Supply chain: ERP

The ins and outs of ERP

Andrew Kinder of Infor explains everything you ever wanted to know about ERP but were too afraid to ask.

 

Just what is ERP?

ERP is an abbreviation for ‘enterprise resource planning’. It is simply an integrated IT system which translates business management practices and the core business processes of an organisation ‘into’ modern technology and vice versa.

The purpose of ERP is to help an organisation support its core business processes and do so with more automation and fewer resources. In fact, most organisations have justified their ERP investments on higher efficiency and productivity—often meaning fewer people in the back office and less stock in the production or distribution supply chains. 

Technologically-speaking, ERP is a complex software architecture that supports the connection of enterprise-wide information across all functional units of a company.

From the executive perspective, ERP provides a comprehensive overview to enable productive and efficient decision-making. In an independent survey of over 700 executives, ‘improved decision making’ was the number one benefit claimed for their ERP systems. [Source: IDC Manufacturing Insights, June 2010].

How has ERP technology developed up to this point?

In order to understand the current construction of an ERP system you need to go back to the 1960s. The first IT systems were designed to help the control and management of traditional inventory concepts. In the 1970s the focus of modern business management shifted towards better planning through MRP (material requirement planning) as the fundamental concept used in production management and control. IT systems were used to translate the master production schedule into requirements for every element of the production process—sub-assemblies, components and other raw materials. The systems then computed and time-phased the delivery of production and new purchases to meet the customer order delivery date.

The 1980s enlarged the MRP concept still further (it became known as ‘MRPII’) and involved optimising the entire business process capturing areas like finance, costing, human resources, engineering, project management, etc, and gave birth to what we today know as an integrated ERP.

The 1990s were times of consolidation for the software industry and key players SAP, Oracle, Infor and Microsoft continued to build out their products and acquire smaller vendors who were unable to gain global scale.

So where are we and what next for ERP?

The landscape for ERP—more precisely, what is expected of an ERP solution—is changing fast.

Firstly, user expectations of how ERP systems should look and behave have been re-set by the technology advances in desktop applications, tablets (like the Apple iPad) and smart-phones. Users want easy access to information from multiple sources and they want to be able to arrange the information to suit them and their job functions. So the finance controller will have different screen layouts to the production controller.

Secondly, the old idea of a single integrated database for all data needs is gone forever.   These days, the information a business needs in order to make decisions is frequently outside the company. 

For example, buyers will access information from a supplier’s systems so they can speed up communications between them. Engineers will want access to specialist quality systems for test results and product lifecycle management systems to quickly develop new products. Sales want to combine the market insight they have from their customer relationship management (CRM) system with the order promising capability of their ERP. So ERP needs to be much more ‘open’ in its design, allowing the easy connection of different systems and allowing information to flow from many sources to the user—just like it does when you use the internet to browse on Amazon for shopping.

Finally, businesses have become second or third generation ERP buyers. They are more aware of what is possible with ERP and no longer accept generic ERP systems in a ‘one-size fits all’ approach. There is nothing in common with the business processes between a company that makes sausages and one that builds jet engines. So why would anyone expect that they would be serviced by the same ERP system?

Why do organisations invest in ERP? What problems are they looking to solve?

There have been many studies on the value of ERP. The results are consistent—organisations with best practice ERP outpace those who have not invested in such systems on all the metrics that matter—margin growth, customer service, inventory accuracy, productivity, cash-to-cash cycle time, etc. [Example source: Aberdeen: ERP – Much Better Off With than Without, January 2011]. The IDC report referred to earlier showed ‘better decision making’ as the top benefit. The next highest ranked benefits were profitability, cost reduction and inventory optimisation.

However, there is also another change coming in the benefits of ERP.  Once it was all about back office efficiency improvements and the questions asked of systems were ‘how fast can I process this order?’ and ‘how many days after month end can I close the books?’. Such efficiencies helped organisations automate processes, growing revenues without expanding resources and improving margins. But many of these efficiencies have now been gained. What ERP users look for now is to make better quality decisions, faster. So when taking an order from the customer, a business can know instantly what warehouse it will be shipped from, how it will get there, what it will cost, when it will arrive, what the customer’s payment record is like and if there are any special promotions.

The answers to these questions lead to more profitable decisions, but they require greater computing intensity around business analytics and the optimisation of many variables—perfect for a technology-based solution such as ERP.

What are the most important recent trends or developments in the ERP space?

Ralph Rio from ARC Advisory Group says: “With the success of search, social networking, and smart phones, the expectations for an intuitive user interface have changed dramatically." Traditional ERP systems have not been intuitive, they are difficult to integrate, they are inflexible, and they don’t provide the level of real-time visibility needed to proactively respond to changes within business. It doesn’t matter how powerful your applications may be under the hood—if you hate the way they look and feel, you’re going to hate every mouse click of every workday. So one of the biggest recent developments has been led by Infor—the evolution of a consumer-grade user experience and approach to enterprise software—with Infor Workspace.

One of the hottest technology discussions today is about ‘the cloud’. But because businesses need flexibility, the smart money is on developing approaches that provide options for businesses to run the same robust software either on-premises or in the cloud. This is better than having different applications for cloud and non-cloud, which makes it harder for users to swap between them.

Up to now, cloud applications have favoured non-mission critical, non-real-time processes such as financials, HR, talent management, sales force automation—these all seemed like worthy candidates for the cloud. But what about the core industry processes? There has been some market reluctance to running an ERP system, EAM system or SCM system as a cloud application. Companies were afraid the cloud isn’t robust enough, trustworthy enough, or capable enough to handle the applications that they rely on every day. However, this is changing. We’re ready to deliver a seamless, unified user experience with security across on-premises and cloud applications and for smaller, growing companies we are finding that organisations like the speed of deployment and lower start-up costs of a cloud-based ERP solution.

Andrew Kinder is EMEA director of Solutions Marketing at global ERP software provider Infor. www.infor.com