Enterprise resource planning plays a critical role in supply chain but how are systems adapting to new market challenges, asks Sam Tulip.
Is ERP, Enterprise Resource Planning, still a meaningful description of the core business systems that so many manufacturing companies depend on? Is the classic ERP model – a common central database serving modules for each relevant business area from production and materials management to finance, HR, and beyond – still appropriate?
Each term can be challenged. “Resources” to be managed now extend beyond the traditional “Men, Money, Materials, Machines” as an increasing part of the manufacturer’s offer is in the form of services (a fifth “m” in the e-commerce age might be Media); the dividing line between planning and execution is increasingly blurred; and the “Enterprise” now extends far beyond the four walls of the factory and the assets under control of a single organisation. Meanwhile advances in IT and data science from cloud computing to predictive analytics and the internet of things, are changing both the way firms access the technology, and the powers and capabilities of the systems themselves.
And some would say: “Not before time”. There is a lengthy charge-sheet against ERP. The systems, it is said, have high upfront costs; they are difficult to implement; they typically require extensive business process re-engineering and change management, skills which may have to be expensively bought in.
Core ERP modules are said to be unsophisticated and generic, failing to reflect the particular business practices of the enterprise, or the complex and varying commercial and regulatory environments of different sectors. That leads to a lot of custom code being written, and an ongoing requirement for high level in-house IT skills.
Alternatively the firm has to adopt less than optimal processes to fit the requirements of the system, or use standalone “best of breed” solutions for particular functions. And of course the greater the degree of customisation, the harder it is to integrate with the extended “enterprise” of customers, suppliers, regulators and the rest, or even to create common systems and processes across different business units with their own legacy ERP systems.
Often the system seems to be run for the benefit of the bean-counters rather than operations. Oh, and if you wanted to make a small change you had to run the entire program overnight!
In fairness, some of this just wasn’t true and many problems arose from users not fully appreciating what they are trying to achieve, what is possible, how their current business processes actually work, and how good (or bad) their data is.
As Dawn Howarth, associate with Oliver Wight EAME, says: “Most organisations need some sort of ERP functionality, but you have to choose what and where carefully.
“The majority don’t have the processes in place to successfully implement ERP when they start working on it. We see first-hand how this leads to company-wide paralysis, as organisations realise how much work it’s going to take to (re-)implement the ERP properly. Either they’re unwilling to make the change, even though they can see the benefits, or a web of bureaucracy and long flow times within the organisation make change an extremely difficult task.
“The basic processes must be routinely managed and become “the way things are done”, before organisations move onto making most of the functions that ERP systems can offer to drive analytics, modelling and decision-making for the business. Ultimately, it boils down to building up capability”.
Phil Lewis, VP solution consulting EMEA for Infor, says: “There was a time when an ERP was defined by the features and functionality it offered. Vendors went to war based on the fact that their ERP had different bells and whistles to everyone else’s.
“Not any more – that functionality is now a commodity. Instead, the openness and connectivity of the platform are the main issues. What can it be made to do? Can it work – seamlessly – with other investments? And of course, without needing massive integration and upgrade projects.
“So how do you square this circle? You go to the cloud. Our strategy at Infor has been to engineer CloudSuites for a specific industry combining last mile functionality for a given industry with a flexible cloud based delivery.
“The immediate pay off for this approach is that it kills customisations and the associated, expensive consulting engagements. Customers routinely lower costs by 25 per cent or more by retiring mods, eliminating big bang upgrades, and reducing infrastructure costs.
“And as the customer needs anything beyond their first requirements, they should be able to simply extend the application and use smart API / middleware to offer flexibility at the edges but a consistent set of core processes and applications. You square the circle by “surrounding” the core ERP with new, but still mission-critical additions that can still be industry specific”.
Dawn Howarth says: “In the past, ERP systems would be implemented and remained unchanged for a decade – aside from a few software updates. In the 21st century, this rigidity has been replaced with agility; modern ERP systems have the ability to integrate unique solutions as and when they’re needed. How? By replacing on-site ERP tools with cloud-based software and SaaS.
“The days of major re-implementation are gone – or at least, they should be – with worldwide internet connectivity enabling frequent upgrades to ERP systems at the click of a mouse. Often, organisations don’t even have to monitor their upgrades, with the provider remotely updating the software to maintain optimum performance, without any major expense. This agility is especially useful in a business environment, which is experiencing an increasing number of mergers and acquisitions. Many modern company structures now comprise subsidiaries, divisions and sectors scattered across the globe and with different ERP platforms, but it is relatively easy to create an enterprise level view of key information, and constantly develop this to maintain a competitive edge.
“And, cloud-based ERP is much more accessible for smaller businesses. With no need for an in-house IT system, or annual maintenance fees, they are more cost-effective while stilling adding value to the business”.
Make no mistake – as far as vendors are concerned, the future of ERP is in the cloud, and they are quite aggressively steering new and existing clients that way. But Mark Smith, chief executive at Support Revolution, suggests caution. “Software vendors are, for obvious reasons, keen to hurry their customers on to new version, and especially move from on-premise to cloud software.
“So, for example, if you use SAP’s ERP software, and you’re not using their cloud platform, S/4HANA, you’re on a deadline for the end of support: 2025. After that, businesses that want support from SAP will need to migrate. Others haven’t set deadlines, but all of the innovation is going into these new platforms. The problem for users is that moving to the cloud is not a simple decision. It can take years to complete the process and cost a great deal. So what should they do?
“The best approach is to separate hype from reality. AI and other new technologies may revolutionise the industry, but they are far from mature. The software that worked five years ago, ten years ago, or even longer, will still work today. There’s a good chance that the best advice is to do nothing.
“At the end of support, customers will no longer receive any updates, security or otherwise. They will no longer be able to access official support to resolve technical queries. Everything else will remain the same. All a business needs to do is secure the software and get support—both available through third parties—and it can carry on just as before”.
There are, it should be noted, more mundane problems with migrating ERP to the cloud: a surprising proportion of locations, even in developed countries, don’t enjoy the fast and reliable bandwidth to support data-heavy tasks like ERP and “Industry 4.0” technologies like AI and IoT. 5G may be the answer, but leaving aside the controversial involvement of Huawei, which may delay 5G roll-out in several advanced countries, industrial applications of 5G technology are still experimental – the first live industrial trial in the UK, at Worcester Bosch, only started last month (February). But high levels of connectivity will be essential if ERP systems are to gather large quantities of real-time data.
This is part of what Gartner a few years ago termed “post-modern ERP”. Mark Hughes, VP UK & Ireland at Epicor, says: “It’s an approach that represents a radical rethink of the traditional monolithic and inflexible single-instance “one-size-fits-all” ERP on-premise systems of the past”.
“In an era when organisations need to successfully embrace Industry 4.0 technologies to build competitive advantage, the ability to seamlessly integrate these applications with the ERP system is a game changer”, says Hughes. “As manufacturing businesses embrace new technologies post-modern ERP makes it possible to seamlessly integrate all planning, materials management and procurement, manufacturing, and financial and business intelligence processes through one single streamlined system, enabling manufacturers to forge connections between planning, supply chain and production processes that were previously difficult to achieve and, as a consequence, to interact with suppliers and customers in more agile and responsive ways”.
Hughes says that many companies are embarking on their second or third ERP implementation. “Typically, their first deployment was a legacy system with baseline or limited capabilities—their second, a generic solution that required significant integration efforts to connect to other business systems or align the ERP platform to “work” with processes unique to the business.
“Now, these organisations are preparing for the next wave of ERP—a post-modern ERP solution architected to support data flows and processes that make work more intuitive and collaborative for users, suppliers, and partners, and making it possible to adapt fast, and prepare for future growth, with ease”.
Dawn Howarth of Oliver Wight adds: “Previously, companies used to buy the whole ERP system from one provider, and there might have been a few extra modules that they paid for, but typically, they bought core functionality. Now, organisations can configure exactly what they want their ERP systems to have. With most providers able to integrate with any tool, organisations now have the freedom and flexibility to build ERP systems in a more modular way, that is tailored to their requirements. As a result, there are now many smaller ERP providers emerging in the industry who focus on developing software for one specific task, rather than trying to be a ‘jack of all trades, but a master of none’.
“They offer an established level of expertise, as well as better value, because organisations can spend thousands on the one tool they need, instead of millions on a whole toolkit that they don’t necessarily want. Added to this, the technology infrastructure has improved to give better user access, as well as providing aggregated business wide views of the basic ERP data.
“However, this customisation comes with a caveat – there’s almost too much choice, especially if organisations haven’t yet clarified what they want from their ERP system”.
Faced with this fast-moving and confused range of opinions, many companies are adopting a hybrid solution to ERP – taking the more common and generic functions as a cloud-based service, but retaining in-house the custom-built, enterprise or sector-specific functionality.
“A core ERP solution tightly integrated with a mix of specialised solutions” isn’t quite how everyone sees the future, though. Particularly in the light of e-commerce and omni-channel fulfilment, supply chain leaders are looking for solutions that will automate the routine, enable real-time analysis and problem solving, facilitate immediate response to unplanned events while being flexible enough to rapidly and inexpensively adapt to changing business conditions, says Hank Canitz, product marketing director of Logility.
“ERP solutions have their place as enablers of transactional data across a single company, but are unable to meet the needs for cross organisational, collaborative, advanced analytics, near real-time visibility that best-of-breed supply chain solutions deliver.
“It is crucial to look for end-to-end integrated supply chain platforms, not multiple loosely integrated standalone bolt-on solutions. On their own, these bolt-on solutions facilitate silos for the respective area, such as inventory management, warehousing, and manufacturing planning, without delivering the overall integration benefits that the business requires for efficient supply chain management.
“Cross-enterprise collaboration with partners has become a foundational requirement but much of the data used for advanced supply chain capabilities comes from outside of the company and an ERP system has no capability of storing or managing this data. A Software-as-a-Service (SaaS) deployment of an integrated supply chain platform really does change the game from a collaboration standpoint if the solution is architected to support record level security. Robust, intelligent and safe collaboration with up and down stream partners can be enabled through SaaS solutions”.
Canitz quotes a research project by Supply Chain Insights whose author, Lora Cecere, states: “The data is clear: best-of-breed supply chain planning solutions are faster to implement, have a better RoI, and yield higher satisfaction than planning systems from ERP providers. Supply chain planning software from an ERP vendor moved the industry backward.”
Martin Sewell, sales manager at supply chain planning vendor FuturMaster, agrees that “most companies we speak to accept that best-of-breed implementations are less costly than ERP projects, are delivered faster and give a faster return on investment. Many complain that ERP implementations are cumbersome, very expensive and not really easy to maintain, especially with regard to customisation. SaaS and cloud solutions can work well for smaller organisations; and they’re proving increasingly popular among larger companies too”.
E-commerce in particular is challenging for classic ERP, says Sewell. “Systems must be capable of describing all of the points and interactions in a supply chain and any related constraints on the network. This is a complex business and many (ERP) systems will have had to adapt from single channel infrastructures. Yet what’s needed is specialist software with a flexible data infrastructure that enables customers to store all the necessary supply chain data at the level required.
“Also, data is increasingly being shared between organisations and modelling both internal and external supply chain performance is becoming a critical factor in driving supply chain performance – systems must support this, but many don’t.
“ERP, as a solution, can help with the running of a modern supply chain; but you really need to understand the limitations too. ERPs can help with general, day to day operational activity. But the fixed data structures make them less adept at handling complex planning functions, which rely on flexibility and modelling to support efficient decision making.
“That said, many customers decide to supplement their ERP systems with specialist solutions like FuturMaster’s. And some of our customers implemented ERP, then decided to stop and deploy our solutions instead.”
So “post-modern ERP” stretches well beyond the enterprise, it manages a new range of resources, it is as much about execution as planning. It may or may not be on the cloud. And its core may not be a classic resource planning program anyway. Truly, it’s ERP, but not as we know it.
This article first appeared in Logistics Manager, March 2019.