Enterprise Resource Planning (ERP) Systems Special

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

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

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

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 4

Stovepiped Systems t Production Operations rce s Pro cure men ce an Tactics ou es Fin nR ma Hu stics data Lo gi data s ion cis de ions decis de cis io n dec s ision s decisions Strategy data data data 5

Re so ur ce s Hu m an m en t n uctio Fina n Prod Pr oc ur e L og istic s Integrated Systems ce data ng i n n Pla Other Departments 6

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. 7

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 8

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 9

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 10

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. 11

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

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 13

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 14

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 15

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) 16

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 17

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 18

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 19

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

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 21

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 22

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 yearend books on a Cal Tech contract Source: GAO, Federal Computer Week 23

Implementation Strategies Process Mapping Select Application SW Selected Business Processes Generating process flows using the reference models link software applications that as input tailored fulfill business process to project requirements requirements System Implementation Customization and optimization of software A c tiv ity s c h e d u le& R e s p .c h a rt P rojec t e.g. Supply Chain Personnel Finance E-Commerce Manufacturing Distribution Sales Force Auto. D ateissu ed : A p provedb y: P eriodlen g th : T arge tc om pletio n : eriod A rb .vo l. P M /D /W1234567890123 4 Selected software matching selected processes 5 67 B a a nT a rg e t M ile stone : M a p p in g /P ilo tin g IO 1P ro je c tp la na n dP ro je c tS e tu p I IT 1H a rd w a re&s o ftw a rein s ta lle d P IP 1C o n c e p ttra in in gK e yU s ersd o n e IB 2P re lim in a ryB u s .M o d e lA c c . IC 1H ig hp rio rityC u s t.S p ec ified IO 3O rg an iza tio n a lM o d e lA p p ro v e d IP 2A d v .K e yU s ersT rain in gd o n e IT 3D a taC o n v ers io nP lanD e fin e d IT 4S y s te m /A p p l.M g tF in a lize d IB 4F in a lB u s .S o lu tio nA g ree d X X C X X X X D X P C D X P C I C I C P C X D X P C C X C C X P X X X X I C P C X I I X C C P D X P XC D X X P A C I X P A X X P IO 4In te rn alD o c.G e n e rate d II1E x t.In te rfa c esS p e c .D e fin e d P D X P C IT 2S y s te m /A p p l.M g tIn itia te d IB 3D a taC o d in gS c h e m e sD efin e d Baseline SW for Implementation I IO 2C o m p a n yIn fo rm e d IC 2C u st.D e fin eda /oC o m p lete d Inventory of COTS software C o m pa nies/D ep a rtm en ts/F un ctio n s/G ro upo fem plo ye es X-e X ecu te sth ew o rk D-ta ke s(fin a l)d e cision d-ta kesde cisionw ith co n su ltation P-m a n a g ep ro g re ss T-p ro vid e stu itiono nth ejo b C-m u stb eco n su lted I -m u st b ein fo rm e d A-a vaila bletoA d vice X X C X C 24 A

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 25

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 26

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? 27

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 28

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 29

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 30

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

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 32

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 33

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 34

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 35

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

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 37

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) 38

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 39

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

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 41

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 42

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 43

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 CaseDeloitte Consulting 44

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

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

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, & outcomebased 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)) 47

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

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

OSD Oversight of ERP OSD Oversight of ERP Proposed ProposedMilestone MilestoneReview ReviewRequirements Requirements MS Requirement Initial Capabilities Document Clinger Cohen (CCA) Business Case: (includes key elements) AoA & AoA Plan EA Outcome Based Measures APB CARD CCA (Cost) Capabilities Development Document (CDD) Status Domain/JCS MS A MS B MS C/FRDR In - Mod In New In - Mod Updated Capabilities Production Document (CPD) ? C4ISP ? Information Assurance Strategy (IA) In - Mod Acquisition Strategy (ASR) In - Mod ? Test Strategy Test & Evaluation Master Plan (TEMP) In - Mod DT & OT In - Mod OT Results PIR Plan In In - Mod Updated 50

Conclusions A major business and IT strategy for meeting organization’s vision and goals High reward but high risk Change management is a critical success factor: people, process and systems Engaged leadership and oversight 51

Questions?

Enterprise Resource Planning Systems: Issues in Strategic Planning and Implementation EAI0403 will be offered at the IRM College – National Defense University, Ft. McNair August 2-6, 2004 Provides an overview of issues surrounding the strategic planning and implementation of enterprise applications, specifically, Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems. To register for this education opportunity, go to http://www.ndu.edu/irmc/ and click on uNet Login. 53