Features

More space in the ERP marketplace

DQI Bureau

23 Feb 2005 00:00 IST

New Update

India's tryst with ERP is a relatively new. But enterprises large and small

have been quick to appreciate that ERP software integrates the information used

by its different departments and functions into a unified database, leading to

better business performance and efficiencies. While the basic goals of ERP-to

improve business efficiencies-remain intact, the environment demands that your

ERP solution offer you something more, by linking your past operational

effectiveness to future opportunities-and creating strategic value.

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And that, indeed, is the direction in which the new generation of ERP

solutions is headed. Research giant Gartner has coined a term for it-ERP II-which

it defines as "a business strategy and a set of collaborative operational

and financial processes internally and beyond the enterprise." In other

words, if ERP was about everyone in an enterprise relying on one database to

manage information such as employee records, customer and purchase data and

inventory; ERP II goes beyond the enterprise and thus extract tangible benefits

from the ERP software.

There are three main trends driving the continuing evolution of ERP: greater

integration and interoperability in applications; extensions to include

additional capabilities such as SCM, CRM, etc; and the move from client-server

networks to Internet-based platforms. In India, the ERP market is growing at an

annual CAGR of 17% and is expected to touch $310.6 mn in 2007 from $144.1 mn in

2002 (according to IDC). An additional trend is that much of this growth will be

fuelled by new customers in the mid-market, or SME segment, including service

and outsourced manufacturing industries.

ERP Milestones

ERPII:

ERP Plus External Collaboration and Web-based Applications

2000s

ERP: Internal Process and System Integration 1990s

MRPII:

MRP Plus Financial, Labor, Equipment Cost Efficiency 1980s

MRP: Production, Purchasing, and Inventory Reduction 1970s

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The trend towards integration and interoperability between software from

different ERP providers is largely a result of customer demand, though the

concept of flexible and open technology platforms should have been intrinsic to

ERP itself, given that its raison d'etre is integration. Greater

interoperability between applications by different vendors is based on open

architectures that use standards-based component frameworks. Vendors have moved

from centralized architectures towards synchronized components. So if you

purchase an SCM or a PLM package, it comes with a set of pre-integrated

components that have all interfaces publicly available. These interfaces can

also be integrated with solutions from other vendors. As a customer, this

"best-of-breed" approach allows you a tailor-made ERP solution and

diverse functionality because you can tie, say, an HR module from one vendor

with the ERP solution from your primary vendor.

Even as vendors are moving towards more open architectures, they have also

designed complete suites of business applications that are integrated, but

component-based solutions and are therefore scalable. So if your company wants

to start with the essentials, such as a finance or HR component, you can do just

that and add on other components like materials and production later on. Given

the vendors' focus on SMEs, which often face budgetary constraints when

implementing full ERP packages, component-based solutions will help your

business justify IT investments and provide a more realistic RoI model.

Oiling the automation wheel

ERP on its own is no longer enough to provide the faster delivery of information
and products that customers are seeking today. This is why e-business links are

so important and this, in essence, is what ERP II is all about. MRP arose from

the need to link manufacturing and production functions, and ERP brought it to

the next level-integration of those processes with the rest of the enterprise.

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ERP Implementation Methodology

The Big Bang

This is the most ambitious and difficult of approaches to ERP implementation. In this methodology, companies cast off all their legacy systems at once and install a single ERP system across the organization

Franchising This approach suits large or diverse companies that do not share many common processes across business units. Independent ERP systems are installed in each unit, while linking common processes, such as finance management, across the enterprise

Try and Buy ERP dictates the process design in this method, where the focus is on just a few key processes, such as those contained in ERP systems financial module. The try and buy approach is generally for smaller companies expecting to grow into ERP. The goal here is to get ERP up and running quickly and to avoid the reengineering and tailoring issues in favor of the ERP systems out —of-the box processes.

Now, after companies have tied their internal processes together, they are

moving to the next step-linking to customers and business partners and

external processes. ERP II is a set of industry-domain specific applications

that builds customer and shareholder value by enabling and optimising enterprise

and inter-enterprise, collaborative, operational and financial processes. In ERP,

the focus is on optimising the enterprise; ERP II extends this proposition to an

enterprise's entire value chain. With ERP II, the role of an ERP system

expands from an attempt to optimise enterprise resources to a focus on exposing

the information involving those resources to other enterprises within a

community of interest. ERP II focuses on process integration and external

collaboration with outside interests such as vendors, suppliers, customers and

third-party distribution networks. The two things that ERP II emphasizes on are

an open architecture and a vertical-specific functionality solution. That means

the monolithic ERP systems of the past will have to change. For enterprises, the

journey to ERP II will provide broader and deeper functionality as well as

e-commerce enablement.

The implementation of ERP packages poses a significant challenge to

organizations. ERP implementation has its risks, and the software isn't

exactly cheap. Businesses are expected to change their business processes to fit

the software to take full advantage of the best practices offered by the ERP

system and to facilitate future upgrades. There are three basic building blocks

to a successful ERP implementation: define the requirements; develop a plan; and

implement. The marriage of these three components. coupled with technology

integration and user training comprises the total effort. If a company does not

make conscious decisions regarding what to architect and what benefits must be

received, it cannot hope to realize the maximum value creation from

implementation.

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ERP Lessons

From

Business Process

ERP was

promoted as the “magic balm” that would solve all

the problems of an enterprise, hence the expectation of

the stake holders were raised and could not be fulfilled

Efforts to

understand the management culture of the organization

was not attempted——ERP vendors prescribed their

patented implementation methodologies and companies used

them in the hope that their implementation would be

successful

Readiness

of the enterprise to receive and use a complex

application was not assessed. This resulted in failures

that can be traced to mismatches in data that was

required for taking forward transactions from one

function to another. One of the most glaring examples of

this glitch is the enterprise's policy on matching

data from material procurement, inward goods receipt,

quality control, invoice matching and bills receivable

processes. All of us understand this as the two, three

or four-way matching

The roles

and responsibilities of the senior management and users

at various levels were not clearly defined, and if

defined, remained largely on paper.

From People

The culture and competence of people who would actually use the ERP was never assessed

The users were not involved in either the selection or implementation. In most cases, the decision was taken either by the CEO or by a few people at the top management. These people did not understand the intricacies and the finer points of obtaining the buy-in from the end users

The issues and concerns of the individual stakeholder who uses the ERP were never taken into consideration and hence the individual's concerns were not addressed

Support to a massive change that the enterprise underwent was more in the

books rather than through demonstrated actions by the CEO and senior management

A majority of the users and decision makers did not understand their role in the post implementation scenario, hence data entry operators continued to enter transactions and managers continued to download data onto spreadsheets for preparing MIS reports. They were either not trained or refused to move up the value chain.

For the management, the challenge is to make sure that the entire

organization-up, down and across-develops a new mindset from which it can

leave the old, ineffective ways behind.

In recent years, companies have embraced e-business applications that

automate such business processes as procurement, supply chain operation, and CRM.

It's critical that companies' ERP applications don't operate in a vacuum

but can communicate with all applications that feed data into a particular

business process, such as order to cash. Such tasks grow in complexity when

supply Chain Management or CRM or Product Life Cycle Management (PLM)

applications are disconnected from core ERP system, an outcome of the

best-of-breed approach as opposed to single-vendor integrated solution approach.

Gartner Group has estimated that as much as 30% of the work associated with

implementing a major enterprise application involves integrating it with other

systems.

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ERP Evolution Metrics
System	ERP II	ERP
Role	Value chain participation/C-commerce enablement	Enterprise optimization
Domain	All sectors/segments	Manufacturing and distribution
Process	Externally connected	Internal, hidden
Function	Cross-industry, industry Sector and	Manufacturing, sales and
	specific Industry processes	distribution, finance processes
Architecture	Web-based, open, componentised	Web-aware, closed, monolithic
Data	Internally and externally Published	Internally generated and
	and subscribed	consumed

A key emerging standard that will have an impact on application integration

is Web services. Using Web services, individual modules of the enterprise

solution can be hosted in different places. Business logic, along with the data

it relates to, no longer has to be centralized since the Internet can connect

any system with the other.

With contributions from editorial advisors -Ravi Kathuria,

director marketing, SSA Global India, R Ramakrishnan, director, Solutions

Architect Team, SAP India and Raghu Ram NC, VP-IT, Orchid Pharma

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