Some have dubbed it “the operating system for business.” Sounds a lot better than “ERP,” the vaguely gastrointestinal acronym it usually goes by.
Whatever you call it, it’s easy to see the charm of enterprise resource planning. A well-integrated ERP system manages all sorts of back-office functions, from payroll and human resources to finance, procurement, manufacturing and logistics. It connects all those departments with supply chain and customer management applications. And it helps businesses share information both inside and outside the company.
Lately, however, ERP has been looking a bit dowdy, as newer, sexier acronyms – ERM, PRM, SCM, SFA – have grabbed the software industry’s attention. But while that attention has been diverted elsewhere, the ERP market has been plugging along.
J.D. Edwards & Co., Oracle Corp., PeopleSoft Inc. and SAP AG have continued to roll out products. International Data Corp. (IDC) estimates that the sector grew 13 per cent last year, to US$21 billion, and will continue at that pace through 2005. The secret of ERP’s survival is simple: it has adapted. As e-business has evolved, ERP has evolved with it.
Some, for example, thought the wide-open ‘net would kill ERP, which has traditionally been built on a closed, client-server architecture. That idea puzzled Mehrdad Laghaeian, chief information officer (CIO) of lighting giant Osram Sylvania. “I saw all these articles saying ERP was over and wondered what that was all about. The Internet wasn’t going to kill ERP. The Internet was going to let us make our ERP system what it was meant to be.”
One thing it was meant to be is simple. Until a year ago, for example, Sylvania employees who wanted to upgrade their software had to send an e-mail to the IT department. The IT folks would assess the request to see if it required a hardware upgrade. They’d also check with the higher-ups to get the requisite sign-offs. Once they had all that taken care of, they’d send the orders to suppliers.
Working with SAP, his ERP supplier, Laghaeian streamlined the process. The new system lets users order upgrades through their browsers; they select the programs they want from a list of approved software. The ERP system checks those requests against a database of users’ computer configurations and orders the necessary hardware upgrades. It then determines which managers need to bless the purchase and requests approval by e-mail. A purchase order is generated and sent electronically to the vendor.
Becoming ‘net-friendly has also helped reduce some of the software’s cost and complexity. ERP installations can cost US$100 million and require half a year or more to implement. You have to map out virtually all your business processes and then customize the software accordingly. Switching over to a new ERP system while still running your business has been compared to changing engines in the middle of the Indy 500.
The ‘net gives ERP vendors two ways to make installations easier. First, vendors including PeopleSoft, SAP and others now offer their products through portals. ERP vendors host the applications themselves; customers then access them over the ‘net with their browsers. Portals are less expensive, so they give midmarket and smaller clients access to the same services as bigger rivals.
The second way the ‘net makes ERP easier: It allows third-party application service providers, or ASPs, to offer the software online. Redback ‘networks took the ASP route. The company, which provides hardware to broadband suppliers, was growing quickly but was saddled with aging back-office systems. “Our whole applications infrastructure had to be replaced,” said CIO Lars Rabbe. The company’s in-house IT staff couldn’t handle the job.
So, the company signed a deal with Qwest CyberSolutions. QCS hosts Redback’s Oracle-based finance, order management, HR, manufacturing, shipping and inventory systems; as with vendor portals, Redback connects to these apps over the ‘net, using friendly, browser-based interfaces.
QCS not only gave Redback a batch of new ERP applications, but it also gave the company industry-specific expertise. Rabbe chose QCS because the firm had worked with other communications hardware vendors. “Finding the right ASP isn’t just about their technical background,” noted Rabbe. “The question is, do they know your business?”
Working with an ASP doesn’t mean writing a check and walking away. Redback’s small IT staff keeps a close eye on QCS. “These guys are your strategic partners,” said Rabbe. “You’ve got to be really close. You also need to govern the relationship with an iron fist.” Redback’s IT folks act as buffers between QCS and in-house users; whenever problems pop up, those users call IT, which then calls QCS.
As new technologies emerge, ERP vendors are incorporating them into their products. Several are adding wireless capabilities. (Call it “WERP.”) In addition, they are integrating other forms of e-business software – particularly supply chain and consumer relationship management – into their offerings.
It’s all part of ERP vendors’ effort to position their products as central repositories of enterprise data used by other e-business apps, from CRM to supply-chain management. As these other technologies gain ground, stolid old ERP apps should keep looking as hip as ever.