Concepts in Enterprise

Resource Planning
Fourth Edition

CHAPTER TWO
THE DEVELOPMENT OF ENTERPRISE
RESOURCE PLANNING SYSTEMS
 The Evolution of Information Systems
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 Silos
 Companies had unintegrated information systems that supported only the activities
of individual business functional areas
 Current ERP systems evolved as a result of:
 Development of a vision of integrated information systems
 Reengineering of companies to shift from a functional focus to a business process
focus
 Computer Hardware and 3

Software Development

 Computer hardware and software developed rapidly in the 1960s and 1970s
 First practical business computers were the mainframe computers of the
1960s
 Moore’s Law: Number of transistors that could be built into a computer chip
doubled every 18 months

 Advancements in computer
software
 1970s: relational database
software developed
 Provide businesses the ability to
store, retrieve, and analyze large
volumes of data
 1980s: spreadsheet software
became popular
 Early Attempts to Share Resources
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 By the mid-1980s, telecommunications developments allowed users to share

data and peripherals on local networks
 Client-server architecture
 By the mid-1980s, database management system (DBMS) required to manage
development of complex ERP software existed

 Manufacturing software developed during the 1960s and 1970s

 Evolved from simple inventory-tracking systems to material requirements planning
(MRP) software
 Electronic Data Interchange (EDI)
 Direct computer-to-computer exchange of standard business documents
 Allowed companies to handle the purchasing process electronically
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Entity-Relationship Diagram

S t r u c t u r ed Q u e r y L a n g u a g e
(SQL)
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Management’s Impetus to Adopt ERP

Information and material flows in a functional business model

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Information and material flows in a process business model

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Business Process Reengineering

• B u s i n e s s Pr oc e s s Re e n g i n e e r i n g is the fundamental, radical, r e d e s i g n in

b u s i n e s s p r o c e s s e s to a c h i e v e dramatic i m p r o v e m e n t s in k e y m e a s u r e s of
pe rforman ce s u c h a s cost, quality, speed, a n d service

• Th e f o c u s of B P R is not o n h o w a p r o c e s s is done, but W H Y it is d o n e

 Risks
Benefits • Resistance from e m p l o y e e s
• C o s t Reducti ons  Cost
• Improved Customer  Job l o s s e s
Satisfaction  Tradition a n d culture Time requirements
• I m p r o v e d Agility
 Lack of m a n a g e m e n t support
• I ncreased Profitability a n d
Reputation  R i s k s to m a n a g e r s Retraining
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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

 Software modules: individual programs that can be purchased, installed, and run
separately, but that all extract data from the common database
 1982: SAP released its R/2 mainframe ERP software package
 1980s: sales grew rapidly; SAP extended its software’s capabilities and expanded into
international markets
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 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

 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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 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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 Current SAP ERP system: SAP ECC 6.0 (Enterprise Central Component 6.0)
 Sales and Distribution (SD) module
 Materials Management (MM) module
 Production Planning (PP) module
 Quality Management (QM) module
 Plant Maintenance (PM) module
 Asset Management (AM) module
 Human Resources (HR) module
 Project System (PS) module
 Financial Accounting (FI) module
 Controlling (CO) module
 Workflow (WF) module
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SAP ERP Software Implementation

 Not all companies that use SAP use all the SAP ERP modules
 Company’s level of data integration is highest when it uses one vendor to
supply all of its modules
 Configuration options allow the company to customize the modules it has
chosen to fit the company’s needs

A customization example: tolerance

groups to set transaction limits

 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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 Features of SAP ERP

 First software that could deliver real-time ERP integration
 Usability by large companies
 High cost
 Applicability of best practices
 Best practices: SAP’s software designers choose the best, most efficient ways in which
business processes should be handled

 By 1998
 Most of the Fortune 500 companies had already installed ERP systems
 ERP vendors refocused their marketing efforts on midsized companies

 SAP All-in-One
 Single package containing specific, preconfigured bundles of SAP ERP tailored for particular
industries
 Can be installed more quickly than the standard ERP product
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ERP Interface
Example: SAS
Institute
Dashboard
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Questions To Be Resolved In Class

1. What are the main characteristics of an ERP system? What are some newly
developed features of ERP systems?

TRUE/FALSE
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