You Still Need ERP, Even If Naysayers Say You Don’t

  • Written By: Phil Reney
  • Published: April 3 2012

After coming across the Forbes article The End Of ERP and quite a few spin-off articles about the imminent death of ERP, I became somewhat concerned about how this topic was being handled by "people in the know" and other IT experts. Here’s my take on it.

ERP Exists for a Reason...

ERP’s original raison d’être was to integrate core business functional areas and business processes such as finance, HR, production, order management, inventory, etc., to provide better visibility and centralize various departmental activities that were otherwise disconnected.

It's true that the logic initially instilled into ERP was too rigid for fast-changing conditions. For example, early ERP systems did not easily accommodate flexible pricing structures, or the ability to remap the organisation following a restructuring. Bottom line: software vendors were not delivering what businesses needed them to deliver.

Today’s ERP vendors have made significant improvements to the core logic of their platforms by integrating business process management (BPM) functionality that allows businesses to shape their system in a way that better aligns with their activities.

ERP vendors have also looked at improving user friendliness by linking information far more dynamically, and by providing easier access to contextual information through drill-down capabilities and configurable interfaces.

Additionally, the level of connectivity of ERP solutions has matured via more standardised communication protocols and data structures that work in concert. That said, the classic pain point of integrating with older systems remains.

Regardless of whether you are a goods-driven or a service-driven organization, you wouldn’t be able to function anywhere as efficiently without a core ERP solution, however imperfect. There is simply too much automation provided by core ERP to pass up on, unless you are the owner, operator, and sole employee of your business. Otherwise, we would have heard of a mass return to spreadsheets a long time ago. Don’t you think?

ERP Is Still Growing

Core ERP functionality has never been sufficient for businesses to operate effectively or efficiently—particularly given an ever-present need for added visibility, flexible operations, and a consistent single version of the truth.

This leaves two possible paths for ERP vendors: 1) build more functionality, or 2) let point solution vendors take up the slack. Most ERP vendors have taken the multi-pronged approach of expanding their offering internally, acquiring best-of-breed point solutions, or developing partner networks to fill in the gaps.

For instance, ERP systems have remained relevant at the customer service level by adding customer relationship management (CRM), integrated e-commerce, and built-in upsell features that take advantage of multilevel parent–child relations between items.

Businesses have also used ERP software to gain better control of their supply chain activities. Demand management evolved beyond simple mathematical forecasting by integrating sales and operations planning (S&OP), demand-driven manufacturing, and demand sensing via data from contact end points (social media, CRM, e-commerce, and retail solutions). With core logistics (warehousing and transportation) more integrated than before, businesses can also look at automating their trade operations (e.g., import/export compliance, customs filling, letters of credit) through global trade management functionality. 

Even manufacturing, the birth vertical of ERP, has pushed its boundaries by adding product lifecycle management (PLM) (ultimately helping users integrating research and development [R&D] activities within their systems) and manufacturing execution system functionality.

And yet, while these added functionality groups certainly add more value to your ERP system, the single most notable change consists of new platforms built on service-oriented architecture (SOA), thus allowing for more tailored systems. The move away from monolithic modules means businesses are no longer locked into unwanted feature sets, and can operate on more streamlined platforms. However, SOA pricing is still something that has yet to be refined by the vendors.

That's a lot of work on the part of something the experts claim is on its way to the graveyard!

Given all these advances, it's difficult to argue that the concept of ERP is flawed simply because a business cannot support its activities with its current ERP system. It's rather the case that the business needs to have the right ERP solution for its activities.

... And There's Room for Improvement

ERP solutions used to be "one size fits all" propositions, but have now managed to align themselves around some verticals in order to provide functionality closer to certain business models and reducing the need for customization. At the same time, we are also seeing a trend toward preconfigured systems based on those verticals, allowing for faster implementation while leaving room for personalization down the road.

The majority of these verticals still tend to deal with physical goods (e.g., manufacturing, distribution, retail, automotive), with the service industry (e.g., health care, the public sector, hospitality, travel, loyalty- and subscription-based services) being primarily catered to by more generic types of offering that are not part of the "usual suspect" line up of product-centric ERP vendors (e.g., SAP, Oracle, Microsoft), financials being just about the only common point between these two groups.

But a significant number of service industries (e.g., health, maintenance, public sector etc.) still require the handling of physical goods, for which service software vendors do not have the same native experience as their product-centric competitors.

That said, it is unrealistic to expect ERP vendors, even tier-one vendors such as SAP or Oracle, to allow for every contingency. This is what primarily led these large vendors to establish a technological base that favors connectivity to outside solutions, allowing a significant number of software vendors (and not necessarily partners) to design integrative tools in order to sell their solutions.

Business needs will evolve with the market and its leaders, but it is up to software vendors to answer the call by offering complete and yet flexible offerings if they wish to maximize their market presence. And while a business may be able to address most of its requirements with a given ERP solution, the solution vendor needs to leave room for external solutions to complement its functionality. Businesses do need ERP in order to function but they have no need for solutions that box them in.

Final Thoughts

The notion of ERP has grown significantly since its beginning and has incorporated a number of functionality sets in its offering. While point vendors the likes of those represented by the author of the Forbes piece point fingers at ERP vendors for their shortcomings, they are also quietly sidestepping the fact that their own solution, beneficial as they are, also fall short of covering the ground covered by ERP solutions, particularly when it comes to medium to large businesses. Until a vendor steps up to offer an end-to-end silver bullet solution to the "ERP problem," businesses will rely on ERP vendors for an all-encompassing handling of their activities, while continuing to fill functional gaps via best-of-breed solutions.

Businesses as a whole would benefit far more from more intrinsic solution interoperability, the current Achilles heel of ERP. Vendors would offer far more value to the market by differentiating themselves through innovative and connective business logic rather than by building solutions on proprietary technologies. Businesses need ERP to operate, but they need ERP systems that can evolve, adapt, and connect. And above all, businesses should be asking if they are dealing with the right ERP vendor for their needs.
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