ERP II Demystified

  • Written By: Sean Wheller
  • Published: June 18 2004

Simply Change

As with everything, technology evolves and is subject to the same "natural selection" and "survival of the fittest" laws found in the natural world. These laws work on a simple principle: Things that do not adapt to changes in their environments do not survive. Business enterprises and their IT systems are not exempt from the influences of these evolutionary principles.

When it comes to technology, the world has witnessed an unprecedented number of evolutionary changes. During this course, products and technologies have come and gone. Others remain with us today, and it's anyone guess if they will be around in the future.

While such uncertainty makes technology adoption a risky business, it is a fact that technology is here to stay. Businesses wishing to remain competitive and efficient will have to embrace technology changes in order to evolve themselves. In fact, technology has become such an integral part of business that today it is considered to be an integral part of an organization's core-competency and a key evaluation factor used by investors and industry analysts.

So change is normal and to be expected. ERP II is simply the next destination in the evolution of resource planning systems. ERP II is a new generation of resource planning with lineage dating back to material requirements planning (MRP), which was replaced by manufacturing resource planning (MRP II), which was superseded by enterprise resource planning (ERP) and two lesser known iterations—extended ERP and enterprise application suite (EAS). If it is as simple as this, then you are probably asking yourself, "So what's all the fuss about?"

Disruptive Technologies

Our brief discussion on technology evolution has not yet mentioned one very important factor: that every now and then, technologies come about that are what we term to be "disruptive."

These technologies tend to catch the world by surprise. The radio, television, world wide web, and the Linux operating system are all examples of disruptive technologies. Each has risen to prominence unexpectedly, against conventional wisdom.

Today we are in the midst of experiencing the effects of a new set of disruptive technologies. These are born out of the last wave of disruption and are as much the product of a business revolution as they are the natural evolution of technology. Unlike their predecessors, these new technologies are being unleashed in an environment where the use of communications, in particular through the pervasive reach of the Internet, is an indispensable part of doing business. The environment is, therefore, conducive to their adoption, and this will propel them into prominence at a rate never experienced. Their adoption in business is, therefore, a given, and the impact is certain to be ubiquitous.

These technologies include

Extensible Mark-up Language (XML): A presentation and platform neutral way to mark-up and describe information so that it may be easily portable between systems and presentation formats.

Managed Code: Realized in Sun Java and Microsoft .NET, which represent the next generation of computing platforms that enable rapid development and secure deployment of robust, mission critical applications across diverse access technologies and computing devices.

Component Architectures: A philosophy born out of object-orientated development methods that see systems as comprised of building blocks that are capable of combination with other building blocks that either already exist or still need to be created.

Combined in a world where business is increasingly aware that the Internet can be used for more than just e-mail and casual operations, such as exchanging web pages, these technologies are bound to disrupt traditional definitions of resource planning systems and with it, our conventional wisdoms about their implementation and applications in the business world.

So disruptive are these technologies and the drivers behind them that ERP II and the world for which they were designed makes no bones about promising to render traditional ERP systems obsolete from an architectural standpoint and inadequate from a business perspective.

So what is ERP II? How do we define it?

ERP II Defined

ERP II is the iteration that adapts ERP to the Internet-based world of today and tomorrow through changes in functionality, technology, and architecture.

The most apparent change from ERP to ERP II is a change in focus from one that is totally enterprise-centric and preoccupied with internal resource optimization and transactional processing to a new focus on process integration and external collaboration. Simply put, all existing and future information technology capabilities that are centered on the enterprise will now be extended internally and externally to the organization.

Internally, ERP II integrates separate and disparate systems so that business processes can be connected in a manner that is seamless and transparent to users at the application or user interface level. The overall result is a free-flow of information throughout the enterprise. A single program interface may load information from one or more separate systems residing in different locations, allow it to be modified and saved back in an orderly manner that does not corrupt or violate data integrity.

These actions may, depending on process requirements, trigger events in any of the systems to which the data was returned. Depending on the complexity of the process, the action will result in a chain of programmed events that may be immediately visible to other users who are using different applications or systems from that used at the event source.

To illustrate how this works, consider for a moment this example of "The Outdoors Company," a bicycle retailer.

The Outdoors Company does not manufacture bicycles. They are also not in the business of stocking or selling stock, one-size-fits-all products. Instead, they specialize in helping customers to assemble bicycles that are their own unique creations. The company has three forms of sales outlets. The first is their own web site, a component-based application that includes a product configuration tool. This allows customers to easily assemble a bicycle from the largest catalogue of bicycle parts in the world. The second sales outlet is a network of affiliate web sites, and the third is a network of traditional high-street retail stores.

Whether a customer uses The Outdoors Company, an affiliate web site, or a traditional high-street retailer, the order process is always the same. First, customers create a profile that stores all their information; then they select the parts for their custom bicycle; and finally, they submit their order and receive a date and time when their creation will be delivered.

Seems like a simple e-commerce application, doesn't it? Think again. Remember, we said that The Outdoors Company is not in the business of stocking? Well, we meant it. They do not hold any stock. Instead, all orders are made on back-to-sales orders. Only when a customer orders a part is it actually ordered by The Outdoors Company. So how do they know if an ordered part is available from the manufacturer?

The answer is simple: collaborating-commerce (c-commerce). C-commerce is a relative new "buzz word" and therefore, most people have not heard of it. Collaborating-commerce is enabled by ERP II application deployment strategies and relates to information that is exchanged when two or more businesses exchange information electronically via the Internet. The applications, process, and data of all collaborating businesses are integrated and loosely connected to facilitate near real time sharing of business data. Our example of The Outdoors Company will illustrate the benefits of c-commerce.

The Outdoors Company is connected to all the suppliers who make bicycle parts by using ERP II application deployment strategies. Instead of storing and maintaining a database that stores the parts' lists and estimated inventory of all suppliers, it simply does a direct query on the suppliers' systems to locate the part. This action is done directly over the Internet, and in the process checks are made as to the availability of inventory. If the part is not available, it simply returns this information back to the customer with additional information giving the lead-time it takes to obtain the part and for The Outdoors Company to take delivery. Furthermore, if the selected part is an assembly and one component thereof is not available, the system simply instructs the supplier's system to query the next supplier's system to again check availability and return information. The customer then sees the final answer, which may be the result of an aggregated calculation and has a choice to accept this offer or select from an already available list of parts with an equal specification, but may cost more or less than the requested item. All these actions are transparent to the customer. At no point in time is the customer experience broken.

In this way the bill of materials (BOM) required to assemble the bicycle is collected with the user making decisions during the process. Each time that the BOM is modified, the new price and total delivery lead-time are calculated. When the configuration is complete and the customer finally submits their order, numerous events are triggered. The payment transaction is processed, purchase orders are dispatched and so forth. The process goes full circle to the point where parts are received into stock by The Outdoors Company.

Items received are tagged with electronic devices that store identification information. These devices are activated by magnetic fields and use radio frequencies to communicate with resource planning systems that are connected to a receiver network throughout the company. At all times, everyone inside The Outdoors Company and everyone external, including the original suppliers and customers, can see the location and status of every part that makes up a bicycle order. This information is not only shared by people, but also systems such as the advanced planning and scheduling (APS) system that is used to managed the production capacity of the assembly plant, the customer relationship management (CRM) system that not only stores customer data but also provides proactive communication with the customer, information of new promotions, and on going status of current orders. There are more systems, but I think you get the idea.

This level of information liquidity is made possible because applications are extensible internally across the local area network that includes wireless technologies and are extensible externally across the Internet to include the business processes, applications, and the data of geographically dispersed regional offices, suppliers, partners, and customers. The overall effect is one of functionality becoming deeper and more specific to industry requirements and a unification of the end user experience.

ERP II starts out as an application deployment strategy but quickly expands out to become a borderless business environment. The result is a virtual entity in which all the key, domain-specific, operational, and financial processes of a community of interest are seamlessly integrated in order to leverage collaboration for increased efficiency. The process footprint of ERP II can, therefore, be described as including all collaborative, operational, and financial processes that have the enterprise at their center.

Understandably, ERP II impacts heavily on business, application, and technology strategies. The traditional role of ERP becomes expanded to now include publishing and advertising IT capabilities in order to facilitate interoperability and collaboration. Furthermore, the domain of ERP is no longer limited to manufacturing and distribution, but has expanded to include areas such as supply chain management (SCM), customer relationship management (CRM), business intelligence (BI), and inventory optimization (IO).

The function of ERP, therefore, also expands to include other functions that are specific to individual industries and sectors, such as utility customer billing, air traffic control, or even disease control. This is the area where ERP II really starts to excel and where the investment in ERP II starts to pay an added bonus by enabling business ecosystems to achieve new levels of efficiency through event driven processes that are exactly tailored for unique environmental and customer requirements.


ERP II is the next step in the evolution of enterprise applications that will align business applications with the new requirements of the Internet world and better enable user organizations to efficiently and cost-effectively conduct their businesses in a global economy.

Considering the pervasive nature of the Internet and the growing economic trend toward globalization, it is realistic to say that ERP II deployment capabilities will be a major driver of ERP upgrades in the years to come and a critical qualifier for vendor selection with new customers.

In this environment, the decision to deploy ERP II technologies will be a strategic necessity as c-commerce increasingly becomes a pre-requisite to doing business. Businesses whose applications, business processes, and data are interoperable and collaborative will be accustomed to a world where demand identified is demand realized, in a matter of nanoseconds. This advantage combined with the dissipation and aversion of costs enabled by c-commerce will drive customers to select suppliers with IT capabilities that will preserve the c-commerce paradigm, excluding those that cannot.

This brings to mind the saying, "No business is and island." To exist in the future businesses must evolve to the changes in the global business environment or become extinct.

This article has been sponsored by SYSPRO

About the Author

Sean Wheller is an author, management consultant and the president of enbaya, a consulting firm that assists hi-tech businesses as they chart a course and get underway with new initiatives-products, markets, partnerships, and entire businesses. Wheller is the author of the book SYSPRO solutions—The Definitive Guide which is available from SYSPRO. Over the past fifteen years, he has been a consultant to leading European, American, Middle Eastern, and African based information services and software firms. Prior to founding enbaya, Wheller held the position of CEO at MediaOneIT. Currently, his clients include Lucent, Avaya, Nortel, IBM, Comverse, SYSPRO, and numerous early stage technology firms. He can be reached at

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