast accuracy by 2% • Higher factories utilization • fewer factories = big gains in factories Utilization • Reduce inventory level
- 28. 28 Conclusion of NestléCase The favorable evolution of COGS continues 0 1 00 200 300 400 500 600 700 1 997 1 998 1 999 200 2001 2002 2003 2004 $USD m in Annual Incremental Saving Cummulative Annual Savings 58 6 37 1 Saved $$$ - With ERP in practice , $ 371 million has been saved until 2001.
- 29. 29 Conclusion of NestléCase Lessons learned by Nestlé • Don’t start a project with a deadline in mind. • Update your budget projection at regular intervals. • ERP isn’t only about the software. “No major software implementation is really about the software.” Former Nestlé CIO Jeri Dunn says, “You are challenging their principles, their beliefs and the way have done things for many many years” • Keep the communication lines open. • Remember the integration points.
- 30. 30 Nestlé in theFuture The Global Business Excellence Program Supported by SAP, contracted in June 2000 and by IBM in July 2002. • To be completed by the end of 2005 • To save cost around CHF 3 billion, with benefits realized from 2003.
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- 32. 32 What is Agilent Technologies? •Agilent Technologies is the world's leading designer, developer, and manufacturer of electronic and optical test, measurement and monitoring systems. • Separated from Hewlett Packard and became a public company in 1999 • World HQ in Palo Alto, CA
- 33. 33 Around the World Agilenthas facilities in more than 40 countries and develops products at manufacturing sites in the U.S., China, Germany, Japan, Malaysia, Singapore, Australia and the U.K. Approximately 37,000 employees throughout the world
- 34. 34 Products and Services Agilentoperates in three business groups: • Test and Measurement • Test instruments and systems, automated test equipment. • Semiconductor Products • Semiconductor solutions for wired and wireless communications, information processing. • Chemical Analysis • Life sciences and analytical instrument systems.
- 35. 35 Agilent revenue for2001 Test and Measurement: $5.4 billion Semiconductor Products: $1.9 billion Chemical Analysis: $1.1 billion Total revenue: $8.4 billion
- 36. 36 Agilent’s Customers Served customersin more than120 countries around the world1 • Electronic component manufacturers • Pharmaceutical companies • Chemical companies • Communication companies2
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- 38. 38 Project Scope Oracle’s liE-Business Suite software Started September 2000 till 2004 Budget roughly 100 Oracle consultants to install the program
- 39. 39 ERP Project Objective •“One IT” organization • Supply chain capability; for example, - Suppliers - Customers • Migrating 2,200 legacy applications that it inherited from HP to Oracle
- 40. 40 One IT Project(Before) IT spend was 8-10% of sales 80% for business operations 20% maint. & upgrading legacy systems Further autonomy over the IT portfolio would have led to 50% cost increase
- 41. 41 One IT Project MartyChuck, CIO, developed a Vision for One IT organization in August 2000 Moved more than 2,500 IT professionals in the different site, regional and divisional IT organizations
- 42. 42 One IT ProjectObjective To consolidate a large number of independent operating groups into a single worldwide IT function To share information quickly and efficiently To drive the operational costs down by more than 20% To combine all IT budgets
- 43. 43 Changes in SupplyChain Process: Supplier Migrating from all existing ERP systems to a single Oracle- based infrastructure system The use of bar code for materials received from suppliers The use of Evaluated Receipt Settlement (ERS)
- 44. 44 The process ofmigrating ERP systems to Oracle
- 45. 45 Evaluated Receipt Settlement (ERS) •An automated invoice and payment system • How does ERS work?
- 46. 46 Changes in SupplyChain Process: Customers Real-time information about inventory and order status Easier to understand invoicing and pricing Improved visibility on product delivery lead time
- 47. 47 Troubles with ProjectEverest Because of the consolidation of its 2,200 software systems to under 20, confusion meant lost order and revenue. An $88 million reduction in third-quarter orders Of that, $38 million was lost and $50 million will be pulled through the fourth quarter. $105 million in lost revenue and $70 million in operating profit
- 48. Troubles with Project Everest 48 “As webegan to hit sort of a 50 percent ramp of normal capacity, we began to get conflicts in priorities of systems instructions. When we had those conflicts that inevitably shut the system down.” Software bug CFO Adrian Dillon said the problem was twofold:
- 49. Troubles with Project Everest 49 Mistakes converting backlog. •“The other problem we had was converting backlog from legacy to new systems, especially for our highly configured products in our test and measurement operation.” Extra $35 million to cover costs of ERP and CRM rollout.
- 50. 50 Lessons Learned byAgilent ERP implementations are a lot more than software packages. People, processes, policies and culture are all factors that should be taken into consideration when implementing a major enterprise system. ERP disasters are often caused by a user company itself.
- 51. 51 Lessons Learned byAgilent Study ERP well before implementation “The disruptions after going live were more extensive than we expected” –CEO Ned Barnholt
- 52. Best Practices and whatERP holds for the Future 52
- 53. 53 ERP Implementation • BiggestIT project that most companies ever handle, • Changes the entire company, and • Has repercussions in all departments and divisions of the organization. • It is essential that all the key players understand the scope of the project. • This is an IT-Related Project.
- 54. Best Practices of ERP Implementation •A Business Strategy aligned with Business Processes • Top-Down Project Support and commitment • Change Management • Extensive Education and Training • Data Clean up and Data Integrity • Implementation is viewed as an ongoing process 54
- 55. 55 Best Practices ofERP Implementation • A Business Strategy aligned with Business Processes • Business strategy that will give you a competitive advantage • Analyze and map your current business processes • Develop your objectives • Evaluate your business strategy and ERP plan before you commit to software acquisition and installation. Source: http://www.rmdonovan.com/pdf/perfor8.pdf, viewed November 5, 2002.
- 56. 56 Best Practices ofERP Implementation • Top-Down Project Support and commitment • CEO1 • support implementation costs • champion the project, and • demand full integration and cooperation. • Most knowledgeable and valuable staff2
- 57. 57 Best Practices ofERP Implementation • Change Management • Changes in business procedures, responsibilities, work load.1 • As a result, ERP implementations are times of high stress, long hours, and uncertainty.1 • Mid-level managers must2 • facilitate continual feedback from employees, • provide honest answers to their questions, and • help resolve their problems.
- 58. 58 Best Practices ofERP Implementation • Extensive Education and Training • General education about the ERP system for everyone. • Massive amount of end users training before and during implementation. • Follow-up training after the implementation. • 10 to 15% of total ERP implementation budget for training will give an organization an 80% chance of a successful implementation.
- 59. 59 Best Practices ofERP Implementation • Data Clean up and Data Integrity • Clean-up data before cut-over.1 • “Near enough is no longer good enough.”2 • To command trust, the data in the system must be sufficiently available and accurate.3 • Eliminate the old systems, including all informal systems.3
- 60. 60 Best Practices ofERP Implementation • Implementation is viewed as an ongoing process • Ongoing need for training and software support after implementation. • Ongoing need to keep in contact with all system users and monitor the use of the new system. • Ongoing process of learning and adaptation that continually evolves over time.
- 61. 61 ERP Implementation Phases 4 MajorPhases: Concept/initiation Development Implementation Closeout/Operation and maintenance
- 62. Conclusion • The benefitsof a properly selected and implemented ERP system can be significant. • An average, 25 to 30% reduction on inventory costs; 25% reduction on raw material costs. • Lead-time for customers, production time, and production costs can be reduced. • BUT cost of implementing can be quite high and risks are great. 62
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- 64. 64 ERP II • Integratesthe front and back office to enable an “information visibility” strategy that pushes the right information to the right people at the right time through the right communications channels. • A competitive strategy that integrates a centralized, core ERP system with highly specialized solutions. • In 2001, $4 billion (or 20%) of the $20 billion of total vendor revenue was spent on extensions to the ERP system. In 2006, AMR predicts this percentage will increase to 50%. Source: 1. http://www.intelligententerprise.com/020903/514feat2_1.shtml, viewed September 19, 2002; 2. http://www2.cio.com/metrics/2002/metric381.html, viewed September 19, 2002.
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- 66. ERP II: A Revolutiona ryChange 66
- 67. 67 ERP II: ARevolutionary Change • Technology • Technology goals aligned with internal business processes and those of diverse partners, customers, suppliers, and distributors. • Business Process • Implementation cannot be made without a change of business processes. • People • ERP II implementation success depends on the business community’s cultural acceptance of the system.
- 68. 68 Conclusion To achieve competitiveadvantage in the global economy, organizations are extending their ERP system beyond the firm. Future growth of the industry lies in adding extensions. Integration, scalability and flexibility issues.
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- 70. Tema ARTIKEL 1. Peluang, tantangan,hambatan, dan atau sukses faktor implementasi (adopsi) ERP di organisasi 2. Cost benefit analysis implementasi ERP 70
Editor's Notes
- #18 Thanks for Kevin. I am going to introduce how an company implement its ERP Project and what lessons we can learn. Well, please put up your hand if you know about Nestle?
- #19 Nestle was found in 1866 by Swiss pharmacist Henri Nestle. Growth with time and acquisitions, nestle has become the largest food company in the world. It has over 200 million employees and 500 factories across North America, Brazil, UK, Asia and Australia. Total group consolidation sales revenue is over us$59 billion. It also be voted among the top 50 business in the world. In the early of 20th century, Nestle operated factories in North America. Nestle USA was not incorporated until 1991. More than 17 thousand people work for Nestle USA in 6 distribution centers and 17 sales office. Sales exceeded US$ 11 billion in 2001. Hoe office of Nestle USA is located in Glendale, CA.
- #20 Together with well-known brands, Nestle produces tens of products, including coffee, snack, waster, chocolate, juice, pet food, prepared food and infant food. Have you found your favorite ?
- #21 Same as enterprises in other industries, Nestle USA challenges very severe competition in food and beverage market. From this Pie Chart, we can see Sales revenue of Nestle USA in 2001 accounts less than that of Kraft and Con Agra, Unilever, General Mills and Sara Lee are also its competitors.
- #22 In Nestle USA, CIO, one of the board members of Senior Management, reports to CEO. Some subdivisions reports to CIO. There are over 70 people working in that IT department
- #23 After its centralization in 1991, Nestle USA continued to function more like a holding company than a single entity. Divisions still had geographically dispersed offices and made their decisions. For example, each factory arranged their orders of Vanila, one of raw material common used, from a same vendor for different prices. They didn’t contact each other before purchase. The whole company lost a strong purchasing power. 9 different general ledgers and 28 points of customer entry. It is not efficient.
- #24 In 1997, Nestle USA embarked on SAP project code-name Best (Business Excellence through systems technology). SAP modules reached the areas of purchase, financials, sales and distribution, accounts payable and accounts receivables. Together with Manugistics supply chain Each would be deployed across every Nestle division. For instance, the purchasing group for confections would follow the same best practices and data as the purchasing group for beverages. Budget was for US$210 million and is expected to finished around Year 2000. 50 top business executive and 10 senior IT professionals were involved in this project.
- #26 Not only did workers not understand how to use the new system, they didn’t even understand the new process. And the divisional executives, who were just as confused as their employees and even angrier. In addition, the Best project team had overlooked the integration points between the modules. All the purchasing departments now used common process, but their system was not integrated with the financial, planning or sales groups. A salesperson-----discount to a valuable customer--------but the account receivable have no idea.-----customers paid--- only partial paid in account receivable. They started with business requirements reaching an end date, rather than trying to fit the project into a mold shaped by a predetermined end date. They also concluded they had to do a better job of making sure that they had support from key divisional heads and that all the employees knew exactly what changes were taking place, when, why, and how.
- #29 Lessons Don’t start a project with a deadline in mind. Figure out the project requirements, then determine how long it will take to accomplish them Update your budget projection at regular intervals. So many things happen during a long project that you will be lucky to stay on target during a particular year, let alone the life of the project. Frequently revising your numbers will help minimize troublesome surprise ERP isn’t about the software. It is easy to put a new system in place. The hard part is changing the business process of the people who will use the system. Nobody likes process change, particularly when they don’t know it is coming. Include in the planning the people whose processes you are changing. Keep the communication lines open while the project is in the works, and measure the level of acceptance before, during and after the rollout. Remember the integration points. It isn’t enough to simply install new systems; you need to make sure that they can talk to each other.
- #30 Nestle group contracted with SAP in June 2000 for $200 million, the largest software sale in the ERP vendor in that moment. Nestle has been in the process of deploy my sap.com ERP application to each of its employees worldwide. To consolidate its information technology operations now based in more 100 sites, in five GLOBE data centers around the world. Furthermore, In July 2002, Nestle chose IBM as the exclusive provider of servers, storage system and database software for its GLOBE data centers at the heart of Nestlé's comprehensive, worldwide business transformation initiative. When the IBM infrastructure is fully implemented, Nestle employee will be able to access my sap.com via an internal, role-based portal customized by the functions of the employee’s job. Nestlé's trading partners and customers will be able to access the company through private and secured exchanged, expanding the business outside the company. GLOBE is the most important project under way to prepare Nestle for the e-world