The Next Generation of ERPBy Bob Violino | Posted 05-06-2008
The Next Generation of ERP
Mention enterprise resource planning to CIOs, and you're likely to get an emphatic response--either positive or negative. Depending on their experiences with ERP systems, they'll either profess that it's a game-changing technology that vastly improves enterprise processes, or claim it's the centerpiece of an unwieldy project that consumes incredible amounts of time, money and resources without delivering on its initial promise.
Despite the divergent viewpoints, ERP remains a critical enterprise application for many organizations. That's why CIOs must keep on top of emerging trends in this technology, which has changed significantly since the first platforms arrived in the early 1990s. (See "A Morphing Market")
Two notable trends that could determine the future of ERP are the emergence of open-source solutions and the delivery of ERP applications as software services.
While open-source projects are not as mature as many of the commercial offerings, a growing number of organizations entrust key business applications to open-source software. And software as a service (SaaS) has already become a viable, cost-effective alternative for procuring applications.
If you're a CIO planning to deploy ERP today, you face some key decisions. Should you choose a system from a well-established vendor, opt for a smaller player focused on specific vertical markets or implement a mix of applications?
Should you deploy commercial software or open-source ERP? Buy a license-based application or go with ERP on an SaaS basis? Get help with the implementation from a systems integrator or consulting firm, or do the work internally?
You also need to determine how much you can spend on the ERP implementation--not just for the application itself, but also for consulting, installation, maintenance, support and training. Other factors to consider include how well the ERP offering will integrate into your existing IT infrastructure, whether the application supports global operations, how easy it is to support the system on a daily basis and whether the ERP applications are easily scalable as the business grows.
It's a complex situation, to be sure. But it also might be one of the most critical decisions a CIO can make.
The Next Generation of ERP
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Focusing on Business Flexibility
CIOs who implement ERP applications today want systems that provide business flexibility. "Early on, the ERP philosophy was to make sure your business worked around the software, but I don't think that model was very successful," says Brad Manning, CIO at Quaker Chemical, a Conshohocken, Pa., chemicals manufacturer. "The evolution of ERP is to move toward being more flexible and dynamic so you can configure the systems around your business."
Quaker began using ERP in 2001, when it deployed EnterpriseOne XE from JD Edwards (now part of Oracle) to replace an old order-management system that wasn't keeping up with its growth and global expansion and wasn't providing visibility into business operations. One reason EnterpriseOne was chosen was because it was supported on Quaker's IBM AS/400 platform.
Manning has been pleased with the ERP system, which it uses for design-to-manufacture, order-to-cash, order entry, accounting, purchasing, research and development, and procurement applications. However, this year Quaker plans to upgrade to the latest version, EnterpriseOne 8.12, primarily to gain greater systems performance and business flexibility.
XE was the first Web-enabled offering from JD Edwards, but performance and ease of use weren't optimized. The system has since been re-engineered with those improvements in mind. Quaker now wants greater stability. "We have pushed XE beyond its limits, and every time we roll it out to a new site, the stability gets worse, and we end up with more data problems," Manning says. The upgraded ERP system will allow Quaker to take advantage of new capabilities, such as e-commerce and customer self-service features.
The Next Generation of ERP
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Building Unique Processes
Another company that sought an ERP system that would provide flexibility as the business grew is ChemPoint.com, a Seattle-based electronic distributor of fine and specialty chemicals. The company, a subsidiary of Univar N.V., based in the Netherlands, also wanted to keep IT costs in line.
Even as ChemPoint and its services were being designed and developed during 1999 and 2000, executives weighed different options for enterprise applications, including ERP. They looked at several of the well-established offerings on the market, but didn't select any of them because the systems didn't meet the company's needs for agility.
"The ERP products we saw in 1999 and 2000 had a specification that if you bought into their system, you pretty much had their architecture," recalls Edward Lux,ChemPoint's vice president of technology. "It reminded me of Henry Ford's comment, 'Any customer can have a car painted any color that he wants as long as it's black.' Not to disparage the fine work that ERP vendors have done, but ChemPoint realized early on that it needed the flexibility to build processes unique to the chemical-distribution business."
ChemPoint's executives wanted a system that could be customized to meet the needs of an online business with fast-changing requirements. They found the solution in the pending launch of Microsoft Biz- Talk Server. "Because BizTalk is a message broker, it facilitates the communication of applications like the e-commerce engine to the transaction or finance engines," Lux explains. "This facilitation is the glue that sticks the applications together."
Using BizTalk Server, ChemPoint was able to flexibly configure an ERP system that fulfilled its requirements, connecting the applications via XML. Central to the solution was Microsoft's Great Plains (later called Microsoft Dynamics GP) software platform for transactions and finance.
"The flexibility in the system comes from the ability to connect applications together with user-defined rules, as well as the type of applications that can be connected together," Lux says. For example, at the time ChemPoint was launched, Great Plains had limited ability to manage warehouse information. However, the increased flexibility of the application allowed the company to install Yantra, a warehouse management system, and "glue" it to Great Plains, "so the two acted as one complete package," he says.
Today, the ERP system is the foundation for all ChemPoint's processes. It collects information on customers, including who they are, what they do, which products they produce and which products they use.
One of the biggest issues involved in the decision not to go with a formalized ERP system, says Lux, concerned version control and upgradability. "As it turns out, we actually have better control today over what we will upgrade and when," he says. "For most companies, an upgrade of an ERP system represents everything, but we have the ability to upgrade just our CRM [customer relationship management] system, or just our transaction and financial systems, depending on our timing." The company periodically reviews the status of the ERP industry and compares it with the track ChemPoint is on with its more customized ERP. "The extreme flexibility built into our system," Lux says, differentiates it from "the more mature but rigid ERP systems."
The Next Generation of ERP
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Scaling for Growth
Though flexibility obviously plays a key role in any successful ERP implementation, it shares the stage with scalability, which supports corporate growth. A scalable ERP platform has enabled Novartis Consumer Health, a division of the Swiss pharmaceuticals company Novartis, to increase its business and manage multiple acquisitions.
In fact, an SAP ERP system has been "the backbone that has helped our company grow at the rates we have historically enjoyed," says Greg Meyers, CIO, Americas.
In the past, Novartis Consumer Health viewed ERP as a platform to allow its regional commercial operations to work seamlessly as self-contained units. "As our business grows and continues to globalize, we see a benefit in moving toward a more global instance that allows us to better share product and customer master data across regions," Meyers says.
With a global ERP capability, the company plans to improve integration among key business processes. "Whether we're attempting to deploy a global supply chain or provide better customer service, a global ERP instance helps us achieve many benefits," he says.
Novartis Consumer Health continually faces decisions about whether to stay within the SAP suite of
applications or adopt a best-of-breed application. Meyers explains the dilemma: "With almost every new
application--data warehousing, advanced planning, MRP [material requirements planning], warehouse management--there is an inevitable debate that occurs. Do we stay with our ERP vendor and use its capabilities, or go outside and use a boutique solution?"
In many cases, the boutique solutions are more financially attractive and have greater functionality. "However," Meyers says, "after reviewing total cost of ownership, and in the interests of maintaining a harmonized landscape with the best-quality data integrity, the existing ERP solution ends up being the wiser of the two."
CIOs face a major challenge in choosing, implementing and maintaining an ERP system. Are you ready?