Chapter 8 Business Intelligence & ERP

Hour 7: Business Intelligence & ERP ERP offers opportunity to store vast volumes of data This data can be data mined Customer Relationship Management

Data Storage Systems • Data Warehousing – Orderly & accessible repository of known facts & related data – Subject-oriented, integrated, time-variant, non-volatile – Massive data storage – Efficient data retrieval

• CRM one data mining application – Can use all of this data – Common ERP add-on

Granularity • Definition – level of detail – Most granular – each transaction stored – Averaging & aggregation loses granularity

• Data warehouses usually store data at fine levels of granularity – You can’t undo averages & aggregates

Data Marts •

Different definitions 1. Small version of data warehouse 2. Temporary storage of data – –

possibly from multiple sources for a specific study

On-Line Analytic Processing • OLAP • Multidimensional databases • Display data on selected dimensions – – – – – –

Time Region Product Department Customer Etc.

Data Quality • Problem causes – Data corrupted or missing – Failure of software transferring data into or out of data warehouse – Failure of data cleansing process

Data Integrity • No meaningless, corrupt, or redundant data • Part of data warehousing function to clean data • Data standardization – Remove ambiguity (different ways to abbreviate)

• Matching – Associating variables (unique mapping)

Database Product Comparison Product

Use

Duration Granularity

Data warehouse

Repository

Permanent Finest

Data mart

Specific study

Temporary Aggregate

OLAP

Report & Analysis

Repetitive

Summary

Data Mining • Analysis of large quantities of data by computer • Micromarketing • Versatile – Apply to a wide variety of models

• Scalable – Can analyze very large data sets

Types of data mining • Hypothesis Testing – Traditional statistics

• Knowledge Discovery – No predetermined expectation of relationships

Business Data Mining Applications Area

Applications

Retailing

Market basket analysis, cross-sell

Banking

Customer relationship mgmt

Credit Card Mgmt

Lift, churn

Insurance

Fraud detection

Telecommunications

Churn (customer turnover)

Telemarketing

On-line caller information

Human Resource Mgmt

Churn (employee turnover)

Customer Relationship Management • Determine value of customer • Identify what they want – Package products (services) to keep them

• Maximize expected net present value of customer

Data Warehouse Use Wal-Mart Fingerhut

Wal-Mart Data Warehouse Foote & Krishnamurthi [2001]

• Wal-Mart dominates retail market • Heavy user of information technology • Supply chain distribution to 2,900 outlets – A critical success factor

• Data warehouse of 101 terabytes – Possibly world’s largest – Investment over $1 billion – Can handle 35,000 queries per week • Benefits over $12,000 per query

Wal-Mart • Initial data warehouse – point-of-sale & shipment data

• Added data – – – – – –

Inventory Forecast Demongraphic Markdown Return Market basket information

Wal-Mart Data Warehouse • Process 65 million transactions per week • 65 weeks of data per item – By store – By day

• Support decision making • Many users have access – Including 3,500 vendor partners

FINGERHUT • Founded 1948 – – – –

today sends out 130 different catalogs to over 65 million customers 6 terabyte data warehouse 3000 variables of 12 million most active customers – over 300 predictive models

• Focused marketing

Fingerhut • Purchased by Federated Department Stores for $1.7 billion in 1999 (for database) – 2002 – more recent developments

• Fingerhut had $1.6 to $2 billion business per year, targeted at lower-income households • Can mail 400,000 packages per day • Each product line has its own catalog

Fingerhut • Used segmentation, decision tree, regression, neural network tools from SAS and SPSS • Segmentation - combined order & demographic data with product offerings – could target mailings to greatest payoff • customers who recently had moved tripled their purchasing 12 weeks after the move • send furniture, telephone, decoration catalogs

Advanced Technology & ERP Bolt-ons Middleware Security

Technology & ERP Manetti [2001]

• Mobile commerce & other IT makes ERP extensions possible, attractive – – – – –

Broader use of web-enabled systems Greater AI-driven applications Greater use of ERP in mid-sized manufacturing Flexible modular systems More bolt-ons (3rd party applications)

• Creates security issue

Conflict: ERP & Open Systems • Original concept of ERP closed – Easy to control access

• Openness creates security issues – But there are too many good things to do with open systems – ERP vendors also provide such products

Example Bolt-Ons Mabert et al. [2000]

Bolt-On

Example

Vendor

Demand planning

Demand Planner

BAAN

E-procurement

Ariba Network

Ariba, Inc.

Business to business

MANAGE:Mfg

Cincom

Integrated suites

Manugistics 6

Manugistics

Order tracking

Intelliprise

American Software

Factory plan/schedule

Capacity Planning

JDEdwards

On-line collaboration

Aspen OnLine

Aspen Technology

Warehouse mgmt

CSW Warehouse Management System

Cambar

Data mining

Enterprise Miner

SAS Institute

Middleware • ERP interfaces to external applications difficult to program • Middleware is an enabling engine to allow such external applications eto ERP – Data oriented products – Messaging-oriented

- shared data sources - direct data sharing

Web ERP • J.D. Edwards OneWorld • SAP mySAP.com • Trends – More web links – More functionality

Middleware & Data Acquisition • Bar-code data collection • Radio frequency data collection • Web portals

Portals of Major ERP Vendors Stein & Davis [1999]; Stein [1999] Vendor

Portal

Function

BAAN

iBAAN

Application integration

J.D. Edwards

ActivEra Portal

Interface to ERP, e-mail, spreadsheets, Internet

Oracle

11i

Connect to business intelligence

PeopleSoft

PeopleSoft Business Network

Tie applications to online communities

SAP

mySAP-Employee workplace

Travel reservation, online procurement

SAP

mySAP.com

Center for SAP users

Lawson

Insight II Seaport

Files, data warehouse, e-mail, Internet

Other Vendor Portals Stein & Davis [1999]

Type

Vendor

Function

Business intelligence

Cognos

Access data warehouses, data mining

Information Advantage SAS Institute

Documentation management

Documentatum

Manage text

Other

Glyphica

Integrate ERP data with applications

Plumtree Software Viador

ERP Security Threats Type of Security Physical

Threat Theft, damage, copying Unauthorized access Natural disasters or accident

Social Network

Tricks to gain information Telephone taps Dial-up entry Internet hacking Viruses

Summary • ERP security originally was not problematic – Only few internal users could access

• Open systems driven by external applications – Creates security issues – Web access especially problematic

• Special ERP Security aspects – Data quality – Control over data access

Bolt-On/Middleware Examples Kellogg Company Dow Corning

Brown et al. [2001] Teresko [1999]

Kellogg Company Bolt-On • Kellogg developed their own ERP – – – – –

Forecast demand Take customer orders Coordinate raw material purchasing Coordinate production of over 100 food products Coordinate distribution

• Added linear programming Kellogg Planning System (KPS) – Production, inventory, distribution planning – Budgeting & capacity expansion

History • Long user of MRP, DRP (distribution resource planning) • 1987 realized product line growth, international expansion led to need for more computer support • Developed KPS in 1989, modified over time • By 1994 strong cost system in place – Saved $4.5 million in 1995

Kellogg LP • Minimized total cost – Purchasing, manufacturing, inventory, distribution

• Variables: product, package size, case size • 30 week planning horizon • Constraints: – Line, packaging capacities, flow constraints, inventories, safety stocks

• 700,000 variables, 100,000 constraints, 4 million non-zero coefficients

Kellogg LP • Continuous model took several hours to run – Generated starting solution for managers

• Probabilistic features dealt with through safety stock • Example of bolt-on to ERP – Linear programming generated better plans

Dow Corning System Integration • 1995 adopted SAP R/3 to integrate global business practices – Also adopted SAP data warehouse • Consolidated information generated internally, externally – Internal: plant-floor data, patent information, benchmarking

• Allowed deeper data analysis

Dow Corning System • Over 4,000 users had access • Integration & data compatibility problems dealt with by data warehouse • Added automated data collection system – Required middleware

• Middleware allowed expansion into supply chain management

Summary • Customer Relationship Management very promising – Has not reached all expectations as ERP add-on

• Quite expensive to get needed data storage capability • Still an opportunity to use all the data generated by an ERP • Many other useful bolt-ons