The ERP Marketplace
AMR research forecasts a $52.2 billion ERP market in 2002, compared to a $14.8 billion market in 1998, a 350 percent increase in only four years. The top five ERP vendors are SAP, Oracle Financials, PeopleSoft, Baan, and J. D. Edwards. SAP, a German Firm, has a commanding 36 percent market share, which is greater than the combined market share of 33 percent for the other four ERP vendors.
About 70 percent of the Fortune 1000 firms are either in the process of implementing ERP systems or plan to implement such systems in the near future. It is also predicted that more than 20,000 companies will implement ERP systems during the next four or five years. About two-thirds of all ERP systems' users are manufacturing firms.
SAP R/3 ERP System
Since it is representative of ERP packages in general, the illustrations in this section are based on the SAP R/3 ERP software package. SAPís (Systems, Applications, and Products in Data Processing) flagship product is its R/3 client/server system, with an installed worldwide client base exceeding 22,000 units. R/3 is a three-tier client/server architecture consisting of the (1) presentation level or user interface (the client), (2) application level (server workstations), and (3) data base management system level (database servers, file servers, and corporate legacy system). The company was founded in 1972 in Germany by a small group of engineers to manufacture software for integrated business solutions. It is the fourth largest software company in the world with revenues greater than $5 billion and more than 19,000 employees. SAP is expected to release several new products during the next year, including an ERP system for smaller companies. The relationship between ERP systems, which are on-line transactions processing (OLTP) systems and relational data base management systems, which is a type of on-line analytical processing (OLAP) system is shown in the diagram below.
Once computer networks and client/server architecture is embedded in a firmís infrastructure, the move to ERP systems is the next logical step in the quest to develop truly integrated information systems applications. As discussed in Chapter 3 of the text, an ERP system is on line transaction processing (OLTP) software comprised of a set of tightly integrated modules that are distributed across enterprise network servers (SAP R/2 is the ERP system for mainframe computers). All transaction processing systems (TPS), whether mainframe or client/server integrate through the general ledger or financial accounting moduleís charts of account and are designed to process the thousands of accounting and nonaccounting transactions that occur daily in business firms. As mentioned in Chapter 3 of the text, conventional non-ERP legacy TPS automated on mainframe computers lack the integration of client/server ERP systems since the latter uses a common relational data base to integrate all files across the organization. Thus ERP systems enable companies to overcome most of the limitations of their mainframe legacy applications, enabling managers to make more informed and timely decisions.
SAP R/3 is comprised of a set of nine integrated software categories. They are:
1. Financial accounting (general ledger, accounts receivable/payable, special ledgers, fixed asset accounting, consolidation) 2. Treasury (cash/funds management, etc. 3. Enterprise controlling (business planing and budgeting, executive information systems, profit center accounting) 4. Controlling (overhead cost, ABC, product costing, profitability analysis) 5. Investment management 6. Production planning 7. Materials management 8. Human resources 9. Sales and distribution
Presently, only the very largest enterprises have implemented ERP systems since developmental and operating costs can run into the tens of million dollars or more. What about the millions and millions of small, medium, and large-size firms that wish to retain their current-non-ERP accounting systems? Small and medium size firms have two choices: First, they can conduct transaction processing using spreadsheet packages or packaged software such as BusinessWorks, MAS 90, ACCPAC, Acuity, or a variety of other software packages. For OLAP or decision making applications, they can develop EIS and decision support applications from "scratch" utilizing a RDBMs; by employing data modeling techniques described in Chapter 6 of the textbook, such firms can use the RDBMs to construct data marts or warehouses. However, most small and medium firms not have the resources of in-house staff to properly use RDBMs.
Second, a small or medium-size firm can develop from "scratch" an enterprise-wide ERP system to process transactions and to provide decision making information. The development of such a system requires only a RDBMs. For example, Microsoftís ACCESS, a RDBMs, uses the visual basic for applications programming language, which firms can employ to develop their transaction processing applications; firms can also create numerous preformatted reports with ACCESS. These firms can also employ data modeling techniques (covered in Chapter 6 of the textbook) to create firm-wide data models and integrated tables (data marts/warehouses) containing the multidimensional aspects of transactions. Query-by-Example (QBE), a type of structured query language commands, can be used to generate ad hoc queries and reports for managerial decision makers. Unfortunately, this option is infeasible for most small and medium size firms because such an undertaking is very complex and time consuming; presently, a large number of small and medium-size firms employ spreadsheets to develop their transaction processing applications. For firms employing accounting software, many firms still use the DOS version of the package. In summary, most small and medium-sized firms are unsophisticated with respect to employment of state-of-the-art information technology.
Most large firms still automate their TPS on large mainframe computers and employ application program interface software and RDBMs, such as Oracle or DB2, to construct data marts and data warehouses. Managers can use their EIS graphical user interface to create a variety of preformatted reports and graphs. To find patterns of relationships in the data, they often employ statistical or neural network software.
Major Shortcomings of ERP Systems
A large number of firms, particularly manufacturers, have encountered significant shortcomings or problems with their installed ERP systems. For example, the materials resource planning (MRP ) system, a major component of ERP, is based on mass-production of products, an assumption that has been greatly modified in recent years. Consequently, inventory is valued on an outdated cost model that assumes direct labor is the major component of a product's cost. Also, ERP software works differently from what actually happens on the factory floor. For these and other shortcomings, read the article by Gene Bylinsky, "The Challengers Move In On ERP," Fortune, November 22, 1999. (Obtain the article from your college library or determine if you college library subscribes to a service such as EBSCOHost that enables you to access the full-text article online.) As a result of these problems, The Gartner Group, a contract research company, found that only 50 percent of companies that installed ERP software have fully utilized the features of the software. Another Gartner survey of 1,300 firms with ERP systems reveals that 10 percent of the respondents have replaced the ERP software with different transactions processing software. 1
Other Aspects of ERP
For other interesting information about ERP systems, click on the four underlined links in this spotlighting and answer the following questions:
