|  |  ERP : as easy as ABC?
There's a joke that has information-technology professionals rolling in the aisles these days. It goes like this. Question: what's the definition of a legacy system? Answer: one that works.
Humour by-pass or received wisdom?
Actually both. Humour by-pass because it's just not as funny as: where do cows go at night? Answer: to the mooovies (thanks to my six year old for that). Received wisdom because whilst in 1999 and 2000, tried and tested vendors of enterprise resource planning (ERP) systems may not have been flavour of the month (sales saw 20% negative growth in 2001) they are now returning to the top of the e-business pecking order. Why?
Instead of so called "pure-play" software vendors who strutted their stuff last year delivering just customer relationship marketing (CRM) or supply chain management (SCM), traditional ERP's existing install base may now stick to those very vendors for future e-business functionalities. In these difficult times, it is not a wise investment to replace a system for the sake of it. It is therefore those vendors who can help clients enhance existing systems who stand to gain.
Let's review the 'ABC' of ERP and the growing pains that installations have suffered but have nevertheless led to an enterprise technology backbone ready to embark onto the next phase of e-business functionality.
'A' is for Ambition. ERP's true ambition lies in attempting to integrate all an enterprise's departments and functions onto a single computer system that can serve all those different departments' particular needs.
A tall order? You better believe it. Particularly when you think that each department from finance to the warehouse probably has its own system optimised for how it performs its particular function in the grand scheme of things. ERP combines them all together into a single, integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other. It's a bit like turning the individual families living in a village into a thriving community.
For a moment forget climbing that inevitable software 'installation mountain' and think about the payback from such an integrated enterprise.
Firstly, for the customer who initiates an order. Instead of setting in motion a series of paperwork hops from one departmental in-box to another and a series of data key-ins and re key-ins as the order makes its way through the supply chain, when one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point, one need only log into the ERP system and track it down. Everyone in the company sees the same computer screen and has access to the single database that holds the customer's order.
The order moves through the company system as fast as a Friday night curry and twelve lagers through the digestive system. Customer frustration at a simple timing enquiry answered with the all too familiar "I'll have to phone the warehouse" and costly errors in the order fulfilment process are a thing of the past.
Secondly, ERP can apply that same magic to other major business processes such as standardising HR information, integrating financial reporting and standardising manufacturing processes, particularly for companies who have made mergers or acquisitions resulting in different methods and computer systems all to make the same widget. That's the ERP dream. The reality is somewhat harsher.
'B' is for Butterflies. The ERP screen turns customer service representatives or warehouse personnel from larvae into beautiful butterflies, drones into queen bees. They become business people in their own right, fully empowered with business information to make decisions that affect the customer and every other department in the enterprise.
For example, a customer's credit rating comes instantly from the finance department, alongside the product inventory levels from the warehouse, enabling the customer services representative to make decisions on customer payment timescales and ability to ship an order on time. Online information brings with it accountability, responsibility and communication challenges for all employees. And that type of change does not come without pain.
Real transformational ERP installations, as opposed to those that just use say the financial pieces of the system (not ERP at all, just a very expensive accounting system!) can take between one to three years on average to install. That's why it's critical to understand from the outset why a company needs ERP and how it will be used to improve business.
C' is for Costs - hidden or otherwise. Any company considering ERP installation has other key budgeting factors to consider other than the price of the software itself. Ignore them at your peril. The finance director certainly wont if they crop up after the initial budget sign-off.
Firstly, training: training expenses are high because workers invariably have to learn new processes, not just a new software interface.
Secondly, integration and testing: a manufacturing company may have add-on applications for logistics, production planning and bar coding, as well as some customisation of the core ERP package. Integrating and testing the whole process system from order entry to payment receipt, preferably with real data and the employees who will eventually do these jobs, is a sizeable undertaking. Additionally, this often takes up a great deal of time of some of the best employees, those who are best placed to truly test the system and yet those who are most valuable to the day-to-day business.
Thirdly, data conversion: it costs money to move existing corporate data from old systems to new ERP homes. Often the legacy data may have errors or omissions that only come to light when they are moved into new system set-ups. Even 'clean' data may need some modification to match new ERP inspired processes.
Finally, general post ERP depression: this covers all other eventualities such as continued implementation even after the software is successfully installed - after all, it is through the analyses and insight gained from information pulled out of the ERP system that companies make their money back on an ERP implementation itself.
Most ERP systems don't reveal their value until companies have had them running for some time and can then concentrate on making improvements in the business processes that are affected by the system. This waiting game for ROI can be a scary time.
So, as easy as ABC or as challenging as quadratic equations?
One other key development that should be noted is the rapid convergence that is happening between ERP and SCM software. The ERP vendors are rushing to add more sophisticated SCM functionality to their ERP products and the SCM vendors are also expanding their functionality, further encroaching on the area inhabited by the ERP vendors.
As the ERP vendors move heavily into the mid-size market with new supply-chain bolstered products, they should push a lot of the smaller SCM and ERP vendors out of business. With an industry shakeout, implementations should become somewhat simpler and thus shorter and less expensive, since there will be less products to integrate and more experienced implementers in the job market. |
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