Page 647 - Introduction to Business

CHAPTER 18 The Digital Enterprise 621

Improved inventory and asset management (60 percent). Consistent, tightly
integrated systems allow organizations to provide better service and
reduce costs through efficiencies such as better asset management or
inventory reductions.
Ease of expansion or growth and increased flexibility (55 percent). ERP sys-
tems enable a more agile, flexible organization. They position an organiza-
tion for growth and enable easier integration of newly acquired entities.
Use of fewer physical resources and improved logistics (54 percent). By stream-
lining logistics and minimizing the associated physical resources, organiza-
tions can attain increased operational efficiency and cost reduction.
Cycle time reduction (53 percent). Shortening cycle time enables an organi-
zation to be more nimble, cut costs, and improve its responsiveness to
employees and customers.
Improved customer service and retention (47 percent). Integrated customer
information allows organizations to serve their customers faster and more
effectively, thereby increasing customer satisfaction, loyalty, and retention.
Headcount reduction (40 percent). Through greater systems and operational
efficiencies enabled by ERP software, organizations can minimize their
support staff and thereby reduce costs.
Increased revenue (36 percent). Integrated business processes can enable a
firm to offer new products or exploit new channels, thus creating new
opportunities to generate revenue. 5
The cost of an ERP system includes several components.
• The cost of the ERP software, which is related to the size of the company that it
must serve
• The cost of the additional hardware that is typically needed to run the ERP
software
• The cost of the consultants that are needed to install and configure the ERP
software
• The cost of training employees to use the ERP system 6
A large company may spend from $50 million to $500 million U.S. dollars for an
ERP system. For example, Allied Signal, a manufacturer with annual sales of $14.5
billion U.S. dollars, is implementing an ERP system in its Turbocharging Systems
Division, which encompasses 18 sites in 11 countries and 9 languages. Such an
implementation might cost $30 million U.S. dollars in ERP software license fees,
$200 million U.S. dollars in consulting fees, plus millions of more U.S. dollars for
additional hardware and training. In addition, the implementation may take four to
six years. A midsized company may spend from $10 million to $20 million U.S.
dollars implementing an ERP system, and it may take one to two years to finish the
implementation.

reality When you buy a ticket from a commercial airline via its website, you are
CH ECK interacting with its ERP system. Why do you think this is the case?

ERP Software Vendors

LEARNING OBJECTIVE 4
Compare the five major vendors of enterprise resource planning software.
The largest five ERP software vendors in increasing order of market share are Baan,
J.D. Edwards, PeopleSoft, Oracle, and SAP. This number may be reduced: PeopleSoft

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