Where ERP is going

ERP has evolved much in recent years. The basic concept has stayed the same, but the technicalities and design have evolved. What began as an application meant only for internal use, now extends beyond enterprise boundaries. by Minu Sirsalewala

ERP as an application has been around since the 1960s. Until 1972, ERP was just a concept without a name or classification. The concept was to integrate all departments and functions, increase revenues, and strengthen the business.

Some say ERP originated from accounting. But ERP is all encompassing. It not only gives a financial view of all the processes and activities, but also a manpower view, a raw material view, and a machine uptime and maintenance view.

Satish Gaonkar, Head-Consulting Services Practice, Blue Star Infotech Ltd

Through continuous innovation, ERP has evolved from automated processes to Material Requirement Planning (MRP), and then to Manufacturing Resource Planning II (MRP II). After that, it integrated all departments in an enterprise, and became the ERP we know so well. Recently, ERP has been extended beyond the enterprise and is called extended ERP or ERP II.

Prashant Karkhanis, Global Head-Business Consulting at Mahindra Consulting said, “ERP has evolved out of MRP (Material Requirement Planning) solution devised in 1960. Over last four decades it has changed its face and ability from MRP to MRP II to ERP. The current version of ERP though not complete is sufficiently mature to address the business needs. It also brings a wealth of knowledge gathered and developed over the last 20 years.”

ERP is further empowered by new technologies like Internet and WAP. This has made usage convenient for the users in the current competitive environment.

Satish Gaonkar, Head-Consulting Services Practice, Blue Star Infotech Ltd. said, "ERP began as a logical extension of the MRP II concept. It came with a promise of encompassing all the functions of business. Soon, companies discovered the domain boundaries of ERP and began to realize the importance of SCM and CRM applications."

Most of the leading ERP vendors started offering a Web enabled package. The functional scope has beenwidened by many vendors to support the concept of an extended organization. This is reflected in concepts like ERP II. Most vendors have extended their offerings to include SCM and CRM functionality.

Before ERP came along there were other attempts at integrating departments. Notable attempts were MRP and MRP II.

MRP

Hari Padmanabhan, President & Head, Enterprise Solutions Group, ICICI Infotech

MRP is a sequential technique, which was used for converting the Master Production Schedule (MPS) for the end products into a detailed schedule for raw material and components. It starts with sales & operation planning, and demand management. And ends with a detailed schedule for components made in-house along with those purchased from vendors.

MRP II is a tool for planning and engineering the operational and financial resources of an organization. The heart of MRP II is the MRP system and around this, other resources are planned and controlled. But both these concepts were geared more towards the manufacturing industry.

MRP loses relevance

A planning & control system like MRP II has become less relevant in today's context due to the following changes:

1. Manufacturing has moved towards a made-to-order environment. Products are moving away from being standardized to being highly customized. Hence making the planning process complex.

2. Competition is more on the delivery. Quality and cost have become the selection criteria for players who wish to compete in the market place. Competition will now be based on delivery lead times and flexibility.

3. Need for greater integration with customers and suppliers.

4. Need for greater product differentiation.

With constant changes in the market place and increasing competition, customers have become more demanding. Product lifecycles have reduced drastically. New technologies are influencing the way organizations do business.

Organizations felt the need to go beyond mere transaction processing and automation of business processes. They required a tool to identify and plan resources based on certain organizational constraints that are dynamic in nature.

Evolved ERP

ERP began as an internal enterprise application and evolved into a Web-enabled tool, which lets you extend the applications to external suppliers and end-users. An ERP of this kind is called an extended ERP. ERP has evolved much in recent years. The basic concept stays the same, but the technicalities and design of ERP have changed.

ERP and ERP II

With Web-enabled B2B, the ERP system can go much beyond the boundaries of your enterprise. You can integrate it with Business Intelligence to analyze your data; and you can couple it with CRM or SCM to increase your involvement with your customers and suppliers. Various enterprises are implementing these cross-functional changes.

Zoeb Adenwala, Chief IT, Pidilite Industries Limited

Demand for more sophisticated processing capabilities to sharpen competitive edge has resulted in ERP II systems. Many businesses are looking to improve and extend processes, offering customers, suppliers and other trading partners access to integrated processing. This is done through concepts like self-service functionality, and aims to deliver more efficient and effective processes with reduced costs.

Enabling technologies like ERP II have led to the advent of Collaborative Commerce (C-commerce). C-commerce is the electronic interaction of businesses, whether within the supply chain or an industry.

"The boundaries of the enterprise have shifted and now extends to customers and suppliers who are outside the organization. With ERP II the customer, the vendor, the supplier and the company all work in unison," said Hari Padmanabhan, President & Head, Enterprise Solutions Group, ICICI Infotech.

Caution with ERP II

Though ERP II systems are supposed to facilitate transactions between external entities, organizations should implement it with caution. One should not migrate to ERP II systems without first addressing current systems issues that may run the risk of adding to existing problems.

ERP II needs an open architecture and a vertical-specific functionality. ERP focuses on trying to integrate departments and functions throughout a company. It attempts to integrate everything into a single system that can serve every department's needs. ERP broken down simply is an application/system that both small and large companies are using today in order to streamline and integrate operation processes.

Do we need ERP II?

ERP systems are used to integrate and optimize an organization's internal manufacturing, financial, distribution, and human resource functions. In contrast, ERP II addresses the integration of business processes that extend across an enterprise and its trading partners. ERP II forms the basis of Internet-enabled e-business and collaborative commerce.

The main reason why ERP II came into existence was the need to look at a way to give customers and partners access to scheduling, delivery, inventory, manufacturing, invoicing, and planning information.

Over the last few years, solutions like CRM and SCM have leveraged the Internet to support these processes. ERP II incorporates them all in a single package. To be globally competent, an organization needs to open and reach out to its collaborative partners. ERP II enables businesses to compete by providing information online and adding real value to businesses of all types and sizes.

Arun Gupta, Senior Director, Business Technology, Pfizer Ltd. offers a few words of advice. "If you are starting a green field project, it will be a great idea to start with an integrated ERP (ERP II) across the organization. The package may not offer you the best practices across all segments, but the amount of effort you will put into integrating the discreet desktop class applications will be substantially higher than that of a single application implementation."

The details of ERP solutions will change, but never the idea and concept of what ERP stands for, and what its main goal is.

Integrating emerging technologies

Deployment of ERP II could take place through a single vendor or a variety of best-of-breed application providers. The challenge is to make SCM and CRM solutions from other vendors communicate with ERP.

Arun Gupta opines, "A major problem arises, in a situation, for example, when you have an Oracle financial accounting system and want to deploy CRM and then SCM. Assuming you have different vendor products, the biggest challenge is to map this information across the multiple platforms and different technologies. It is advisable to look at some of these interfaces across application if you are going to start implementing them."

Ravi Kathuria, General Manager, Enterprise Solutions, Baan Info Systems India said, “The integration itself is an issue. The transfer of data in the right format from one application to another at the right time has to happen to make things work in unision.”

Baan, for that reason has a technology called OpenWorld which helps in integrating disparate applications. “With our historic growth from ERP as a monolithic application to the ERP-II era, we recognized the need to have a solid foundation on which all applications can run. This is called the IIC framework (Information, Integration & Collaboration framework),” said Kathuria.

Vendors have now addressed the integration issue and are moving from a centralized architecture into synchronized components. If you purchase an SCM or a Product Lifecycle Management (PLM) package, it comes with a set of components that are pre-integrated and have all interfaces publicly available. The interfaces are also well-described, so that you can integrate them with solutions from other companies.

Prashant Karkhanis (Mahindra Consulting) said, “One does not face any major issues while integrating an SCM and CRM solution with ERP if they are from the same product vendor. All major product vendors provide a suite of solutions essential for the business. But, it is necessary to evaluate the integration technology and ability in case of the multiple products. Considering the maturity of the leading software solution, in my opinion one can use the suite of the ERP, SCM and CRM product from a single vendor.”

SBS Grover Senior Director for E-business, Oracle India said, “We have the Oracle E-Business suite. It is one single product that includes ERP, SCM and CRM. It's a single composite suite of applications using a single data model. It's one integrated piece of software and you can enable different pieces of it when required. You can start with certain processes like purchase and take on other processes like manufacturing later on. It's one single piece of software that works on the same server and the same database.”

Tariq Farooqui, Country Manager, JD Edwards India (A PeopleSoft company) opines, “Companies with ERP systems in place are now looking to add a CRM or a SCM solution or upgrade to a new one. And, tight integration between ERP and CRM/SCM systems is critical to gain a complete view of customers. ERP basically works on an OLTP process and SCM/CRM work on an OLAP process; the latter requires usage of business intelligence data, which is analyzed. The issues or areas to be considered are: platform issues, whether the ERP as well as CRM/SCM are centralized or decentralized deployments. These days integration is not such a big issue because most vendors offer connectors between their solutions. What is important is to consider the various integration points between the two systems—how, when and how often will the two systems talk to each other.”

The future

ERP has evolved much over the years but more enhancements are required. In the future we could see increased Web-based interfaces and object-oriented databases. A stronger move to ASPs (Advanced Scheduling and Planning) is also expected.

ERP will become more widely used in smaller companies, and not just Fortune 500 firms. With improvements in the software, ERP projects will take less time to implement.

Prashant (Mahindra Consulting) said, “Currently ERP products are available to address all business functionalities. But often customers do not need all the functionalities at a time. This has led to a new trend of component-based solutions. ERP vendors are in the processes of providing component-based product. One may decide to buy only sales and finance components, and can add materials and production later. This will address the budgetary constrains and the customer will pay only for what he needs. Hence the ROI model will look more attractive and business will be able to justify the investments effectively.”

Zoeb Adenwala, Chief IT, Pidilite Industries Limited said, "India is opening up and going global; and playing a very important role in the business of IT. If Indian companies have to survive and be competent in the global market, they have to move to ERP II by 2005. If they don't, they will miss out on business opportunities. ERP implementations have moved from big companies to the SMB segment. The SMB segments are also competing and there is an upward trend in the market."

Tapping the SME

Not too long ago many industry analysts went on record to say: "ERP is dead." But ERP has been alive and moving to higher levels of delivery and efficiency. It forms an integral part of most manufacturing organizations. And now with the growth of the SME segment, a lot of ERP implementations are also happening.

This in turn has caught the attention of vendors and consultants. Most of the big vendors have realized the need to tap the SME segment since the large enterprise market is nearing saturation. The vendors are now offering condensed granular versions to suit the SME market along with their regular ERP solution portfolio.

Industry specific solutions/vertical solutions with rapid implementation methodologies are being offered now. Most of the bigger ERP vendors have recognized the need to tap the SME segment since the large-scale market is saturated. These ERP vendors are now offering condensed granular versions to suit the SME market.

Cost will become more complicated. With more complex software it will take a more experienced person to implement the software. Thus raising the implementation costs. The size of the software will also increase, as the applications become more complex.

Satish Gaonkar adds, "ERP would be just one component of the technology ecosystem of an organization. A one-size-fits-all scenario does not exist, and there would be other applications working with ERP to drive growth and efficiency. With growing recognition of business process management (BPM), another layer of BPM applications would be working with ERP, SCM, and CRM application integrated with EAI tools."

Dhruv Chadha, Enterprise Solutions - Marketing, Infosys Technologies said, “Most of the big companies have gone in for implementation of some ERP system. The major ERP software vendors have been targeting large sized companies till now and their products were more suited for such companies only. However, now they are seeing a potential in small to mid-sized companies and are coming up with products suited for the same. For instance, SAP recently launched its SMB product - Business One. Oracle has also launched its SMB version of its Oracle E-Business Suite, named EBS-SE.

In terms of technology, the ERP systems are evolving to more user friendy versions. They are in the process of moving from client/server technologies to being Internet-based applications. The self-service modules in the products are aimed at lay users who need not be trained for using the system.

To summarize, the trend definitely is moving towards integrated packages for decision support, large vendors catering to all market segments and players focusing on the full spectrum of IT services around these packages.

Minu Sirsalewala can be reached at minus@networkmagazineindia.com