Applications—The Genesis and Future, Revisited
- April 3, 2004
Part Four: Another Step in ERP Evolution
Step in the ERP Evolution
enterprise resource planning (ERP) has entered another step in its evolution.
While ERP packages traditionally excelled at combining financial control with
multi-plant manufacturing and distribution coordination, they generally lacked
extended planning and flexible execution functionalities beyond the four walls
of the enterprise that can enable one business process today but change rapidly
to handle tomorrow's new models. They were also often found lacking when it
comes to delivering special financial features such as robust budgeting or international
consolidation, summarized data for analysis and trending, as well as in handling
real-time, physical events that occur on the factory floor, as opposed to the
transaction-oriented bookkeeping functions (see Financial
Reporting, Planning, and Budgeting As Necessary Pieces of EPM).
there has been the imperative for the new generation of enterprise applications
to be more customer-focused and to extend beyond the enterprise through e-commerce
interaction and collaboration with business partners. The key to the Internet-driven,
dynamic trade environment is agility, which is where traditional ERP packages
have stumbled in the past. Thus, early ERP adopters discovered to their dismay
that implementing these systems was only the first step toward creating a competitive
information technology infrastructure. They and new users alike are now looking
for significantly more comprehensive functionality—from advanced planning
and scheduling (APS) (see Glossary*)
and manufacturing execution systems (MES), to sales force automation
(SFA) and even broader CRM;, to business intelligence (BI) and
business-to-consumers (B2C); and business-to-business (B2B) e-business
tools to name only some —and demanding that they be integrated into their ERP
backbone (see Can
ERP Meet Your eBusiness Needs?).
visions of ERP are evolving from tactical to strategic, and users are no longer
willing to choose between integration and function, since the "one-stop-shop"
offering should mean that the releases are synchronized and the integration
is maintained amongst all the components. ERP users who have gone live in the
past several years have been making purchases of extended-ERP products (bolt-ons)
to provide tangible return on investment (ROI) for their multi-million
dollar investment. Recently, the enterprises have begun to analyze the viability
of IT investments in a quantified manner, instead of doing only feasibility
studies, which would consider only whether implementation of a system is possible
but not whether it makes viable business sense. For more information, see Justification
of ERP Investments; Part 1: Quantifiable Benefits from an ERP System.
in response to the above-mentioned inadequacies of ERP software, a new breed
of the above-mentioned specialized software has long emerged, named collectively
as "ERP extension" software. These components can either be installed standalone
or bolted onto existing ERP instances. They can usually be implemented relatively
quickly and at a relatively low price, with much more immediate and quantifiable
cost savings to the user. Accordingly, during the last several years, the functional
perimeter of ERP systems has begun an expansion into these adjacent markets,
as most ERP vendors have been busy developing, acquiring, or bundling new functionality
so that their packages go beyond the traditional realms of finance; materials
planning and management; and HR/payroll management.
a result, many pundits have also jumped at the opportunity to name this new
evolutionary phase by inventing names and acronyms like extended-ERP, ERP II,
enterprise business applications (EBA), enterprise commerce management (ECM),
comprehensive enterprise applications (CEA) and so on. More important than this
contest for creating the catchiest buzzword, possibly in the unofficially accepted
ideal form of TLA (three letter acronym), is the fact that most of these notions
signify the evolution or enhancement of ERP, rather than its replacement or
we believe that, within recent years, ERP has been redefined as a platform for
enabling collaborative e-business globally. Originally focused on automating
internal processes of an enterprise, extended ERP systems increasingly include
customer and supplier-centric processes as well. The conclusive evidence of
this redefinition is the move of all major traditional ERP players into CRM,
e-commerce, and SCM applications, which is the best illustrated by SAP's
SCM revenue exceeding the former leaders i2 Technologies, Ariba,
is Part Four of a six-part note.
One, Two, and Three covered developments from the 1960s through the 2000s.
Five will continue to discuss ERP evolution. Part Six will look at the future.
is a Glossary
for the terms italicized throughout this article.
reason for ERP vendors tackling SCM first might be the fact that, to circumvent
MRP II's capacity planning limitations, planners have long turned to various
ways of off-line (at first, given today's increasing use of memory resident,
real-time systems) capacity planning: either manually, with the help of spreadsheet
programs, or with the help of relatively new APS systems. APS systems were originally
designed as bolt-ons with the idea of plugging into an ERP system's database
to download information and then create a feasible schedule within identified
constraints, such as finite capacity. The new schedule can then be
uploaded into the ERP system thereby replacing the original MRP results. These
APS systems typically offer simulation ("what if") capabilities that allow the
planner to analyze the results of an action before committing to that action
through the ERP system. Some of these systems go even one step further by offering
optimization capabilities. They automatically create multiple simulations and
recommend changes in the supply chain within the existing constraints. For more
Advanced Planning and Scheduling: A Critical Part of Customer Fulfillment.
APS is a subset of supply chain planning (SCP) applications that are
designed to provide forward-looking options for future time horizons, by sitting
on top of a current transactional system (most often ERP) to provide planning,
"what-if" scenario analysis capabilities and real-time demand commitments.
SCP typically deals with activities such as developing demand forecasts, establishing
relations with suppliers, planning and scheduling manufacturing operations,
and developing metrics to ensure efficient and cost-effective operations. It
also includes the determination of marketing channels; promotions; respective
quantities and timing; inventory and replenishment policies; and production
policies. Thus, the typical SCP modules would include network planning; capacity
planning; demand planning; manufacturing planning and scheduling; and distribution
and deployment planning.
Supply Chain Management
the other hand, while most traditional ERP software enables the integration
and management of critical data within enterprises, companies have increasingly
recognized the need to deploy more advanced software systems that manage the
global supply chain by enhancing the flow of information to and from customers,
suppliers, and other business partners outside the enterprise. More recently,
the availability and use of the Web has created a demand for software that operates
across the Internet and intranets. This global logistics concept merged the
above described constraint-based optimization solutions called APS and specialized
warehouse and transportation management software (WMS/TMS), resulting in more
encompassing SCM, which should include all the processes from the initial raw
materials to the ultimate consumption of the finished product linking across
supplier-user companies (see The
Essential Supply Chain).
Dictionary, the 10th Edition defines SCM as
design, planning, execution, control, and monitoring of supply chain activities
with the objective of creating net value, building a competitive infrastructure,
leveraging worldwide logistics, synchronizing supply with demand, and measuring
other words, at a high level, the SCM software scope could be segmented into
supply chain planning (SCP) and supply chain execution (SCE), while
strategic sourcing, procurement, spend management, supplier relationship
management (SRM), and product lifecycle management (PLM) components
are still considered the extension of the SCM rather than its constituents.
Execution functions manage effective procurement and supply of goods and services
across a supply chain to ensure completion of the plans, including creating
purchase orders, taking customer orders, updating inventory, managing movement
of products in the warehouse, and delivering goods to the customer. Hence, SCE
includes light/assembly manufacturing, warehouse, and transportation execution
systems, and systems providing visibility across the supply chain, given more
comprehensive SCE suites have lately evolved consolidating execution components,
such as WMSs, TMSs, distributed order management systems, and supply chain
inventory visibility (SCIV), to provide a more unified solution to manage
the outbound logistics process.
there are two important business problems associated with today's manufacturing
planning, materials planning and supply chain environments:
applications need to address the lack of accurate logistics costs and service
information that would enable more optimized decisions across the entire supply
chain. SCP typically generates weekly or daily plans (in a better case scenario),
but without adequately addressing the issues that arise almost every instant
in dynamic logistics environments. Thus, plans are often invalid as soon as
they have been made, while a mere re-planning does not answer the question
what went wrong in the first place (i.e., there is no facility to learn from
prior plans' inadequacy).
applications need to further address the lack of real-time inventory visibility
and event management feedback information needed for SCP to respond to frequent
supply chain changes when building and executing manufacturing and materials
demand for near real-time supply chain collaboration will, in turn, place an
increasing emphasis on any company's ability to immediately commit itself to
promising orders' delivery dates on a global basis and to consistently meet
those commitments ever after. This ATP/capable-to-promise (CTP) aptitude
will be made more complex as companies rely on an increasing number of business
partners and suppliers to procure raw materials, assemble, and deliver finished
goods. SCE is therefore gaining increasing awareness among companies that realize
that planning can do only so much without the ability to make the right and
timely decisions and execute on the shop floor, in the warehouses or within
the entire distribution chain.
it would be too nave to dismiss the need for proper planning, because regardless
of how responsive a SCE system may be, waiting for chaos to happen and only
then trying to act, would be equally disastrous as it has been with compiling
nearly ideal plans (through cumbersome algorithms) and never doing anything
about executing them or obtaining feedback about their outcomes. As supply chains
become more dynamic and operate in near real-time, the lines between planning
and execution continue to blur, which bodes well for their functional convergence.
Thus, some SCE vendors have started to move beyond pure execution to offer some
planning and optimization capabilities, often with the "adaptive" moniker. Companies
need real-time information from execution systems to develop and adjust optimal
plans, while the execution side should benefit from more realistic plans for
some readiness sake, rather than to merely react after the fact in a firefighting
fashion. We believe that planning and execution will become much less inseparable
in the long term (see SCP
and SCE Need to Collaborate for Better Fulfillment).
any case, the major ERP players already have offerings or at least sound strategies
addressing this important need, but, for the reasons of addressing the proverbial
ERP/MRP II capacity drawback, they have so far made the biggest dent on the
SCP/APS areas, with a raft of ERP vendor long espousing their native solutions
(for only some examples, see SAP
APO: Will It Fill the Gap?, Oracle
APS Makes Its Debut, and Mid-Market
ERP Vendors Doing CRM & SCM In A DIY Fashion).
SCP and APS scenarios of ERP leaders upstaging the pure-play specialists will
likely be repeated in many other related markets, where the specialists still
seem to be holding out, such as PLM, SCE/WMS, enterprise asset management
(EAM)/computerized maintenance management systems (CMMS), or SRM. As usual,
the ERP vendors will bet on leveraging existing customers who will have deeply
invested in them, and have even reorganized operations around their ERP systems.
The promise of these new extended-ERP products from ERP vendors is the link
to financial and manufacturing systems (albeit mostly the vendors' own, which
is logical at this stage) and links to supplier or customer data in case of
their native SRM/CRM systems.
the pure-play vendors' "Holy Grail" has become working with information from
heterogeneous sources, an order "du jour" within many large organizations, which
often have more than one ERP system and/or various legacy systems. This is analogous
to the enterprise applications integration (EAI) market, since in larger
corporations, customers still may prefer integration vendors with renowned product
strength, vertical expertise, financial viability and savvy in extensible\markup
language (XML)-based B2B integration, multiplatform integration and workflow
best-of-breed specialist offers functionality or capability that mainstream
ERP vendors cannot match for some time giving these specialists some breathing
space for this ongoing one-upmanship game. After all, the innovativeness of
these providers has kept ERP vendors on their toes, forcing them to provide
better integration to these add-on applications and/or to develop them internally.
For some snapshots of the showdown between ERP and pure players in certain enterprise
application markets, see ERP
and WMS Co-Existence: When System Worlds Collide, The
Different Evolutionary Stages of ERP and PLM and SCE
Leaders Partner To See Beyond Their Portfolios.
in certain areas one can still see a clearer demarcation line between ERP intruders
and best-of-breed incumbents. For example, in the PLM market, it would be that
PLM solutions are oriented around creative product innovation processes as opposed
to the transaction-oriented world in which ERP packages operate best, since
the processes such as cost reporting; procurement; sourcing and contract management;
resource planning; and monitoring are best accomplished with control-oriented
software, like ERP suites built out from financial and analytics modules. However,
the ERP suites do not yet fully accommodate collaboration as well as stand-alone
PLM packages designed for that purpose. To remain competitive, however, stand-alone
vendors would do well to focus on easy integration with ERP suites. For more
information, see Can
ERP Speak PLM?
current PLM leaders' superiority, like in the case of the SCM and CRM markets,
will diminish as the ERP vendors continue to improve their extended-ERP functionality,
collaborative capabilities and accessibility and add universal interfaces, including
the new Web Service standards to facilitate access and integration
of data outside their own environment. Thus, the PLM and other pure-play vendors
alike need to establish as strong a hold on the market as possible before the
enterprise vendors catch up, despite some of these applications' proven staying
power within IT departments. Especially if the remaining tier 2 and 3 point
solution vendors, cannot gain significant traction and distinctive differentiation,
they could find themselves in a position of needing to be either being acquired
or joining forces with a complementary functional or platform technology vendor
(IBM, Oracle, Microsoft, Computer
Associates, etc.) via alliance or acquisition.
concludes Part Four of a six-part note.
One, Two, and Three covered developments from the 1960s through the 2000s.
Five will continue to discuss ERP evolution.
Six will look at the future.
and Recommended Further Readings
Tools, Techniques, and Applications for Integrating the Supply Chain. Second
Carol A. Ptak, CFPIM, CIRM, and Eli Schragenheim; The St. Lucie Press/APICS
Series on Resource Management; 2nd Edition, 2003
Readings in ERP;
APICS Complex Industries SIG, 1999
Your ERP System: A Practical Guide for Managers;
Dr. Scott Hamilton; McGraw-Hill Trade, 2002