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...
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. Traditionally, 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. Choosing 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. But 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. If 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." ERP 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.
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.
The changing market
The importance of self-assessment
Some options for smaller buyers
ERP solutions in context
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