How is software best procured?

Custom Software• Historically, built used & maintained in-

house

• Increasingly outsourced

• Development risks & costs covered by one organisation

• Software matched organisational needs

• Transaction processing easily supported

• Integrated systems difficult to develop

Packaged Software• Use of packaged software is growing rapidly.

– Packages meet common business needs.

– Transaction systems are similar across businesses

– Traditionally focus on isolated business function(s).

– Why reinvent the wheel!

– Developed by third parties.

• Packaged applications may be based on best practice.

Issues related to packaged software vs custom software:

• Which will provide the most effective information system?– Quality information for better decisions.

– Competitive advantage in rapidly changing environment.

• Which will be the most efficient solution?– Relates to the cost of creating, implementing,

maintaining and operating the orgsnisation’s information system.

Issues relating to purchase:• Does the package match the user requirements?• How reliable is the supplier?• Is the developer a stable organisation?• Is the package stable or is it under constant

revision?• How well does it integrate with other

software/applications?• What support is available? • Are operations staff available?

Issues relating to Implementation and Support:

• Customisation

– Changes necessary to meet organisational requirements.

• Integration

– How well can they package share information with other systems.

• Upgrades

– How often is the software upgraded?

– How is the upgrade affected by customisation and integration issues?

Customisation includes:

• Configuration

– Assembling the purchased modules into a system.

– Setting parameters in the package.

– Adjusting user interfaces.

– Integrating with other packages or systems.

Customisation includes:

• Modification

– Changing the package code to alter existing processing.

– This can cause serious problems when upgrading.

– The vendor may not support modification.

– Original code may be unavailable.

Customisation includes:

• Enhancement

– Adding functionality to a package.

– Does not alter the original package.

Upgrading

– Upgrading can be a serious problem if extensive work was required for customisation or integration.

Integrating Packages

• Packages tend to work separately from one-another, but they need to either use, supply or share data with other systems.

• Organisations try to set up data so that it is accessed in a standardised form in real time.

Non-Integrated Information System:

HR MarketingApplications Applications

HR MarketingData Data

Financial ProductionData Data

Financial ProductionApplications Applications

Integrated Information System:

HR MarketingApplications Applications

HRMarketingProductionFinancialData

Financial ProductionApplications Applications

ERP - Enterprise Resource Planning

• Using integrated application software to improve effectiveness and efficiency.

• Functionality supplied provides 'Best Practice'

• ERP integrates across the entire value chain

– Value chain = all processes that add value to a product or service.

– Data is integrated across the organisation

– Organisational units are integrated

– Capability to integrate with customers & suppliers

Advantages of integration include:

• Critical data is available for users in real time.

• Integrates the entire value chain.

• Integrates organisation across geographical boundaries.

• Extends boundaries across different businesses.

• ERP integrates TPS, MIS, DSS

Major ERP Vendors:

• SAP, Peoplesoft, Oracle, J.D.Edwards, Baan

– Originally supplied packages to support:

– Finance, Manufacturing, Human Resources

Vendor Offerings

• Offerings now include:

– Customer-relationship management

– Supply-chain management

– Sales-force automation

– E-commerce

– Business intelligence

– Total quality management

Customer Relationship management (CRM)

• The process of meeting the needs of customers from initial inquiry to after sales support.

Supply Chain management (SCM)

• Managing all resources and processes involved from raw material acquisition to finished goods delivery.

Sales-force automation

• Processes that make it easier for sales personnel to service customer accounts.

E-commerce

• The buying and selling of goods and services on the internet (especially the World Wide Web).

Business intelligence

• The acquisition and use of information designed to improve competitive advantage.

Total quality management (TQM)

• The process of achieving the highest levels of quality throughout the entire organisation.

The Changing Business Environment

• Mergers

• Government deregulation

• Globalization

• Business process reengineering

IT Trends

• Client-server technology

• Object-orientation

• Telecomunications

• Internet

Questions

• How can custom built legacy systems keep up?

• Can an organisation maintain staff that are expert in so many areas?

• How can an organisation reorganise itself within the limits imposed by legacy software?

Benefits of ERP Systems

• The adoption of ERP products appears to resolve these problems.

• Reduces workforce in core transaction processing systems by eliminating manual tasks and duplication.

• Supports global business operations.

• Economies of scale achieved by replacing division level systems with corporate level systems

Benefits con’t

• Reduction of information systems development staff by using packages

• Improves customer service through better logistics based on more complete & accessible information.

• Data integrity is improved through a common database.

• Decision support is improved through more timely reports and better drill down capabilities.

Costs of ERP:

• $800,000 for a midsize firm ($400k - $2 billion annual sales)

• $3-8,000,000 for a large corporation ($2 billion +)

• Consulting fees may be high due to shortage of staff.

• Payback expected in 6 – 30 months.

ERP Implementations:

• They are complex,

• They affect the entire organisation

Critical Success Factors:• Top management support, an effective &

respected champion• Centralised project management with a business

leader in charge (not an IT leader)• Strong IT management & staff support• Heavy user involvement in project management &

implementation• BPR to standardise on the software rather than

customise the software to match the business.• Retrain existing IT staff in ERP implementation

and maintenance.

CSF’s con’t• Use of consultants to lead in

implementation & training• Top-notch analysts with excellent business

knowledge and excellent technical skills. Retraining of these analysts throughout the project & beyond.

• Effective & continuous communication among all parties. Sensitivity to user resistance to new systems. Extensive training of end users.

What does this all mean to current students in IS??

Approaches to ERP implementation:

Comprehensive Package

Fully integrated

Some particular needs may not be supported

Lack flexibility to rapid change

Best-of-breed

Best software chosen for each application

Integrate all the applications

Often the packages don’t integrate well

Middleware (and a skilled systems integrator) used to reduce integration problems

Hybrid

Some packages purchased due to desirable functions

Comprehensive system provides ‘backbone’ for rest of the system.

Reduces problems of integration yet allows customisation in key areas.

Selecting a Comprehensive ERP package

Preliminary evaluation:

– Is critical functionality available?

– The up-front costs of the package.

– The cost of ongoing support, upgrades and add ons

– Viability of the vendor.

Preliminary Evaluation: (cont)

– The fit between the business model of the package and the current processes of the organisation.

– Proven success in the business environment

– Availability of customisation tools.

– Accommodation for the organisation’s management style.

Detailed Evaluation

– Lower-level managers

– Operating personnel

On-Site Visits

– Sites using the package are visited

– Sites identified through own reseaches

– Quality of support performance and reliability are determined

– Customisation difficulty studied

– Hardware, software and implementation times are studied

Final Decisions

• Criteria determined

• Weighting assigned

• Total score for each product is determined

• Any serious faults are noted and may disqualify product

• Consensus must be achieved with final decision.

Systems Development in an ERP Environment

• Large projects need to be well organised to be successful

Organisational Structure for ERP projects

• Scan image Pg 16 & insert here

Roles • Oversight committee

– Monitor project

– Make key recommendations

– Representative of all users

• Project Teams & workgroups formed.

– Teams assigned to different development areas

– Vendor representatives

• Administrative support provided

Phases of development

• Two key factors affect development

– The scope is very large

– Packaged software is used extensively

Planning– Oversight committee is formed

– Project team formed

– General purpose and scope determined

– Alternative approaches to ERP evaluated

– Initial selection made

– Determine how the project is to proceed

– Budgets, feasibility, project schedule

Analysis• Work Groups formed, Requirements determined

• Evaluation of vendors

• Business process engineering requirements identified

• Vendors selected, but not finalised

• Prototypes developed to demonstrate integration

• Alternatives reconsidered & re-evaluated

• Recommendations presented to Oversight Committee

Question:

• Will the analysis phase be longer or shorter than that for the custom development approach?

Design• Varies considerably depending on approach

taken

• Interface design varies according to the amount of customisation required

• Hardware and networks must be designed to support packages

• Training of end-users

• BPR performed, new procedures and job descriptions prepared

Implementation

• Configuration of modules

• Integration of packages

• Prototype created and evaluated until production ready

• System is verified, tested & tuned

• System documentation completed

• User training completed

• New system installed with rollout plan developed during design

• Organisational structures changed, personnel placed in new positions

• New procedures implemented

Implementation (cont)

Support

• Continued training & support

• Well managed Help Desk

• Adaptive & corrective maintenance

• Future additions:

• Evaluation of ERP systems

• SAP R/3