The concept of ERP (Enterprise Resource Planning) has been around since computing began, although in its early days it was called integrated systems. The idea was to create applications that were beneficial to specific areas of a business within a framework that allowed them to work on an integrated basis. This alleviated much of the time, cost and error management inherent in non-integrated applications also know as the "Islands of Information" scenario.
ERP took this concept and logically applied it to ALL areas of the business so that every aspect of the operational applications shared data and passed transactions logically from point-to-point with only additional information being added as the transaction moved through its logical stages. Ten years ago this was an idea that was firmly in place but was slow to move to reality. Tier 1 vendors were providing these application suites and Tier 1 organisations expected them, but smaller organisations were still waiting for a cost effective version or simply had no awareness of the new functionality.
Today, off-the-shelf packages are providing integrated financials, distribution and stock management and reporting for home based businesses as standard. So what has changed? In truth, everything and nothing.
The 21st century ERP system is expected to provide internal integration as standard, but the major focus of new applications is to provide collaboration and to allow businesses to model their processes through Business Process Management.
Collaboration
As organisations of all types focus increasingly on the cost of transactions and adoption of Lean style techniques to remove non-value added activities, the concept of collaborating with suppliers and customers becomes mandatory. Price pressures are forcing small and medium suppliers to find new ways to extract profit from their organisations in order to remain competitive. Meanwhile, larger organisations are looking for ways to remove the delays inherent in the manual movement of data from suppliers into the ERP system and on to their customers.
Gartner Inc. have called this concept "ERP II." referring to the development of integration layers that allow organisations to work together in Value Added Supply Chains to derive the most value out of the provision of a good or service. ERP systems have changed to meet this need.
The adoption of communications standards such as XML are removing the barrier of proprietary messages and allowing smaller organisations to adopt these techniques without having to invest huge amounts of money in new applications. Truly efficient value chains are not only integrating transactions but opening up their data to partners on a real-time basis. The use of Web services and portal technologies is allowing customers and suppliers to share forecasted sales, technological changes, inventory levels, resource availability and other key information so that the entire value chain can plan their activities better.
21st century ERP systems are being delivered with tools to provide delivery to partners and employees via publicly accessible sites with the security and filtering to limit the data to what should be displayed. Modern ERP systems are catering to Vendor Managed Inventory, self-billing, demand driven supply and all of the supply chain techniques that allow organisations to focus their resources on activities that drive profitability higher. The change is dramatic, and from integration to collaboration, the ERP system has started to come of age.
Business Process Management
20th century ERP systems came at a large price. This was because the design of the integrated system put large overheads on the management of transactions and the processes behind them. In order for an organisation to change the basic transaction the ERP vendor had to customise the processes, a costly and lengthy procedure. This resulted in Tier 1 applications requiring years and huge amounts of money to implement while lower-end applications tended to work around the changes or provide them as external code with "hooks" into the application, again not an ideal scenario.
21st century ERP systems are being designed in a much more granular and agile format. Using small, reusable business objects and controlling those objects and their interactions independently, the modern ERP system allows organisations to radically alter the delivered transaction processes without having to customise the existing code. Business Process Management (BPM) is the rule set that determines how, when and why these objects or Web services will interact. By altering the rules, and calling the appropriate object (even a new or external object), organisations can precisely determine the processes that are used. This allows insertion or removal of steps and interactions with other collaborative systems, for example, to check a suppliers stock levels. This change means that all organisations should expect to be able to design their ERP system to fit the way they work and not vice versa. It also means that even Tier 1 organisations should see the benefits of reduced implementation and consultancy times with the added benefit of greater agility in these competitive times.
Are software vendors doing enough?
The modern ERP application is very different from its counterpart ten years ago. New technologies such as Web services are revolutionising the way applications are developed and how they interact. ERP Vendors are investing large amounts of money adopting these new technologies however; it seems that some are failing in the essential area of educating the market on the potential of the modern ERP system. For the benefits to be seen, the technologies need to be adopted to their full extent. Just as when client-server was the new wave of technology, ERP vendors and the market experts must make sure that the message on Web services is properly delivered.
The 21st century ERP system is designed to move away from an intra-organisational focus and to promote inter-organisational collaboration. It is also designed to be flexible in its ability to meet end-user requirements. The concept of ERP has grown up to focus on the benefits that IT has always promised, now it is up to the ERP vendors to make sure their customers reap the rewards of those benefits.
