Dubbed obsolete during the so-called new economy, ERP technology is in the midst of a revival as businesses streamline internal operations to survive the current economic slump and prepare for a B2B future.
Ironically, the B2B frenzy, which had cast ERP as a dinosaur, has now laid the foundation for the rebirth of enterprise applications. By proving that the Internet could be exploited for core business functions, B2B initiatives have armed ERP with a broader technology footprint.
Procter & Gamble Co., based in Cincinnati, has leveraged its integrated ERP system to see its complete inventory in the supply chain, enabling the company to make better decisions on inventory levels and production schedules, said Lee Kelsey, global IT director of supply-chain systems at Proctor & Gamble.
“Overall, we are seeing significant inventory reductions while at the same time having less business losses due to out-of-stock situations,” Kelsey said.
Hoping to capitalize on the renewed interest, PeopleSoft Inc. will roll out four new product lines at its user conference this week, each one designed to meet a spike in demand from its midmarket customers for SCM (supply-chain management) and CRM solutions.
In the SCM arena, PeopleSoft will release a new distribution module for product-based industries and a procurement solution designed for service industries. New customer-facing solutions include a call-centre support application and a sales and marketing application.
Other ERP stalwarts such as SAP AG and Oracle Corp. have been buoyed by the resurgence of demand for enterprise applications, just as B2B vendors with point solutions have been sideswiped financially. ERP vendors are boasting that they can provide modular applications with measurable ROI almost as soon as they go live.
As integration expertise has evolved, vendors and consultants have begun to develop models for implementation, with companies such as Oracle offering an outsourced CRM option to go live in fewer than 30 days.
Oracle is also reporting a surge in customers for its E-Business Suite 11i, noting last week that 600 companies have deployed the suite since last October. Every month, 100 new companies are implementing the suite with a grand total of 3,500 companies now with working Oracle enterprise applications, said Don Klaiss, Oracle senior vice-president of supply-chain applications.
‘The biggest driver…has been this need to transform to an e-business,” Klaiss said. “It’s all about getting more efficient inside the company…by extending your processes out….You need a solid ERP platform to support these new functions.”
Gartner Inc., the Stamford, Conn.-based IT consultancy that first coined the term ERP in the 1990s, has defined this new phase “ERP II.” Gartner analyst Brian Zrimsek said ERP II is “an application and deployment strategy that expands out from ERP functions and achieves integration of an enterprise’s key domain-specific, internal and external collaborative, operational, and financial processes.” Enterprises are putting enhanced emphasis on ERP because “your front end is only as good as your fulfilment system,” Zrimsek said. It’s a philosophy that users are embracing as they move their businesses to the Internet, he said. Gartner will provide further details at a fall conference.
At Procter & Gamble, the company relied on workers to manually enter data to assess its inventory numbers before it launched an integrated SCM solution from SAP, Kelsey said.
“Now we can rely on a single inventory number and know that’s what we have in the whole supply chain,” Kelsey said. “We really see this consistent global ERP platform as our foundation to Webify the company and enable virtual, consumer-driven supply chains. If you jump on the Web with disparate back-end systems, you’re immediately exposing your inefficiencies.”
Providing a measurable and quick ROI is crucial to many enterprises, especially in today’s harsh economy. Hon Industries, an office furniture manufacturer based in Muscatine, Iowa, attributes its steady financial showing this year in part to its recently installed SCM solution from SynQuest Inc.
The company, which has 18 production facilities and six distribution centres scattered throughout the country, went live with the solution in March and has already boosted its on-time performance by 10 per cent. Malcolm Fields, Hon CIO, said the company’s freight costs were 6.7 per cent of net sales last year compared to 5.8 per cent this year.
“We want to find the best possible way to supply against demand,” Fields said. “The tool can find open capacity. One entire order is not being held up because of a lack of capacity. It allows us to almost maintain our operating income versus losses in sales. You start saving money as soon as you start running your business directed by the plan the software develops.”
Companies are able to reduce their time to achieve a measurable ROI because they are able to deploy solutions much faster than just a few years ago. Officials from NHR, an insurance claims processor based in New York, were able to deploy an accounts-receivable application from PeopleSoft in about six weeks, said Keith Fries, vice-president of IT at NHR.
The key to their success, Fries said, was keeping customization to a bare minimum.
“Unless you have the power to really say ‘No’ or to say ‘Justify it to me,’ it could be one of those three-year implementations,” Fries said. “Unless there is a business case [for a customization], you don’t do it.”
The new system already has allowed the company to predict it will save at least US$65,000 a year by eliminating manual customer payment data-entry chores by two finance employees, Fries said.
Many companies are finding that they can roll out applications from the ERP II footprint quickly because the same vendors who dominated the traditional ERP market often offer the new solutions. As a result, costly and time-consuming customization work can be avoided.
Xilinx, a semiconductor company based in San Jose, Calif., is implementing Oracle’s advanced planning and scheduling software to help it schedule orders based on its capacity and to gain the capability to promise customers a specific delivery date.
“It knows how to take a snapshot of Oracle ERP data and use it correctly,” said John LaBouff, a principal IT analyst at Xilinx.
Rolling out a similar solution from another vendor would have required one person working a year to do additional customization work, LaBouff said.
Despite the apparent revival of ERP and its emergence into the forefront of enterprise computing, this newest wave of applications also comes with drawbacks.
For example, enterprises often find when they extend their internal systems from the back office that they do not have the accuracy needed for crucial supplier-and customer-facing applications, said Dick Kuiper, an analyst at Meta Group, in Stamford, Conn.
“Internally…the systems a lot of times are not working nearly as well as managers think they are,” Kuiper said. “The troops are working around the limitations with manual methods.”
In addition, because ERP II applications are often multi-enterprise, customers must overcome process and cultural changes associated with spanning the corporate firewall, said David B. Rich, a partner at IT consultant Accenture in Chicago.
“A lot of companies have trouble dealing with departments down the hall,” Rich said. “It’s more challenging dealing with organizations outside the firewall. We need to spend time on the business-process changes. If we do that first and then focus on the technology, these things will go smoothly.”