ERP – What does it mean to us today?

Introduction

That wonderful TLA ERP, we have heard this term banded about now for last 2 decades, but what does it really mean and in particular how does it helps in today’s changing world. Well let’s start by expanding the TLA, ERP stands for Enterprise Resource Planning.

If we go back to what we did back in the 70’s when I left university and joined Rolls Royce as a commercial postgraduate apprentice. The key then was to be able to plan our production schedule of what we expected to build and then work back to determining the material resources that we would need to use. Materials requirement planning (MRP) and of course its development MRP II was some of the first software I used – a whole weekend to get the plan for the repair and overhaul line (God help us if the punch cards were dropped or out of sequence!). But of course there are other resources that we need to plan, human financial, etc. And so was born the term ERP in 1990 by Gartner. InvestorWords.com defines ERP as, “An amalgamation of a company’s information systems designed to bind more closely a variety of company functions including human resources, inventories and financials while simultaneously linking the company to customers and vendors”.

ERP software packages are based around a single premise of their ability to manage all the information and functions of a company from shared data stores in a seamless manner. Wikipedia expands the definition by stating, “An ERP system typically has modular hardware and software units and services that communicate on a local area network. The modular design allows a business to add or reconfigure modules (perhaps from different vendors) while preserving data integrity in one shared database that may be centralized or distributed”.

An ERP package therefore consists of a number of function silo support components on top of a common infrastructure. The key is that the software vendor has incorporated best practice into the processes supported in the package. On top of this, the vendor provides the ability to customise and extend the package to fit special requirements of the purchaser. The current modular structure in the majority of current ERP packages is still based on functional silos.

Figure 1: A simplified model of ERP (Source: ERP Past, Present and Future, Ronald McGaughey and Angappa Gunasekaran)

Changing World

With money being tight, companies are looking closely at the investments that they have made and ERP is one of those, that for some the question is still not answered! So what are the business issues that ERP has to cover and what do these issues mean to way ERP has to work? Table 1 gives you my list.

Table 1: Holloway’s Key Business Issues for ERP

Oracle in their whitepaper on Globalisation[1] state, “Organizations that thrive in this new environment share several key characteristics: They’ve simplified and standardized their business processes. They’ve automated those processes. They’re providing real-time information across their enterprises.” So Globalisation means that we need to not only understand our business process, but simplify them so that information can be provided in real time to right people in the right format. John Hammann, SAP UK’s Industry Principal for Manufacturing told me, “All out new enhancement packs are about enabling a process, which crosses functional silos.” So Business Process support is key then.

Mark Soden, commercial director of IFS UK: “Agility is a key area of focus for manufacturers. What we’re seeing from businesses is the demand for ‘built-in’ analytics to support better decision-making on the shop floor, rather than a high-level Business Intelligence system. This provides information where and when it’s needed, allowing employees on the ground to take action straight away.” So Agility involves empowerment, interesting. Patrick Crampton-Thomas, Solution Director Supply Chain Management at SAP, gave another insight into the effect of agility, “ERP has been the foundation for innovation in business, but in the past it wasn’t agile. Customers have demanded that we make SAP easier to adapt. The ‘Enhancement Pack’ strategy behind SAP Business Suite has had a major focus on this; customers can install just the functionality they need.” So Agility also means speed of adopting new innovation, which means speed of implementation.

Rick Veague, chief technical officer of IFS North America commented on the effect of social networking on ERP, “Enterprise 2.0 and social media tools are designed to draw information out of people, to get them to talk. This will become more of a business critical issue as the current generation of senior manufacturing operations and maintenance professionals prepare for retirement, only to be replaced by a smaller, less experienced but more technologically sophisticated generation.” Crampton-Thomas also sees that the incorporation of social media will lead to new business applications where the ability to handle unstructured data will be key. Crampton-Thomas and Hammann see that this can wok hand in hand with mobility technology, “Mobility isn’t new but has massive potential. Combined with social media / networking tools gives the ability to provide consumer oriented applications on mobile phones where high degree of collaboration and networking adds value. Currently the keyboard facilities on these devices can be restrictive.” So support for mobility using appropriate user interfaces is important criteria for the ERP..

As economists and financial analysts suggest that the global economy is moving towards recovery, the focus is very much on operational and strategic initiatives that will help to position companies for the upturn. Visibility, collaboration and control across the global supply chain are key, and successful strategies in these areas are separating the industry leaders from the laggards. This means real time location and associated details are important; therefore ERP has to have the ability to work completely in real-time across the whole supply chain of different companies. If we couple this with the green collaborative supply chain initiatives of sharing loads and routes to reduce carbon footprints, I see that there is a need for open integration across supply chain software and ERPs.

In a recent article on ERPWire[2], it stated, “Formerly ERP was purely restricted to fortune 500 companies, in the sense only they could afford to invest on them. This put the small and Medium Industries at a large disadvantage, as they were not able to make use of the application to gain the necessary benefits. However this drawback has been removed after the intervention of open source facilities. The concept of Software as a Service has also helped in removing the difficulties faced by small and medium enterprises.” So the current battleground for ERP vendors is the SME market.

ERP for Tomorrow

The term ERP II has been coined to describe the new ERP models that we need in the 21st Century. The term was first used by Gartner in a research note[3] and was defined as, “a business strategy and a set of industry domain-specific applications that build customer and shareholder value by enabling and optimizing enterprise and inter enterprise, collaborative operational and financial processes.” What does this mean in straight English? Figure 2 below provides the main differences between ERP and ERP II.

Figure 2: Six key differences between ERP and ERP II Systems (Source: ERP
Past, Present and Future, Ronald McGaughey and Angappa Gunasekaran)

All my instincts, research and knowledge tell me that the ERP package of the future has to have 2 key capabilities,

Firstly software licensing has to change and be more flexible. SaaS and SOA componentisation must be available to allow companies to purchase only what they need, in a way that meets their budgets, and to be able to integrate without any issues. Jon Reed, an independent analyst, SAP Mentor and blogger at JonERP.com has written, “I think the economy is a game changer. Even when it returns, it will return in a way that will support different ERP business models than have been dominant in the past. Companies that can re-invent themselves, with more flexibility around service offerings, that’s going to be key.”

Secondly, ERP has to have the ability for users to use any type of mobile device, from mobile phones to computers to access the information when and where they require it. Soden told me “Twenty-first century workforces will demand increasingly flexible and up-to-date software that responds to the expectations set by consumer software. Thanks to the structural strengths of SOA, systems can now be more agile and responsive to such demands. As more and more manufacturers adopt social media aspects and integrate with their ERP systems, the benefits of enhanced usability will continue to accelerate a revolution in the enterprise software user-experience.”

Conclusion

James Maguire[4] stated, “The dream of enterprise resource planning systems is that a single application can track and monitor all of a business’s functions. In a perfect world, a manager opens a single ERP app to find data about any aspect of the business, from financials to HR to distribution schedules.”

Companies wanting to automate their processes using IT services have to clearly know what they want from an ERP before thinking of implementing them. David Wood, head of inventory and logistics at MSI Defence, who recently chose IFS as their ERP, told me, “Our ERP system was some 25 years old and not compatible with the changes in our business. We are a very project rooted business. There is a large amount of iteration of design changes so therefore support for engineering change was also important. Our other business need was for support for service management to provide the necessary services for our overhaul and repair business. Knowing these requirements was important in helping us make the choice of ERP we have made.”

So the ERP package has to be process and event driven rather than transaction driven. It has to have fewer moving parts and allow configuration to be minimised as well as much easier to perform – not forgetting faster! We are looking for ERP packages to be modularised so that not only can we choose only the ones we are interested in, but also be able to integrate based on standards to other packages with no issues. Our future users are much more computer literate than the current generation, but they are used to instant gratification from wherever they are. So our future ERP has to have new user interfaces such as queries in texting language, carousels and other iPhone like capabilities. Lastly but by no means least software licensing has to be much more flexible not only in terms of costs for maintenance, but in recognition that manufacturing has different capex life cycles than software.

I’m not asking for much really, am I?

Article originally published in the Manufacturer March 2010

[1] Information Globalized, Oracle, http://www.oracle.com/ocom/groups/public/@ocompublic/documents/webcontent/018834.pdf

[2] What the future holds for ERP?, ERPWire, http://www.erpwire.com/erp-articles/erp-future.htm

[3] ERP Is Dead — Long Live ERP II, Gartner Group, Strategic Planning, SPA-12-0420,

Research Note, 4 October 2000

[4] The Future of ERP, James Maguire, Datamation, November 15, 2006