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