ERP OF CISCO

ERP OF CISCO

INTRODUCTION

Enterprise Resource Planning (ERP systems) has been adopted by many businesses in the past decade. These systems have revolutionized the organizational ways of doing business by integrating the business processes, sharing common data and practices across the entire enterprise, producing and accessing information in a real-time environment. Organizations have realized important tangible and intangible benefits from ERP including general and administrative, expense reduction, margin enhancement, revenue growth, improved customer satisfaction, personnel and information technology (IT). Despite these benefits, many companies have had serious problems implementing ERP systems. These problems have caused many companies to abandon their ERP initiative or implement the system in a limited capacity.
The main idea of ERP and how companies have seen its benefits have misled their implementation, seeing at ERP as a magic way to become competitive, and not as a tool that depends on the way the company uses it. The tool can help companies to become competitive, or it can also take them out of business.
A loss of control can occur for many reasons when an ERP system is implemented, inadequate project definition, planning and implementation is one of the most significant causes for this loss of control.

ERP
Evolution
Its Evolution started in 1960 and until now the evolution continues.
1960-70’s MRP Manufacturing Resource Planning
1980’s MRPII Manufacturing Resource Planning II
1990’s ERP Enterprise Resource Planning
2000’s Extended ERP

*e-ERP includes the supply chain management with distributions and customers.
ERP growing trend:

Garther Group (1999) forecast the ERP market capitalization would reach USD 20
Billion by 2002, divided evenly between revenue in services and licensing.
ERP Cost
ERP Cost factors

Modeling the cost impact of an infrastructure platform for an ERP system over a complete application, infrastructure development and support lifecycle can be done by identifying its main cost:
Cost of the product, offer by vendors.
The overall cost, Total Cost of Ownership -TCO for an ERP environment, with the two main impacts, the first the implementation that occurs throughout the development phases, and the second impact is on-going costs and they usually occur during the support phase, this on average in during the 18 months after initial ERP package deployment.

Total Cost of Ownership-TCO
The total cost of ownership is referred as the overall cost from the start until the maintenance
of an ERP system.
Only 20% of the companies that have implemented ERP systems actually know the (TCO) Total Cost of Ownership.
TCO is calculated using three-year time frame with an eighteen-month average implementation time and eighteen months of post- implementation support cost. Normally cost are broken into three categories for both implementation and on-going support costs.
During implementation, similar costs are expended in each of the three categories. However after implementation is complete, the balance of cost shifts dramatically to infrastructure during the on- going support phase of the ERP initiatives.


ERP Contributors by Phase


With on-going support costs, especially as they are related to the infrastructure, are a significant component of ERP TCO. Organizations must understand, manage, and track these cost in order to extract value form ERP initiatives.

Technical benefits
Most of the times the technical benefits are concerning with the long term and the ROI, but companies should always see if an ERP helps to rationalize technical resources across the business.
• Consistent logic application, information and interface, creating an IT environment easier to understand and thus to work in.
• Single system, creating an IT infrastructure easier to manage.
• Avoids to build local own integrated systems, something involving large cost and risks.
• Leverage IS dollar instead of “reinventing the wheel”
• Forces a process focus approach during implementation
• Eliminates the need to maintain version control and interfaces associate with separate packages.
Operational
The whole company will be re-organized across process, Operational benefits should be the most significant through the whole implementation and the once that are much easer to evaluate. If an ERP changes the way of doing business in way that it takes its core competence, there is no use of being linked if the purpose of the company has disappear.
Reduction in inventories
Reduction in total logistics cost
Reduction in manufacturing cost
Reduction in outside warehousing
Reduction in procurement cost
Increased production capacity
Improved order cycle time/ accuracy/cost.

Financial
The benefits on the financial are cannot be that great, especially when the main issue is not how much benefit will bring to the fina ncial department, but more if there is sufficient resources to cover the cost of an ERP implementation.
• Increased shareholder value, before this was measured by the increase on the stock price, but not anymore.
• Reduced assets deployed
• Increase return on equity
• Improved cash flow

ERP Modules benefits
These benefits can vary from companies and depend on the functionality and applicability of each of these modules:
The most significant modules are:
Inventory Management
Order Entry
Pricing Flexibility
Purchasing
Production management
Beside all the models benefits and despite the company does business, the overall benefit is
the connectivity of information.

Implementation
Implementation of ERP
Implementing ERP requires major changes to organizational, cultural, and business processes.

Reasons for implementation
• The most common motivations for implementing ERP:
• Need for common platform, with the intent to replace innumerable legacy systems.
• Process improvement expected from the implementation
• Data visibility that could be used to improve operating decisions
• Operation cost reductions, as evident by the metrics used for measuring the success of the implementation.
• Increased customer responsiveness in operations
• Improved strategic decision making

There are five major reasons why companies undertake ERP.
• Integrate financial information
• Integrate customer order information
• Standardize and speed up manufacturing processes
• Reduce inventory
• Standardize HR information


Key drivers
The main reasons that drive companies to an ERP implementation are:
• Improved Work Process
• Increased Access to Data for Business Decisions Making
• Increased control of work processes by staff
• More timely information
• Greater accuracy of information with detailed content.
• Improved Cost Control
• Increase in customer response time
• Efficient cash collection
• Quicker response to market conditions
• Improved competitive advantage
• Improved supply-demand link

Internal factors

The key factor in an ERP implementation is the internal preparation. Whether or not a project
is successful depends to a significant extend on an adequate amount of internal preparation.
Know your requirements
• No one knows your business better than you do.
o Before calling in vendors, the homework within the organization is vital. This will not only prepare to evaluate the vendors and applications more effectively, but will also enable the company to get better utilization of any system.
Vital Point
• Identify all problem areas in the present work process.
• List transaction that seem to require special processing from the general process, sales invoices that can not be traced to a sales order, which could pose a problem in certain types of businesses
• Check the possibility of simplifying procedures and identify areas of duplication of effort.
• Collect user complaints of the existing system. Classify them accordingly, sales and purchase. This could be valuable source for evaluating alternative systems.
• Collect information regarding the requirements for reports at various levels of management.
• If the operations are spread across a region or are global, it has to be consider using one system at all locations, and vendor should have the capable of supporting the company at all locations
• The present hardware infrastructure available has to be checked.

External factors
The new economy and the extended enterprise are the key external factors that have
motivated and sometimes pushed some companies to implement an ERP system.
A psychological effect also plays an important roll on the ERP implementation, where a
company takes a decision driven by the phenomena and not necessarily by its own needs.
Functions vs. Process
The re-organization of an enterprise around process, changes the way of doing business,
leaving the old functional approach and transforming into a process-centric.
New organization structure

Common pitfalls
Many companies find that ERP systems help them make better-information decisions, other discover too late that their purchase has been based on faith than on good judgment, and runs up ten or even hundreds of millions of dollars in extra costs and schedule delays.
How can manager ensure that their companies build a sound business case for deploying ERP systems? Moreover, what can they do to guarantee that the promised benefits are not eclipsed by the cost of integration, process redesign, and training? An answer to this can be cost-based approach to the business case and another one is be aware of common pitfalls. Soft returns, such as revenue or employee productivity gains, are neither easy to predict or under a company’s direct control. The problem is a common one in evaluating IT investments.
In the case of ERP systems, the length of the payback period and the size of the investment needed in terms of both cash and human resources make it unwise to assess a project on anything but a hard-return basis. This is not to suggest that an ERP system cannot help company boost revenue, or that employees cannot learn to become more productive with the aid of superior MIS (Management information systems). However, the difficulty and expense of deploying ERP mean that most companies should appraise such an investment purely in terms of its potential to cut costs.
Once the company has made as strong business case for an ERP system and subjected it to a rigorous sensitivity analysis, how the system should be implemented. Company’s ability to manage complex ERP installations varies widely, and cost overruns and slippage are common. There are tow main weak spots or two common pitfalls.

MARKET
Market
Core ERP sales remain essentially flat, but strategic extensions keep the market healthy with a
61% growth.
The vendor or the line of business had to be primarily identified as an integration solution,
including:
Enterprise Application Integration (EAI)
Internet Application Integration (IAI)

ERP total investment


Such technical advances mean that companies enhancing their old ERP system or buying new ones will gradually come to feel less need to get all of the elements from single vendor.

Companies that build existing ERP systems can stick with their original vendors, an approach that lowers their exposure to risk but leaves the lagging, to a cerate in extent, behind the state of the art. Alternatively, they can use third-party products to extend their ERP systems, with the original vendors controlling the overall architecture. On the other hand, companies can combine products from a number of different vendors into a suite of heterogeneous applications linked by messaging middleware. Although the third approach frees a business from dependence on a single vendor.




Cisco Systems
Cisco Systems is one the most important successful cases on an ERP implement with the internet and since then it has added substantial CRM capabilities for customer service and an extensive portal for internal and customer-oriented knowledge management. Even with its lead, the company never rests: It recently went through another round of reengineering key processes to make better use of available technology.

Cisco the company
Cisco System, Inc. was founded in 1984; became public in 1990, their primary product is the “router” hardware & software that control Intranet & Internet traffic. The rise of the Internet made Cisco one of the top companies, a company that has been growing by acquisitions. With the rise of Internet technologies demand for Cisco’s products boomed and the company started to domain the market.
In 1997 Cisco ranked among the top five companies in return on revenues and return on assets, 1998 just 14 years after being founded, Cisco market capitalization passed the $100 billion.
Cisco Revenues at the time of the case



1. History of Cisco









- Founded in 1984 and IPO in 1990
- Low-level diversified functional applications (HR, Finance, Marketing,
Manufacturing, etc.) for around 10 years → complicated legacy system
- Serious manufacturing shutdown for two days in Jan 1994
- ERP project kick-off with KPMG
- Successful implementation within 9 months with $15 million

2. Why ERP?
- Peter Solvik (CIO in 1993) may have recognized the possibility of shutdown
- Integration of system would involve many big changes out of his control
- After shutdown in 1994, concluded systems replacement based on top management’s
sponsorship
3. How Implementation?
- Form a team with the best employees in company
- KPMG as the integration partner
- Selection of Oracle due to better manufacturing capability, flexibility of package and
Nearby location
- Set up core code and parameters for ERP
- Completed within 9 months and at a cost of $15 million
- Go-live and stabilize system

4. Before and After ERP Implementation
Before ERP After ERP
IT Approach - decentralized
- one system in one function at a time - centralized
- integration with legacy system
IT ownership IT persons Top management & IT persons
IT Paradigm Only Back office Interaction with
Back office & Front office



Cisco’s Revenue (Case study period-ERP implementation)


Cisco’s profit (ERP implementation period)

Until 2000 Cisco Market Capitalization was 153,67 Billion and Cisco Sales was over 20
Billion.

Cisco ERP implementation case

Initial situation:
Cisco relied on Unix- Based software package to support its operations: Financial, Manufacturing & Order Entry, the system lacked reliability and the ability to expand. At that point, the CIO knew that they needed a change however; he wanted to avoid an ERP project. The first approach used was that each functional area would determine when and how it would be upgraded. This approach did not help, little progress was made, up to the point that the systems had put Cisco out of operation for over two days. This was the point where Cisco realized that a simply “Band-Aiding” the system was not going to work; an ERP project was the only way.

Cisco’s process:
An Investigation team was put together
Regardless of what they did, it had to be quick (Big-Bang) and as simple as possible (Standardization)
Selecting an ERP Product
Internal Involvement
o Requires people from all areas of the business community
External Involvement
o Strong partnership to help the selection and implementation
o KPMG became their key partner, because they were most experienced in the
industry
Selecting an ERP Product
o Information search
o Build on the experiences of others.
Decision speed was key due to its emergency.
o Oracle
o Emphasis on manufacturing
Promises:
long term development based on the functionality of the package, this was a key factor for Cisco’s success. The promise was not only on a product in was on the capability of this product.
o Flexibility since Oracle was close to them
When it was time to go to the board key questions had to be answer such as cost and time. The board adopted the decision with a committed of 9 months of implementation and a total cost of $15 million.

Cisco Implementation Team
Implementing Oracle was done by “Conference Room Pilots” (CRP), each one was build on a previous work to develop a deeper understanding of the software and its function, and two teams were developed:
The first team was focused on getting itself trained in Oracle using intense immersion (2 day sessions for 2 weeks)
The “Tiger team” focused on getting the applications up and running
Another team of 40 people was setting all the parameters for Oracle over a period of 48 hours
The Goal for everyone was to make the system work within their area
The final goal of CRP2 was to test the hardware and software to see if it could handle the daily load
Final test included a full load by capturing a full day’s list of transactions and rerunning them on a Saturday
Once the system was running, they realized that it was not able to handle the actual load, it
took 3 month to stabilized the system.

CHALLENGE
Oracle applications have supported Cisco operations since 1965 and are used by every functional area. The initial installation and the subsequent upgrade carried out for Y2K provided executive and IT teams with points of reference to size the magnitude of this project and the level of risk mitigation required. In particular, it was recognized that the company had grown significantly since the last upgrade, and the business processes were appreciably more complex. Thousands of employees and boundary systems were dependent on this platform, adding complexity to the upgrade.
One of the priorities for manufacturing was to support their move to a more outsourced model. The challenge for this functional area was to minimize the investment required for the upgrade and to fully engage all of the manufacturing business teams and supply chain partners. For the finance team, the upgrade to oracle 11i had to be carefully defined to support all finance related business initiatives such as the globalization and automation of processes, and the reduction of customizations by moving to off-the-shelf and standard functionality.
Other success factors for the upgrade were based on growing recognition of the needs for:
• Increased collaboration across Cisco functions.
• External collaboration with suppliers, distributors, partners and customers.
• Support for the move to an electronic business model.
During the timeframe of the upgrade to Oracle 11i, the primary driver for Cisco—increasing company productivity—greatly influenced the planning efforts. A strategy to transition Cisco to a process-focused enterprise emerged, and modernizing the oracle foundation was soon recognized as a key prerequisite and enabler for making the shift. This effectively raised the project from a cross functional task to a company wide priority. The new oracle 11i enterprise architecture would serve as a critical foundation for the overall business, introducing common technology and business platforms, and providing enhanced capabilities across functional areas.


ERP Products:









SOLUTION
Companywide Dedication and Priority Status
Cisco’s oracle 11i upgrade was classified as a company initiative, ensuring that all the functions prioritized this upgrade with the necessary resources and funding. Expertise was the brought in as needed, and the resource contentions were quickly resolved since project priorities were clearly defined in advance. The upgrade project was able to garner the required resources at the required times, sometimes moving people in and out of the project for the short term engagements.
Rigorous program Management
An effective governance structure served as a vital component of program management. Given the multiple internal and external groups ultimately affected by the upgrade, it established a cross-functional governance structure spanning from the executive level for all affected business areas. In parallel, a more rigorous release management process was put in place for the Oracle 11i program. Four teams were established to address the critical components of the process.
• Steering committee- this multifunctional team met monthly to provide governance and guidance for the program management team, and to proactively address program risks and resource issues.
• Program Management team- IT provided dedicates, full time staff to manage the development and business flow teams.
• Release management team- This team coordinated the process of planning and implementing rehearsals and “go-live” events.
• Business Flow team- This team was made up of representatives from the affected groups in each of the critical Oracle-supported business flows, who voiced the business requirements for the move to oracle 11i with an emphasis on the user perspectives.
A designated business lead from each business process area represented their users’ requirements and maintained communications between the business area and the PMO. Each business lead’s responsibilities included overall project governance for that functional team, as well as serving as executive liaison with their respective steering committee representative.
With teams in place, the PMO established processes for the traditional project management tasks-analysis, development, and testing. Increased focus was given to managing the transition to the new system and its impact to Cisco’s business, partners, and customers.
• Transition readiness track- This track focused planning, rehearsal, and risk mitigation of all the business and IT activities related to performing the upgrade and getting the new system ready for business use.
• Business readiness track- This track focused on understanding the impact of the upgrade to the business not only in terms of the changes and processes, but in terms of the impact of the three-day downtime on Cisco’s operations, partners, and customers. Business readiness was divided into sub tracks that focused on organizational adoption, communications, training and contingency planning.
“Teamwork was an important success factor,” says Murray. “Everyone from management to individual contributors recognized that we succeeded or failed together.”
Software Change Management
For almost 10 years, Cisco IT managed software changes using a model based on segregation of duties-the person writing code did not place it into production, but rather submitted a request to the production team. Segregation of duties and an automated workflow protected the staff and business from many malicious or unintentional problems.
Very early during the Oracle 11i project, IT recognized that the existing software configuration management model would not suffice. Oracle 11i required and unprecedented amount of changes for Cisco, and between 400 and 500 developers would be programming the changes. To meet these challenges, Cisco IT drove the adoption of a new model and solution for the configuration change management. For complete details on this vital component of the Oracle 11i project,

Readiness Tests
In order to implement the change, Cisco Manufacturing would have to coordinate with numerous subcontracted vendors in approximately 20 locations worldwide. A great deal of time was spent keeping the teams informed making sure they understood and were prepared for all of the changes.
Ahead of time communications were not enough. The actual transition to the new environment was rehearsed multiple times. Three end to end tests were carried out, each performed over the days of the week that would be used for the used for the actual cutover. The business impact necessitated that the test be run around the clock. This called for a full commitment from the IT, finance, and manufacturing teams, as well as subcontractors, to support a 24*7 schedule. Hardware and software vendors were involved early on, and participated in the test runs. “Before the first readiness test, we defined the thousands of steps required for the upgrade and put a system in place to track those steps and their dependencies. As a backup, we defined points of contact and escalation processes for each team,” says Murray. “The tests greatly reduced our risks and helped us optimize the process As a result; we shortened the time for the cutover.”
In addition to the readiness tests, the teams conducted walkthroughs, including simulations of potential problems. The walkthroughs involved predetermined roles and scripts for the operational teams to follow. By simulating problems, the teams were ready for many scenarios and became accustomed to working together in a crisis situation.
The New Architecture
The move to Oracle 11i introduced radical architectural changes throughout the Cisco infrastructure. The main changes included:
Three-tier Architecture-Prior to Oracle 11i, users accessing applications on data centre server required client software loaded onto their desktops. In the new Oracle 11i environment, clients can access the applications using Web browsers. This thin-client, three tier model provides users with a new, friendlier interface.
Storage Area Network (SAN) – Storage requirements increased radically with the upgrade, especially during development and rollout testing when other projects were looking for copies of applications and data sets. Combined storage design development, staging, testing and production added up to hundreds of terabytes. To connect servers and storage, two Cisco MDS 9000 Series Multilayer director switches are introduced to replace unwieldy, smaller switches. The scalable, director-class switches provide 640 ports and allow scalable flexible SAN configuration (Figure 1) .Key features of storage architecture, before and after the upgrade are summarized in Table 1.
Load Balancing – The Cisco Content Switch Module (CSM) optimizes Oracle 11i performance relating to forms, reports and Java applications. Traffic is redirected automatically and dynamically, balancing the load in real time among servers, firewalls, and other devices on the network. As processing increase, more servers can be installed without the need to replace the systems that are already in place. As a plug in module for Cisco Catalyst 6500 Series switches , the CSM combines Layer 2-4 services and Layer 4-7 functions with a single , high-performance platform (Table 2)
Disaster recovery - Redundancy is built in at many levels. The main corporate database engine is hosted in a San Jose, California data center, using two servers in an active-passive configuration. A second site in North Carolina, acts as a disaster recovery site in the event of a site failure at the main data center.
Internet access for partners Changes to router-based access control lists (ACLs) allow external partners and suppliers to be given access to various Oracle 11i applications. In the past, partners had access only through dedicated leased lines; now partners and suppliers have increased access to Oracle applications over the Internet. Security is maintained for corporate data assets while enhancing collaboration and e-commerce abilities for the company.






RESULTS
Cisco successfully upgraded its entire finance and manufacturing environment to Oracle 11i over a three day holiday weekend at the end of 2003
The monumental milestone was not marked with performance problems, corrupt data, or frustrated partners, but with a smooth, uneventful implementation.”After all the rehearsals and contingency planning, the actual upgrade went like a dream,” says Murray. “It was like getting a corporate heart transplant and seeing the patient up and working around right after it was done. The success of the project resulted in recognition from our CEO at the company all- hands meeting, and winning the company’s teamwork award.”
The project team receives companywide praise, and executives noted the phenomenal success of this high priority company initiative. John Chambers., president and CEO OF Cisco, remarked. “Well done! I realize how important this was to us and how risky. The first time we put in our ERP system, we were naïve and dint understand what it could have done to us. The Oracle 11i installation was flawless. In fact, they told me I wouldn’t be able to get our finance numbers over the weekend- but I could get my numbers everyday except one. It was just an unbelievably good coordination effort, and it speaks to how we can drive business process across the company through IT implementation and teamwork”.
In the end, multiple factors contributed to the success of the implementation. Teamwork, management support, release planning, proactive communications, and company priority all played key roles in the smooth transition. Given the challenge and risks of implementing new technology and new functions, the success was especially significant.
LESSONS LEARNED
The team learned the importance of defining strong government and metrics management for program health, overall readiness, and solution stability. Inclusion of multiple end to end test cycles with increasingly strict exit criteria ensured the appropriate level of “go-live “quality. Multiple reviews focused the teams on business and systems readiness from early on in the project. Regular executive and project reviews were conducted to manage risk and deliverable status.
Software configuration best practices management (change control) was applied to reduce the velocity of change as the go-live data approached. Murray explains,” the closer you get, the more you must mitigate the risk-it’s better to go ahead with known issues rather than making too many last-minute changes that could introduce risks and unknowns.” Before going live, the executive and business team approved known issues, business risks, and workarounds.