Choosing an ERP solution can be a costly and time-consuming
exercise, fraught with hidden risks. A recent survey describes ERP
implementation as 'a hornet’s nest of complexity'
Enterprise Resource Planning (ERP) is an ill-defined term but,
strictly speaking, it describes a suite of integrated business
applications that provide a company with the information required
to manage its resources and make informed business decisions. The
JBOPS vendors (JD Edwards, Baan, Oracle, Peoplesoft and SAP) are
the market leaders. But there are at least a dozen other
well-established companies competing in this space, alongside the
disparate best of breed products, which perform comparable
functions within a corporate IT system.
An ERP solution will typically include applications that manage a
company's finances, stock inventory and distribution, manufacturing
processes, and human resources within one homogenous system. Sales
and marketing, customer relationship management (CRM), workflow and
business intelligence might also be catered for.
The changing
marketTraditionally, ERP adopters have been large, multifaceted
corporations usually in the manufacturing sector. But the middle
market and small and medium-sized enterprises (SMEs) are now
becoming increasingly viable customers for vendors and resellers.
The reason for this is probably due to a combination of two
developments. First, smaller organisations are recognising the
importance of information as a resource in its own right and the
benefits of consolidating business processes in anticipation of
future growth. And second, ERP vendors - finding their established
customer base reaching an inevitable saturation point - are being
forced to adapt and refine their solutions (and their sales and
marketing procedures) to suit smaller customers. SAP, for example,
is now claiming that it can implement a pre-configured multi-module
R/3 package, over a period of six weeks, for as little as
£200,000.
The importance of self-assessmentChoosing and
installing an ERP solution can be a costly and time-consuming
exercise, fraught with hidden risks and unexpected expense. A
recent survey by integration software vendor, Constellar, describes
ERP implementation as "a hornet's nest of complexity" with a high
failure rate. The survey revealed that nearly a quarter of
corporates would choose a different solution if they had the choice
again, while 27 percent said their solution did not achieve the
general business advantage they had expected. If there's one lesson
to be learned from these figures it's this: selecting an ERP
solution is as much a management decision as it is an IT decision.
Independent analysts and consultants' reports stress that, before
making a choice, the decision-makers must, at the very least,
conduct a thorough audit of the company's core business processes.
Every business is unique and the cost and value of a particular
solution is going to be dependent on a number of variables directly
related to the size, makeup and culture of the company in question.
Each organisation needs to assess its own goals, evaluate its
options and, only then, turn to the question of specific
technologies and vendors. This procedure is just as important for
smaller firms, although the focus may be slightly different. While
the big players are invariably resigned to overhauling their entire
business processes and redesigning them around the solution of
choice, smaller customers will not necessarily have to resort to
full-scale business process re-engineering. For these firms, the
decision to adopt ERP is often based upon a specific business
"pain", such as EMU compliance or Y2K. While a massive
multi-national is driven by the need to aggregate processes
throughout its various branches or divisions, a smaller
organisation can focus on which elements of the total solution are
most relevant to its particular needs.
Some options for smaller
buyersBut the solutions offered by leading vendors such as SAP,
Baan and Peoplesoft are, arguably, still unsuited to smaller
organisations in the UK. Baan and SAP were originally geared
towards the automation of manufacturing processes, whereas the UK
is dominated by service industries. PeopleSoft, originally an HR
house, has only recently started looking at midrange customers in
the UK (which it defines as companies with revenues of between £50
and £200 million) and says it has no intention of targeting
businesses below this level. Unlike SAP, its mid-market offering is
not a cut down or "lite" version of its suite - but functionality
can be added or removed according to individual requirements. The
"open" architecture enables clients to choose from a variety of
components and easily structure the suite around legacy systems.
But it's not cheap by any standards. In an attempt to combat cost
prohibition, PeopleSoft and others are offering smaller firms the
option of renting packaged ERP solutions. In March, SAP, in
partnership with BT, launched a rental programme for a stripped
down version of its R/3 solution. The potential appeal to customers
is clear but there are dangers here: renting ERP may discourage
firms from looking at the long-term implications the solution will
inevitably have on its business processes and from properly
planning these processes going forward. Moreover, renting anything
over a long period of time is nearly always more expensive than
purchasing it outright. And ERP should always be treated as a
long-term investment.Best of breed vendors, such as SAS Institute,
would also argue that the way data is structured in the leading
solutions is ineffective for providing modern businesses with
high-level information. It says ERP is fine if the user wants to
find out the latest status sales order for example. But to analyse
and predict trends and to engage in real business intelligence
investigations, companies need consolidated historical information,
which ERP was not designed to provide. To address this deficiency,
SAS offers a range of analytic applications ( including online
analytical processing (OLAP), data mining and query and reporting (
as part of an end-to-end data warehousing system. SAS's Intelligent
Warehouse for SAP R/3 offers applications such as balanced
scorecard reporting, supply chain management and CRM. In
services-oriented, information driven businesses, this best of
breed approach may currently be the most effective.
ERP
solutions in contextIf business intelligence really is a
separate IT discipline, JD Edwards' is doing its best to bridge the
gap. Its OneWorld ERP suite is a typical example of the total
solutions being pushed at midrange organisations. Oxford
Instruments is a case in point. A manufacturer of specialised
electronic components with eight production sites in the UK and
another 10 strategic business units worldwide, it is now focussed
on building value added services around its products. In 1998, the
company generated revenues of nearly £200 million. In October of
last year, it went live with OneWorld. Prior to this, it had been
running Computer Associates' best-of-breed manufacturing package
MANMAN. But when CA suggested it upgrade to its MK Manufacturing
solution (which also meant installing CA's OpenIngres relational
database and Unicenter-TNG systems management framework), the
company decided to conduct a complete review of its business
processes before making a final choice. This took 12 months, after
which JDE was eventually picked from a shortlist of three. John
Lewis-Crosby, Oxford Instrument's director of Information Systems
said OneWorld was chosen primarily for its scalability, high level
of flexibility and its emphasis on customer service functions. "Our
separate business units and manufacturing sites are quite distinct
both in terms of the processes they engage in and the technology
they use," he says. "OneWorld is flexible enough to accommodate
these differences. Although we started using the system last year,
we've prioritised our requirements and will continue converting
sites and adding functionality throughout 1999. The whole process
should be complete by the end of the year when there will be about
300 concurrent users."OneWorld is flexible ( to a degree. It has an
architecture-neutral foundation that allows it to accommodate a
full suite of databases (including DB2, SQL Server, and Oracle) and
hardware. But JDE has been criticised by OneWorld users who have
found that they need to install the vendor's green-screen
applications, that only run on IBM's AS/400 systems, if they want
functionality such as payroll and fixed-asset management. This was
the case with Oxford Instruments. Lewis-Crosby says: "It's true,
OneWorld wasn't fully functional when we started implementing and
this affected our decision to upgrade our entire IT infrastructure
and use AS/400. But it was also in the interests of simplicity."
Two NT servers, to handle software distribution and security, a WAN
with Megastream links to each site and a collection of "reasonably
powerful PCs" make up the rest of the solution. Windows Terminal
Server is under consideration as a future option, as is ActivEra,
the JDE web-portal that provides users with a personalised
browser-based entry point to the system. In fact, portals look set
to become an integral part of ERP solutions across the board. SAP,
Peoplesoft and, of course, Oracle are all now tying applications to
an Internet backbone, providing real-time visibility and remote
access.Lewis-Crosby reckons the complete package will cost about £3
million, significantly less than the original budget estimate of £5
million. Costs have been kept down by focussing on training staff
in-house and training users in specific areas relevant to their
particular role within the organisation. The company is now looking
at the sales, marketing and customer relationship management
applications to complement the core financial, manufacturing and
stock control functions. Explains Lewis-Crosby: "The idea was to
first put in a system that does what the old system could already
do - only more efficiently; then to start adding
functionality."Oracle is attempting to woo smaller customers by
cutting down the implementation time for its solutions without
reducing functionality. Its recently launched Fast Forward
initiative is similar to SAP's Accelerator programme except that it
provides exactly the same software as the full ERP suite but in a
pre-configured format. This approach cuts out the need to
repeatedly conduct configuration analyses, but still covers an
estimated 80 per cent of a smaller organisation's key business
processes. The solution is fully scalable - so if, for example, a
company wishes to add a different type of purchase order to its
financials application, it can do so quickly and painlessly. Oracle
stands apart from the majority of rival offerings due to the
vendor's focus upon the Internet Computing Architecture (ICA). The
Oracle 8i database, for NT or Unix, and its 45 integrated software
modules, including supply chain management, projects, human
resources and front office, is the only ERP solution that runs
entirely on corporate Internets and the World Wide Web. If
anything, Oracle is ahead of its time. Its remote database
administration service means the entire system can be maintained by
an expert off-site and probably at less cost than conventional
support staff. It is also the only ERP suite to offer a full CRM
application, combining both sales automation and call centre
functions. But Oracle is a complex solution and the reality of
transforming from multiple systems to a truly centralised process
requires that management and key users be freed up for a
considerable amount of time during the implementation period. For
one company, an independent finance house with revenues of about
£10 million, this took nearly six months for a fast track
conversation, at a cost of about £300,000. Catering for the bottom
end of the SME market, Navision Financials aims to provide an ERP
solution free from the implementation headaches associated with the
JBOPS offerings. Historically, it was developed as accounting
packages but has since progressed through the extended requirements
of financial control. Fitting these applications into an overall
business solution also has advantages, in that ERP evolved from
manufacturing process standards, leaving the financial aspect
under-strength. Navision is a client/server solution that has a
small footprint due to its neat Object Oriented (OO) coding in 4GL.
It runs on its own Relational DataBase Management System (RDBMS) or
Microsoft SQL 7, and provides modular functionality within a
tightly integrated system. The GUI will suit those with experience
of Microsoft Windows applications - i.e. the vast majority of SME
customers. Within the solution as a whole are 'Application Areas'
such as the General Ledger or Sales & Receivables. Fine-grained
specific functionality, such as inventory management, contact
management and HR, is provided within these areas and can be
implemented quickly and easily. The package is installed complete
and those function granules that are required, are switched on.
Navision also contains a unique feature called Sum Index Flow
Technology (SIFT), which allows the user to filter information in
any required manner and drill down to transaction level from any
balance. From the transaction level, it is possible to drill across
to every other posting associated with that transaction.PC
dealership ASI installed Navision in July 1997, primarily to access
information more efficiently in the areas of quotation and
inventory control. According to managing director Stan Buffrey, who
has seen his business double in size (to £12 million) since the
implementation, the fact that the system was designed specifically
for the Windows platform was a decisive factor. "We knew that all
the elements of the system could interact with one another and with
major Microsoft products. Now if I want to find any piece of
information about a product or component, I can. I can track its
complete history from supplier to sale without asking anyone else.
In this respect it really has helped keep human resource costs to a
minimum." And the price? "About £25,000 for a 30 user system, at
least half of which was taken up by installation and training." And
in terms of scalability, Buffrey reckons Navision is capable of
growing with his company. "I think we can grow to at least £25
million and keep fine-tuning the system without any trouble."
In
conclusionERP is indeed a "hornet's nest of complexity".
Choosing a solution to fit a particular business is just the first
step in the process of implementing a successful system.
Implementation itself can take years and in a worryingly high
number of cases the results are less than satisfactory.
Functionality and flexibility are key issues, but time, cost and
the potential return on the investment must also be carefully
considered before a project is embarked upon. Finally, in many
cases, and among smaller businesses in particular, a full-blown
fully integrated ERP solution simply may not be the best solution
to a company's unique requirements.
Pieter Preston