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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