ERP: Where Is It Heading?

Manufacturers are under constant pressure from customers, shareholders, and

suppliers to continuously improve, to make better products faster and more

efficiently. To compete in a dynamic environment, requires tremendous agility.

Successful companies must be able to respond quickly and cost-effectively to

change. This is true whether change involves shifting customer demands and

supply chain partners, modifications to a business model or business process,

business expansion and the need for new initiatives such as outsourcing, or

evolving regulatory pressures imposed by financial markets, industry groups, and

government bodies.

Manufacturers need to convert their factories into responsive, demand-driven,

profit-making enterprises. With the Internet, the speed of doing business has

forever changed, and the old rules and traditions no longer apply.

Forecast-based planning alone can no longer meet the needs of Internet-powered

customer demand. In order to compete, companies must optimize their

manufacturing operations. Their competitive advantage and ultimate survival

depends on the use of information systems and technology.

Need of ERP Systems



Intense global competition and mass customization has realized the need for

having better systems that can provide quick and reliable information across the

complete value stream. 

ERP (Enterprise resource planning) systems have become synonymous with

competitive advantage, particularly throughout the 1990's. ERP systems replace

isolated information with a single, packaged software solution that integrates

all traditional enterprise management functions such as financials, human

resources, and manufacturing and logistics. Started with an IT application to

handle the inventory problems of enterprise in 1960, the ERP systems brought a

common information database which helped business functions of the organization

to shift their thinking to an organization or enterprise focus rather than a

departmental focus.

Many companies have implemented ERP applications; either developed in-house

or off the shelf products from ERP vendors, with a hope to become more

responsive to the customer needs and enhances their business.

Justifying the Investment?



Even though ERP systems resolved the internal issues within an enterprise,

the industry did not really perceive the complete benefits of implementing such

a system, as these systems were blind towards understanding the parameters

outside the four walls of the enterprise. There arises real necessity to have

application over the ERP systems, to increase the value of the core ERP systems.

Vendors started building strategic applications around ERP, and called them

extended ERP or ERPII, which brought a dynamic new way of doing business, by

having real time collaboration with partners, suppliers and customers. This

enabled enterprises to react quickly to changes in the market place and become

more agile. Applications such as supply chain management (SCM), supplier

relationship management (SRM), customer relationship management (CRM), Product

life cycle management (PLM) helped in collaborative planning, scheduling,

forecasting, and product development etc. The complete value chain from

'supplier-manufacturer-customers' has become more dynamic and responsive to

the needs of their end customers.

Most of the ERP vendors have geared up to the needs of the customers by

increasing their product breadth and providing a complete end-to-end solution,

to meet the customer demands.

Challenges for Future



The challenge for many IT managers is to justify the cost of huge IT

investment and to show the real ROI from implementing these applications.

The demands on ERP vendors serving the market hence continue to rise. So

there are challenges and market trends in the ERP space.

Embracing the New Demand Drivers



Even though packaged ERP systems provide off-the-shelf best practice

solutions of the industry, they may not fully support all the features required

for all the vertical industries. Also, there would be some regulatory

requirements that need to be addressed in the applications as and when they are

introduced by the regional or global bodies such as new VAT regulations for

Indian industries, the SOX compliance etc. In addition, the customers will have

some specific practices which they deserve to retain, and hence would customize

the packaged ERP applications to their needs.

ERP vendors are hence constantly demanded by their customers to handle these

requirements-generic, specific and regulatory, in their next releases. One of

the key challenges for most of the ERP vendors is to provide the value addition

to their active customers by providing these enhancements to the product, both

functional and usability features in their upcoming releases.

Thriving on a comman information base

Most of the big ERP vendors have also addressed the specific business needs

of different vertical industries.  ERP vendors focus continues to improve the product fit to

targeted industries, which help in reducing the customizations and lowering the

total cost of ownership to the customer.

Most of the customers presently have disparate applications on different

technology platforms, built with different tools, and purchased from different

vendors, and not working seamlessly. One of the key challenges of the IT

managers is to make these applications integrated well and work in tandem.

A study from AMR indicates that a 'demand-driven enterprise' can further

drive revenues and profitability; as it is based on aligning processes to sense

and shape demand, and respond portably to a demand signal. By improving the

critical business processes that increase responsiveness, speed, and agility,

demand driven supply network (DDSN) can directly impact the key drivers of

financial performance: faster growth, higher profitability, and improved

capitalization.

Enterprises have to at every stage not only re-look into the process

capabilities but also their technology infrastructure that helps them to get

real time information across their supply network. Software vendors have to look

into the solutions to embrace the concept of DDSN and enable the enterprises to

become more demand centric. Analysts indicate that half of all the companies do

not have a clear visibility across their supply network, in spite of having IT

systems, such as ERP, SCM, PLM, CRM, and SRM. This is because they lack proper

integrations of all of them and in the next three years 30% of the companies

will move towards making their technologies towards working in collaboration

with all their business partners.

The major challenge to the ERP vendors is hence to provide seamless

integrations between all their extended ERP applications, which can help the

enterprises in being a demand driven organization. The next generation of

enterprise applications will need to embrace better architectural capabilities

to make the integrations more plug and play, rather than tight point- to-point

integrations.

One of the key market trends is the technology transformation to a

service-oriented architecture (SOA), which will have the largest effect on

redefining the ERP market. As indicated by analysts, service-oriented

architecture will transform software from an inhibitor to an enabler of business

change, through 2015. SOA will shift revenue from packaged software to

subscription services and from monolithic suites to composite applications.

SOA is an approach to designing, implementing, and deploying information

systems such that the system is created from components implementing discrete

business functions. These components called “services” can be distributed

across geography, across enterprise, and can be reconfigured into new business

process as needed. The services are “loosely coupled” allowing for much more

flexibility than older technologies with respect to re-using and re-combining

the services to create new business functions both within and across

organization.

The business component architecture forms the foundation of its specialized

versions: service-oriented and event-driven architectures. A service-oriented

architecture with reduces complexity, eliminates point-to-point integrations and

introduces flexibility through process-driven applications.

This provides agility to meet the ever-changing needs of the plant,

business unit, and enterprise and out into the supply chain.

It provides a more controlled and more secure environment to meet the

requirements of regulatory issues.

Most of the vendors are in the process of transforming their technology

architecture into service-oriented architecture.

Other important market trend that is seen in the late 2000 is the vendor

consolidation. This consolidation among mid-market vendors will continue as per

Forrester Research. Providing a strategic product direction will become

important to the vendors to give the comfort level to their existing customers

and new accounts. Some challenges to the vendors is to invest in merging the

overlapping products and ensure a smooth migration path to their existing

customers.

The future goal of most of the ERP vendors is to provide an enhanced value of

the installed systems, by bringing in the real value proposition to the existing

customers as well as to the new customer, by enhancing the product with

additional features, both functional, technical and usability. The technology

transformation to service oriented architecture will bring more flexibility to

the users in bringing more agility to their ever-changing needs. Lowering the

total cost of ownership of ERP applications and reducing the complexity of IT

infrastructure will become the primary focus, both to vendors and customers.

Ranga Pothula,

director—Development, SSA Global Technologies





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