Enterprise resource planning
Enterprise Resource Planning systems (ERP's) integrate (or attempt to integrate) all data and processes of an organization into a unified system. A typical ERP system will use multiple components of computer software and hardware to achieve the integration. A key ingredient of most ERP systems is the use of a unified database to store data for the various system modules. The term ERP originally implied systems designed to plan the use of enterprise-wide resources. Although the acronym ERP originated in the manufacturing environment, today's use of the term ERP systems has much broader scope. ERP systems typically attempt to cover all basic functions of an organization, regardless of the organization's business or charter. Business, non-profit organizations, non governmental organizations, governments, and other large entities utilize ERP systems. Additionally, it may be noted that to be considered an ERP system, a software package generally would only need to provide functionality in a single package that would normally be covered by two or more systems. Technically, a software package that provides both payroll and accounting functions (such as QuickBooks) would be considered an ERP software package. However, the term is typically reserved for larger, more broadly based applications. The introduction of an ERP system to replace two or more independent applications eliminates the need for external interfaces previously required between systems, and provides additional benefits that range from standardization and lower maintenance (one system instead of two or more) to easier and/or greater reporting capabilities (as all data is typically kept in one database). Examples of modules in an ERP which formerly would have been stand-alone applications include: Manufacturing, Supply Chain, Financials, Customer Relationship Management (CRM), Human Resources, and Warehouse Management.
• • • •
1 Overview o 1.1 Before o 1.2 After 2 Best Practices 3 Implementation 4 Advantages 5 Disadvantages
6 See also
Looking more closely at ERP systems, a key factor is the integration of data from all aspects of an organization. To accomplish this, an ERP system typically runs on a single database instance with multiple software modules providing the various business functions of an organization. Some organizations - typically those with sufficient in-house IT skills to integrate multiple software products - choose to only implement portions of an ERP system and develop an external interface to other ERP or stand-alone systems for their other application needs. For instance, the PeopleSoft HRMS and Financials systems may be perceived to be better than SAP's HRMS solution. And likewise, some may perceive SAP's manufacturing and CRM systems as better than PeopleSoft's equivalents. In this case these organizations may justify the purchase of an ERP system, but choose to purchase the PeopleSoft HRMS and Financials modules from Oracle, and their remaining applications from SAP. This is very common in the retail sector, where even a mid-sized retailer will have a discrete Point-of-Sale (POS) product and financials application, then a series of specialised applications to handle business requirements such as warehouse management, staff rostering, merchandising and logistics. Ideally, ERP delivers a single database that contains all data for the software modules, which would include: Manufacturing Engineering, Bills of Material, Scheduling, Capacity, Workflow Management, Quality Control, Cost Management, Manufacturing Process, Manufacturing Projects, Manufacturing Flow Supply Chain Management Inventory, Order Entry, Purchasing, Product Configurator, Supply Chain Planning, Supplier Scheduling, Inspection of goods, Claim Processing, Commission Calculation Financials General Ledger, Cash Management, Accounts Payable, Accounts Receivable, Fixed Assets Projects Costing, Billing, Time and Expense, Activity Management Human Resources Human Resources, Payroll, Training, Time & Attendance, Benefits Customer Relationship Management Sales and Marketing, Commissions, Service, Customer Contact and Call Center support Data Warehouse
and various Self-Service interfaces for Customers, Suppliers, and Employees Enterprise Resource Planning is a term originally derived from manufacturing resource planning (MRP II) that followed material requirements planning (MRP). MRP evolved into ERP when "routings" became major part of the software architecture and a company's capacity planning activity also became a part of the standard software activity. ERP systems typically handle the manufacturing, logistics, distribution, inventory, shipping, invoicing, and accounting for a company. Enterprise Resource Planning or ERP software can aid in the control of many business activities, like sales, marketing, delivery, billing, production, inventory management, quality management, and human resources management. ERPs are often incorrectly called back office systems indicating that customers and the general public are not directly involved. This is contrasted with front office systems like customer relationship management (CRM) systems that deal directly with the customers, or the eBusiness systems such as eCommerce, eGovernment, eTelecom, and eFinance, or supplier relationship management (SRM) systems. ERPs are cross-functional and enterprise wide. All functional departments that are involved in operations or production are integrated in one system. In addition to manufacturing, warehousing, logistics, and Information Technology, this would include accounting, human resources, marketing, and strategic management. ERP II means open ERP architecture of components. The older, monolithic ERP systems became component oriented. EAS - Enterprise Application Suite is a new name for formerly developed ERP systems which include (almost) all segments of business, using ordinary Internet browsers as thin clients.
Prior to the concept of ERP systems, departments within an organization would have their own computer systems. For example, the Human Resources (HR) department, the Payroll (PR) department, and the Financials department. The HR computer system (Often called HRMS or HRIS) would typically contain information on the department, reporting structure, and personal details of employees. The PR department would typically calculate and store paycheck information. The Financials department would typically store financial transactions for the organization. Each system would have to rely on a set of common data to communicate with each other. For the HRIS to send salary information to the PR system, an employee number would need to be assigned and remain static between the two systems to accurately identify an employee. The Financials system was not interested in the employee level data, but only the payouts made by the PR systems, such as the Tax payments to various authorities, payments for employee benefits to providers, and so on. This provided complications. For instance, a person could not be paid in the Payroll system without an employee number.
wants EDI plus some minor tweak that they perceive puts them ahead of their competition. or where the process is a commodity such as electronic funds transfer. This is because the procedure of capturing and reporting legislative or commodity content can be readily codified within the ERP software.
Because of their wide scope of application within a business. so even smaller projects are more cost effective if specialist ERP implementation consultants are employed. even with decades of effort remains elusive. a large.g. however. The length of time to implement an ERP system depends on the size of the business. In this way they actively work against best practice because they perceive that the way they operate is best practice. there would be little need to implement them). Where such a compliance or commodity requirement does not underpin the business process.
. A large retailer. combined the data of formerly disparate applications. ERP software systems are typically complex and usually impose significant changes on staff work practices (if they did not. the scope of the change and willingness of the customer to take ownership for the project. the delivery of best practice applies more usefully to large organizations and especially where there is a compliance requirement such as IFRS. and then replicated with confidence across multiple businesses who have the same business requirement. multi-site or multi-country implementation may take years. among other things. Typically. a company of less than 100 staff) may be planned and delivered within 3 months. A small project (e. It standardised and reduced the number of software specialities required within larger organizations. When implementing an ERP system. organizations essentially had to choose between customizing the software or modifying their business processes to the "Best Practice" functionality delivered in the vanilla version of the software.After
ERP software. Evidence for this can be seen within EDI. where the concept of best practice. Sarbanes-Oxley or Basel II. Implementing ERP software is typically not an "in-house" skill. irrespective of what anyone else is doing. This made the worry of keeping employee numbers in synchronization across multiple systems disappear. Mid-market companies adopting ERP often take the vanilla version and spend half as much as the license cost doing customisations that deliver their competitive edge. it can be argued that determining and applying a best practice actually erodes competitive advantage by homogenizing the business compared to everyone else in their industry sector. for example.
Best Practices were also a benefit of implementing an ERP system..
For most mid-sized companies. These firms typically provide three areas of professional services: Consulting. A systems architect designs the overall dataflow for the enterprise including the future dataflow plan. This is a critical part of the project. creation of process triggers and workflow. The consulting team are also responsible for planning and jointly testing the implementation. system optimisation. Customisation Services Customisation is the process of extending or changing how the system works by writing new user interfaces and underlying application code. Examples of such code include early adopter features (e. Consulting for a large ERP project involves three levels: systems architecture. specialist advice to improve how the ERP is used in the business. A business consultant studies an organization's current business processes and matches them to the corresponding processes in the ERP system.The most important aspect of any ERP implementation is that the company who has purchased the ERP product takes ownership of the project. and assistance writing reports. and especially those with multiple sites or countries.
.. To implement ERP systems. the cost of the implementation will range from around the list price of the ERP user licenses to up to twice this amount (depending on the level of customisation required). business process consulting (primarily re-engineering) and technical consulting (primarily programming and tool configuration activity).three to five times as more is not uncommon for a multi-site implementation. Typically such tailoring includes additional product training. companies often seek the help of an ERP vendor or of thirdparty consulting companies. thus 'configuring' the ERP system to the organization's needs. Large companies. Most ERP vendors allow modification of their software to suit the business needs of their customer. will often spend considerably more on the implementation than the cost of the user licenses -. and one that is often overlooked. Technical consulting often involves programming. mobility interfaces were uncommon a few years ago and were typically customised) or interfacing to third party applications (this is 'bread and butter' customisation for larger implementations as there are typically dozens of ancillary systems that the core ERP software has to interact with).g. Customisation and Support. complex data extracts or implementing Business Intelligence. Consulting Services The Consulting team is typically responsible for your initial ERP implementation and subsequent delivery of work to tailor the system beyond "go live". Such customisations typically reflect local work practices that are not currently in the core routines of the ERP system software.
it is critical that someone is responsible for the creation and user testing of the documentation.The Professional Services team is also involved during ERP upgrades to ensure that customisations are compatible with the new release. Tasks that need to interface with one another may involve:
• • •
design engineering (how best to make the product) order tracking from acceptance through fulfillment the revenue cycle from invoice through cash receipt
. the consulting company will typically enter into a Support Agreement to assist your staff keep the ERP software running in an optimal way. so most businesses implement the best practices embedded in the acquired ERP system. so while there is typically a 90-day warranty against software faults in the custom code. Maintenance and Support Services Once your system has been implemented. a large manufacturer may find itself with many software applications that do not talk to each other and do not effectively interface.overhead to the customisation project. in many cases the work delivered as customisation is not covered by the ERP vendors Maintenance Agreement.and expensive -. Customisation work is usually undertaken as bespoke software development on a time and materials basis. such that customization is expected in every implementation. they are typically between 15% and 20% of the list price of the ERP user licenses. it is common to pay in the order of $200 per hour for this work. because many ERP packages are not designed to support customization. Some ERP packages are very generic in their reports and inquiries.
In the absence of an ERP system. there is no obligation on the ERP vendor to warrant that the code works with the next upgrade or point release of the core product. Also. the effort is largely wasted as it becomes difficult to train new staff in the work practice that the customisation delivers. A Maintenance Agreement typically provides you rights to all current version patches. In some cases the functionality delivered via previous a customisation may have been subsequently incorporated into the core routines of the ERP software. While there is no standard cost for this type of agreement. and will most likely allow your staff to raise support calls. Customizing an ERP package can be very expensive and complicated. Without the description on how to use the customisation. While it can seem like a considerable -. allowing customers to revert back to standard product and retire the customisation completely. It is important to recognize that for these packages it often makes sense to buy third party plug-ins that interface well with your ERP software rather than reinventing the wheel. Because of the specialist nature of the customisation and the 'one off' aspect of the work. One often neglected aspect of customisation is the associated documentation. and both minor and major releases.
Many companies cut costs by cutting training budgets. or other sabotage. including training about how to make the system work correctly. A data tampering scenario might involve a terrorist altering a Bill of Materials so as to put poison in food products. such as APICS foundations. and in the particular ERP vendor package being used. companies can employ new managers lacking education in the company's ERP system. as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and how it is used. Customization of the ERP software is limited. Personnel turnover.
Change how a product is made. ERP vendors can charge sums of money for annual license renewal that is unrelated to the size of the company using the ERP or its profitability. both the date that some ingredients go into effect. Some customization may involve changing of the ERP software structure which is usually not allowed. for example when telling a non-programmer how to change a database on the fly. and date that some are discontinued. Computer security concerns arise. and that is how it will now be made. and Costing (what the vendor invoiced) the Accounting for all of these tasks.
Many problems organizations have with ERP systems are due to inadequate investment in ongoing training for involved personnel. Inventory receipts (what arrived). ERP security helps to prevent abuse as well. Part of the change can include labeling to identify version numbers. tracking the Revenue. at a
. ERP systems can be very expensive to install. Cost and Profit on a granular level. such as embezzlement. Effective dates can be used to control when the switch over will occur from an old version to the next one. in the engineering details. Computer security is included within an ERP to protect against both outsider crime. Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage.• • •
managing interdependencies of complex Bill of Materials tracking the 3-way match between Purchase orders (what was ordered). and insider crime. including those implementing and testing changes. Privately owned small enterprises are often undercapitalized. meaning their ERP system is often operated by personnel with inadequate education in ERP in general. Limitations of ERP include:
• • • • •
Success depends on the skill and experience of the workforce. such as industrial espionage. proposing changes in business practices that are out of synchronization with the best utilization of the company's selected ERP. Technical support personnel often give replies to callers that are inappropriate for the caller's corporate structure.
. Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards. then over time "dirty data" will reduce the reliability of some applications. and employee morale. Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software. The system can suffer from the "weakest link" problem—an inefficiency in one department or at one of the partners may affect other participants. Once a system is established. ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies—this is cited as one of the main causes of their failure. The system may be over-engineered relative to the actual needs of the customer.•
• • •
• • • • •
company that requires an audit trail of changes so as to meet some regulatory standards. Systems can be difficult to use. There are frequent compatibility problems with the various legacy systems of the partners. lines of responsibility. switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level). The blurring of company boundaries can cause problems in accountability.
• • • • • • • • • • • • • • •
List of ERP vendors List of ERP software packages Accounting software Advanced Planning & Scheduling APICS E-procurement ERP modeling Information technology management Management information system Supply chain management Material requirements planning (material resource planning) Software as a Service Vendor-independent solutions provider SAP AG Data migration
List of ERP vendors
A list of Enterprise resource planning (ERP) vendors.
Vendors of popular ERP software include (sorted roughly according to worldwide ERP related revenue): 1. Visma 9.
Please help improve this article by introducing appropriate citations.AG 13. Microsoft Dynamics (Formerly Microsoft Business Division) 7. NetSuite 12. Infor Global Solutions 4.Free software / Open source ERPs
• • • • • •
Adempiere Apache OFBiz Compiere ERP5 GNU Enterprise SQL Ledger
Some ERP vendors
This section does not cite its references or sources. Lawson Software 6. 24SevenOffice Vendors without known revenue figures (sorted alphabetically):
• • • • • • • •
Adempiere Compiere CGI Group Made2Manage Systems Ramco Systems SunGard UFIDA Unit 4 Agresso
List of ERP software packages
. SIV. (help. QAD 10. Oracle Applications 3. SAP 2. Epicor 11. The Sage Group 5. get involved!) This article has been tagged since August 2006. Industrial and Financial Systems 8.
AG Lawson Financials from Lawson Software MFG/PRO from QAD Microsoft Dynamics from Microsoft Movex from Intentia MXP from Foresight Software NetERP from NetSuite Inc.List of ERP software packages
Free and Open Source ERP software
• • • • • • •
Adempiere Compiere ERP5 GNU Enterprise OFBiz Openbravo WebERP
Proprietary ERP software
• • • • • • • • • • • • • • • • • • • • • • • • •
1C:Enterprise from 1C Company 24SevenOffice Start. Oracle e-Business Suite from Oracle ORION from 3i-INFOTECH LTD. Professional and Custom from 24SevenOffice Accpac from The Sage Group Agresso Business World from Unit 4 Agresso BPCS from SSA Global Technologies Enterprise Business System from Made2Manage Systems Epicor Enterprise from Epicor IFS Applications from Industrial and Financial Systems JD Edwards EnterpriseOne from Oracle kVASy4 from SIV. Premium.Applications from Ramco Systems Sage MAS 500 from The Sage Group SAP R/3 from SAP mySAP from SAP SSA ERP LN from SSA Global Technologies AMS Advantage from CGI Group (formerly American Management Systems)
. PeopleSoft from Oracle Ramco e.
3 Mid Market o 3. the market has been undergoing considerable consolidation. may be purchased from a third party. Since the mid 1990s. or may be a combination of a third-party application software package with local modifications. It functions as an accounting information system. with many suppliers ceasing to trade or being bought by larger groups.See also
List of ERP vendors Comparison of accounting software
Accounting software is computer software that records and processes accounting transactions within functional modules such as accounts payable. It varies greatly in its complexity and cost.
• • •
1 Modules 2 Implementations 3 Categories o 3.4 High End o 3. accounts receivable. payroll and trial balance.1 Personal Accounting o 3. Among the most common are: Core Modules
• • •
Accounts receivable—where the company enters money received Accounts payable—where the company enters its bills and pays money it owes General ledger—the company's "books"
.2 Low End o 3. different sections dealing with particular areas of accounting. It may be developed in-house by the company or organization using it.5 Vertical Market 4 Use by Non Accountants 5 Online Resources
6 See also
Accounting software is typically composed of various modules.
Mainly for home users that use accounts payable type accounting transactions. Some products have considerable functionality but are not considered GAAP or FASB compliant. Some lowend systems do not have adequate security nor audit trails. wages. Suppliers frequently serve a single national market. while larger suppliers offer separate solutions in each national market. inexpensive applications software allows most general business accounting functions to be performed. as opposed to double-entry systems seen in many businesses.• • • •
Billing—where the company produces invoices to clients/customers Stock/Inventory—where the company keeps control of its inventory Purchase Orders—where the company orders inventory Sales Orders—where the company records customer order for the supply of inventory
Non Core Modules
• • • • • •
Debt Collection—where the company tracks attempts to collect overdue bills (sometimes part of accounts receivable) Expense—where employee business-related expenses are entered Inquiries—where the company looks up information on screen without any edits or additions Payroll—where the company tracks salary. Many of the low end products are characterized by being "single-entry" products. managing budgets and simple account reconciliation at the inexpensive end of the market suppliers include:
At the low end of the business markets. and related taxes Reports—where the company prints out data Timesheet—where professionals (such as attorneys and consultants) record time worked so that it can be billed to clients
(Different vendors will use different names for these modules)
See the article Comparison of accounting software.
the ability to be controlled via Visual Basic for Applications (VBA))
The most complex and expensive business accounting software is frequently part of an extensive suite of software often known as Enterprise resource planning or ERP software. The choice of whether to purchase an industry-specific application or a general-purpose application is often very difficult. for example with integrated or add-on project accounting modules. Pervasive) Industry-standard reporting tools (eg Cognos. configuration and customisation to even begin to resemble an accounting system. This usually comes at a significant cost in terms of money and implementation time. and may be oriented towards one or more markets. access to program code. as they are highly customisable and can be tailored to exact business requirements. Concerns over a custom-build application or one designed for a specific industry include:
• • •
Smaller development team Increased risk of vendor business failing Reduced availability of support
This can be weighed up against: 13
. It will include features that are specific to that industry. often greater than six months. The advantage of a high-end solution is that these systems are designed to support individual company specific processes. the software may include integrated or addon management information systems. Software applications in this market typically include the following features:
• • •
Industry-standard robust databases (eg Microsoft SQL. In many cases. Crystal) Tools for configuring or extending the application (eg an SDK. These applications typically have a very long implementation period. Oracle. these applications are simply a set of functions which require significant integration.
Some business accounting software is designed for specific business types.Mid Market
The mid-market covers a wide range of business software that may be capable of serving the needs of multiple national accountancy standards and allow accounting in multiple currencies. In addition to general accounting functions.
• • •
Less requirement for customisation Reduced implementation costs Reduced end-user training time and costs
Some important types of vertical accounting software are:
• • • •
Banking Construction Medical Point of Sale (Retail)
Use by Non Accountants
With the increasing dominance of having financial accounts prepared with Accounting Software. as well as some suppliers claims that anyone can prepare their own books. and implementing accounting software. they have been turning to the web to search for solutions. Consequently. and List of accounting topics Double-entry bookkeeping system Application software Finance software Construction Software Enterprise Resource Planning
. accounting software can be considered at risk of not providing appropriate information as non-accountants prepare accounting information. As recording and interpretation is left to software and expert systems. selecting. accountants can be overwhelmed by all the choices and options offered. to connect with each other. the necessity to have a Systems Accountant overseeing the accountancy system becomes ever more important.
The World Wide Web provides accountants with valuable resources for researching. With the vast array of software products available. The set up of the processes and the end result must be vigorously checked and maintained on a regular basis in order to develop and maintain the integrity of the data and the processes that manage these data. and to share best practices techniques for selecting software.
• • • • • • •
Comparison of accounting software Accounting. This trend is likely to continue as the software market becomes more saturated and as accountants further embrace online resources.
Traditional planning and scheduling systems (such as Manufacturing resource planning) utilize a stepwise procedure to allocate material and production capacity. APS is especially well-suited to environments where simpler planning methods can not adequately address complex trade-off's between competing priorities. products that require a large number of components or manufacturing tasks 5. Thus. products 'competing' for plant capacity: where many different products are produced in each facility 4. Make-To-Order (as distinct from make-to-stock) manufacturing 2. Materials and capacity are planned separately. this approach often results in plans that can not be executed. simulation. where plant capacity is constrained 3. APS has commonly been applied where one or more of the following conditions are present: 1. Planning Engineers Organisation Global professional association serving planners and schedulers. capital-intensive production processes. APS Software. optimisation and machine set-up and sequencing. Unlike previous systems.
Enterprise resource planning Scheduling (production processes)
Advanced-Planning Problem Structures. 15
. IT toolbox Peer reviewed industry and academic literature with topics including constraint-based planning. production necessitates frequent schedule changes which can not be predicted before the event Advanced Planning & Scheduling software enables manufacturing scheduling and advanced scheduling optimization within these environments.Advanced Planning & Scheduling
Advanced Planning & Scheduling (APS) refers to a manufacturing management process by which raw materials and production capacity are optimally allocated to meet demand. This approach is simple but cumbersome. APS simultaneously plans and schedules production based on available materials and capacity. and does not readily adapt to changes in demand. and many systems do not consider limited material availability or capacity constraints. resource capacity or material availability. This usually results in a more realistic production plan.
is a not-for-profit international education organization.000 organizations worldwide. books. e-procurement is also sometimes referred to
. inventory management. software and a scheduling community forum. Unlike several consulting firms. APICS is also considered the authority on business management systems such as MRP and ERP.
E-procurement (Electronic Procurement) is the business-to-business purchase and sale of supplies and services through the Internet as well as other information and networking systems. An important part of many B2B sites. production management. The CFPIM (Certified Fellow in Production and Inventory Management) has only been achieved by about 1200 masters of the APICS CPIM body of knowledge. industrial engineering. accounting. The main thrust of APICS' knowledge is how to improve corporate profits by removing hidden costs.000 individual and corporate members in over 25. Just In Time. and currently has about 77. management information systems. training tools and networking opportunities to increase workplace performance. scheduling. and other functions as they affect the organization" (APICS Dictionary.
APICS The Association for Operations Management. this knowledge does NOT require the increase in sales. 11th edition). It was founded in 1957 as the American Production and Inventory Control Society. nor the layoff of employees to improve profits. quality management. such as electronic data interchange (EDI) and Enterprise Resource Planning (ERP). APICS awards three professional designations: APICS CPIM (Certified in Production and Inventory Management). use and control of a manufacturing or service organization through the study of concepts from design engineering. and Zero Defects. APICS defines operations management as "the field of study that focuses on the effective planning.•
Production Scheduling Portal Information about scheduling: online resources. offering certification programs. APICS CIRM (Certified in Integrated Resource Management) and APICS CSCP (Certified Supply Chain Professional).
buyers or sellers may specify prices or invite bids. e-sourcing: Identifying new suppliers for a specific category of purchasing requirements using Internet technology.
(French) Appros. They contain usually supplier management. automatic notification system etc. Typically. Repair and Operating): The same as web-based ERP except that the goods and services ordered are non-product related MRO supplies. E-procurement software may make it possible to automate some buying and selling. eBay's tools for its sellers has similar features.by other terms. e-reverse auctioning: Using Internet technology to buy goods and services from a number of known or unknown suppliers. There are six main types of e-procurement:
• • • • •
Web-based ERP (Electronic Resource Planning): Creating and approving purchasing requisitions. e-tendering: Sending requests for information and prices to suppliers and receiving the responses of suppliers using Internet technology. RFP: request for Proposal RFQ: request for Quotation RFx: the above three together. eRFx: software for managing RFx projects. reduce purchasing agent overhead. Depending on the approach. e-procurement Web sites allow qualified and registered users to look for buyers or sellers of goods and services.
Vocabulary for e-procurement:
• • • • •
RFI: request for Information. complex auction system. placing purchase orders and receiving goods and services by using a software system based on Internet technology. Ongoing purchases may qualify customers for volume discounts or special offers. E-procurement is expected to be integrated with the trend toward computerized supply chain management.
What is needed for e-procurement
You will need a software application. and improve manufacturing cycles.fr: the "French eproc" for hotels and restaurants l'Approvisionnement des Pros du monde de l'hôtellerie-restauration
Check list to evaluate the applicability of tender/auctions
Number of potential suppliers? 1 <== tender auction ==> many 17
. such as supplier exchange. Companies participating expect to be able to control parts inventories more effectively. e-MRO (Maintenance. e-informing: Gathering and distributing purchasing information both from and to internal and external parties using Internet technology. Transactions can be initiated and completed.
. is the process of reverse engineering an Enterprise Resource Planning software package in order to align it to an organizational structure. this entry deals with ERP modeling using Object Process Methodology.• • • • • • • • • • • • •
Number of qualified suppliers? 1 <== tender auction ==> many Market transparency? no <== tender auction ==> high Market situation/selling situation? monopoly <== tender auction ==> polypoly Buying share? very low <== tender auction ==> very high Price dynamic? stable prices <== tender auction ==> dynamic prices Importance of price? low <== tender auction ==> high Binding acceptance of bid? no <== tender auction ==> yes Attractiveness for bidder? small <== tender auction ==> huge Number of negotiations? 1 <== tender auction ==> many Product specification? hardly feasible <== tender auction ==> detailed Number of evaluated criteria? many <== tender auction ==> 1 Acceptance on supplier side? no <== tender auction ==> yes Acceptance on growers side? yes <== tender auction ==> no
ERP modeling. ERP modeling is done by analyzing the optionality within an ERP system to identify the different functions of the system that the end-using company needs. OPM appears to be a useable methodology for modeling ERP systems. as the methodology focuses on optionality within objects and processes of an ERP system. Reverse engineering both ERP system and organizational structure to the same level of granularity makes both layers compatible for aligning the package in the organization. or OPM.
Although ERP modeling could possibly be performed by several methodologies. abbreviated ERP. regarding its organizational structure.
the choice cannot be made undone.
The meta model below depicts the optionality levels of ERP modeling. The first definition stems from the practice of IT Portfolio Management and is the subject of technical manuals and publications of various information technologies providers. the optionality is very dynamic. both aspects are fully alignable or at least compatible to be matched. 4. 5. while the second definition stems from the discussion and formation of the Information Technology Infrastructure Library (ITIL). Strictly speaking. Option definition is therefore static: once a highlevel option of the ERP system is chosen to be used within the organization. meaning that options can easily be altered. The optionality on this level is more dynamic. Convert the ERP system database to an object model Construct a global business process model Identify the system configuration-level business process alternatives Identify the object-level variants of the business processes Expose the occurrence-level business process options
Information technology management
Information technology management (or IT management) is a combination of two branches of study. One implies the management of a collection of systems. The lowest level is the Occurrence level. which scopes on high-level optionality on the entire system.
The first level is the System Configuration Level. Another implies the management of information technologies as a business function. 3. This model is layered in 3 deeper levels. and information that resides on them. which analyses single process occurrences. The optionality leveling is used to reverse engineer the ERP system and the organizational structure to its full extent. The correct way to align both ERP and organizational models is as follows: 1. infrastructure. information technology and management. there are two incarnations to this definition.
A Global Business Process Model is created which represents the whole ERP software product. One level deeper is the Object Level. Because this level elaborates on object parameters. 2. which scopes on single data objects. Once properly mapped.
Some organizations that value such practices tend to engage consultants to introduce the practice.
• • •
1 Some confusions between MIS and IT 2 Potential benefits of MIS investments 3 Sources of information on MIS
4 See also
Some confusions between MIS and IT
Management information system IT Portfolio Management
Management information system
Management Information Systems is a general name for the academic discipline covering the application of people.The ITIL has been in practice throughout regions of the world mainly conducted by IT service providers consulting companies. Most in-house developed tools tend to focus on one or a few specific areas where the orgnizations feel the most pains. tools will need to be integrated with the organization's IT data in the center. To reap the full advantages. the information system—to business problems. and procedures—collectively. Such implementations can conflict with the home-grown culture due to a lack of internal buy-in. technologies. The relative paucity in the use of the best practice set can be attributed to a lack of awareness among IT practitioners. which are the fields of MIS.
. It can also help in processing specific information for decision making (for example analyzing customer behavior). Other organizations implement the practices by spending resources to develop in-house tools. but also decision-making and competitive strategies. However the lack of ready-to-use tools also presents a significant barrier. information systems supports not only business processes and operations. This field is directly linked to management by objectives (MBO) and to the monitoring of key performance indicators (KPI).
implementing. 1. and finished goods from pointof-origin to point-of-consumption. The study of information systems is usually a commerce and business administration discipline. 5.
Sources of information on MIS
• • • • •
Well Known MIS Scholars Google Scholar MIS Web sites (University of Bournemouth) MIS Links (University of York) Computer and Information Systems Managers (U. and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. The area of study should not be confused with computer science which is more theoretical in nature and deals mainly with software creation. IT service management is a practitioner-focused discipline centering on the same general domain. It can enhance distribution channel management. 7. as information technology management.As an area of study. Information systems allow a company flexibility in its output level. IT investment can boost production processes (2). in a restrictive sense. 2. Leverage IT investment in computer aided design (1). 9. an investment can support a core competency.
Potential benefits of MIS investments
Investing in information systems can pay off for a company in many ways. Concentrates on the integration of computer systems with the aims of the organization. It can mean expanded E-commerce. The term supply chain management was coined by consultant Keith Oliver. Implementing IT experience can leverage learning curve advantages. Information systems leverage stability.S. Department of Labor)
Supply chain management
Supply chain management (SCM) is the process of planning. of strategy consulting firm Booz Allen Hamilton in 1982. MIS is sometimes referred to. 6.
. work-in-process inventory. 4. Such an IT investment can help build brand equity. 3. 8. Supply chain management spans all movement and storage of raw materials. IT investment can impact mass customization production processes.
which can be suppliers.Contents
• • • •
1 Supply chain management problems 2 Activities/Functions o 2. Inventory Management: Quantity and location of inventory including raw materials.. Distribution Strategy: Centralized versus decentralized. and logistics management activities. third-party service providers. and customers. work-in-process and finished goods. production facilities. Cross docking. forecasts. pull or push strategies. including demand signals.
Supply chain management problems
Supply chain management is much of Supply Network Management. conversion. warehouses and customers. Information: Integrate systems and processes through the supply chain to share valuable information. inventory and transportation etc.
.2 Tactical o 2. third party logistics. Supply Chain Management integrates supply and demand management within and across companies. while others consider the terms to be interchangeable. Supply chain event management (abbreviated as SCEM) is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain. distribution centers. procurement. it also includes coordination and collaboration with channel partners. In essence. Supply chain management is also a category of software products. Some experts distinguish supply chain management and logistics. direct shipment. With SCEM possible scenarios can be created and solutions can be planned.3 Operational 3 Supply Chain Management 4 Supply Chain Business Process Integration 5 Supply Chain Management Components Integration 6 References
7 See also The definition one America professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing. intermediaries.1 Strategic o 2. since it must address the following problems:
• • •
Distribution Network Configuration: Number and location of suppliers. Importantly.
and size of warehouses.Activities/Functions
Supply chain management is a cross-functional approach to managing the movement of raw materials into an organization and the movement of finished goods out of the organization toward the end-consumer. they have reduced their ownership of raw materials sources and distribution channels. SCOR is a supply chain management model promoted by the Supply-Chain Management Council. while reducing management control of daily logistics operations. and customers. Less control and more supply chain partners led to the creation of supply chain management concepts. location. Production decisions. Product design coordination. The purpose of supply chain management is to improve trust and collaboration among supply chain partners. Inventory decisions. Where to make and what to make or buy decisions Align Overall Organizational Strategy with supply strategy
• • • • • •
Sourcing contracts and other purchasing decisions. Strategic partnership with suppliers. and quality of inventory. location. and contracting. Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. These functions are increasingly being outsourced to other corporations that can perform the activities better or more cost effectively. tactical. Milestone Payments
. scheduling. distributors. Supply chain activities can be grouped into strategic. load management Information Technology infrastructure. to support supply chain operations. and operational levels of activities. direct shipping. including contracting. creating communication channels for critical information and operational improvements such as cross docking.
• • • •
Strategic network optimization. routes. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. so that new and existing products can be optimally integrated into the supply chain. The effect has been to increase the number of companies involved in satisfying consumer demand. and third-party logistics. distribution centers and facilities. and planning process definition. including the number. including frequency. As corporations strive to focus on core competencies and become more flexible. thus improving inventory visibility and improving inventory velocity. including quantity. locations. Transportation strategy.
Production scheduling for each manufacturing facility in the supply chain (minute by minute). distribution centers. including all fulfillment activities and transportation to customers. and little is known about the coordination conditions and trade-offs that may exist among the players.
Supply Chain Management
Organizations increasingly find that they must rely on effective supply chains. This inter-organizational supply network can be acknowledged as a new form of organization.Operational
• • • • • • • • •
Daily production and distribution planning. First. Outbound operations. Demand planning and forecasting. Inbound operations. During the past decades. with the complicated interactions among the players. this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies. 2004). coordinating the demand forecast of all customers and sharing the forecast with all suppliers. In the 21st century. a complex network structure can be decomposed into individual component firms (Zhang and Dilts. including current inventory and forecast demand. and other customers. the network structure fits neither "market" nor "hierarchy" categories (Powell. the choice of internal management control structure is known to impact local firm performance (Mintzberg. In Peter Drucker's (1998) management's new paradigms. accounting for all constraints in the supply chain. including transportation from suppliers and receiving inventory. globalization. manufacturing facilities. Traditionally. in collaboration with all suppliers. 1993). including the consumption of materials and flow of finished goods. Therefore. outsourcing and information technology have enabled many organizations such as Dell and Hewlett Packard. However. Production operations. or networks. including all suppliers. companies in a supply network concentrate on the inputs and outputs of the processes. with little concern for the internal management working of other individual players. Sourcing planning. there have been few changes in business environment that have contributed to the development of supply chain networks. 1990). to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities (Scott. Performance tracking of all activities. to successfully compete in the global market and networked economy. as an outcome of 24
. 1979). From a system's point of view. Order promising. including all nodes in the supply chain. It is not clear what kind of performance impacts different supply network structures could have on firms.
An example scenario: the purchasing department places orders as requirements become appropriate. particularly the dramatic fall in information communication costs. responding to customer demand. Global Production Network". and attempts to satisfy this demand. Supply chain business process integration involves collaborative work between buyers and suppliers. which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration" (Akkermans. joint ventures. joint product development. 2001). and "Next Generation Manufacturing System". Customer service Management b. a paramount component of transaction costs. In general. Many researchers have recognized these kinds of supply network structure as a new organization form.globalization and proliferation of multi-national companies. "Extended Enterprise". "Lean Management" and "Agile Manufacturing" practices. However. Procurement 25
. common systems and shared information. strategic alliances and business partnerships were found to be significant success factors. management has reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business. such a structure can be defined as "a group of semi-independent organizations. Shared information between supply chain partners can only be fully leveraged through process integration. 1998). The key supply chain processes stated by Lambert (2004) are:
• • • • • • • •
Customer relationship management Customer service management Demand management Order fulfillment Manufacturing flow management Supplier relationship management Product development and commercialization Returns management
One could suggest other key critical supply business processes combining these processes stated by Lambert such as: a. following the earlier "Just-In-Time".
Supply Chain Business Process Integration
Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. Second. each with their capabilities. which in turn assist to achieve the best product flows. technological changes. using terms such as "Keiretsu". has led to changes in coordination among the members of the supply chain network (Coase. in many companies. communicates with several distributors and retailers. "Virtual Corporation". According to Lambert and Cooper (2000) operating an integrated supply chain requires continuous information flows. Marketing.
Activities related to obtaining products and materials from outside suppliers. coordinate with customer relationship management to identify customerarticulated needs. 2. thus to reduce time to market. f. c) Product development and commercialization Here. negotiation. and reduction times in the design cycle and product development is achieved. select materials and suppliers in conjunction with procurement. d) Manufacturing flow management process The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. supply continuity. Also. supply sourcing. and 3. As product life cycles shorten. According to Lambert and Cooper (2000). such as electronic data interchange (EDI) and Internet linkages to transfer possible requirements more rapidly.c. b) Procurement process Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. Manufacturing processes must be flexible to respond to market changes. the purchasing function develops rapid communication systems. and must accommodate mass customization. Also. sourcing should be managed on a global basis. develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination. includes the responsibility to coordinate with suppliers in scheduling. where both parties benefit. This requires performing resource planning. In firms where operations extend globally. e.
Product development and Commercialization Manufacturing flow management/support Physical Distribution Outsourcing/ Partnerships Performance Measurement
a) Customer service management process Customer service provides the source of customer information. customers and suppliers must be united into the product development process. the appropriate products must be developed and successfully launched in ever shorter time-schedules to remain competitive. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. managers of the product development and commercialization process must: 1. inbound transportation. storage and handling and quality assurance. and research to new sources or programmes. The desired outcome is a winwin relationship. order placement. Also. d. hedging. changes in the manufacturing flow
. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations. g.
g. handling. but also outsourcing of services that traditionally have been provided in-house.process lead to shorter cycle times. 4. strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level. Hence.T. Also. 3. wholesalers. scheduling and supporting manufacturing operations. 2. Activities related to planning. to manage and control this network of partners and suppliers requires a blend of both central and local involvement. such as work-in-process storage. By taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can be both correlated with firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage. logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow. Cost Customer Service Productivity measures Asset measurement. warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. and
. According to experts internal measures are generally collected and analyzed by the firm including 1. transportation. inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations. f) Outsourcing/Partnerships This is not just outsourcing the procurement of materials and components. links manufacturers. A. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. meaning improved responsiveness and efficiency of demand to customers. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing. and time phasing of components. thus it links a marketing channel with its customers (e. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. e) Physical Distribution This concerns movement of a finished product/service to customers. the customer is the final destination of a marketing channel. and the availability of the product/service is a vital part of each channel participant's marketing effort. retailers). In physical distribution. This movement has been particularly evident in logistics where the provision of transport. g) Performance Measurement Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability.
Lambert and Cooper (2000) identified the following components which are:
• • • • • • • • •
Planning and control Work structure Organization structure Product flow facility structure Information flow facility structure Management methods Power and leadership structure Risk and reward structure Culture and attitude
However. The level of integration and management of a business process link is a function of the number and level.5. which are supporting the primary ones. Consequently. Houlihan. Standardisation 2. third level channel participants and
. is a business that participates in channel relationships by performing essential services for primary participants. Components of Supply Chain Management are 1. 1996). of components added to the link (Ellram and Cooper. External performance measurement is examined through customer perception measures and "best practice" benchmarking. A primary level channel participant is a business that is willing to participate in the inventory ownership responsibility or assume other aspects financial risk. and SCM suggests various possible components that must receive managerial attention when managing supply relationships. Postponement 3. and includes 1) Customer perception measurement. a more careful examination of the existing literature will lead us to a more comprehensive structure of what should be the key critical supply chain components. The literature on business process reengineering. the "branches" of the previous identified supply chain business processes. thus including primary level components (Bowersox and Closs. 1990. Bowersox and Closs states that the emphasis on cooperation represents the synergism leading to the highest level of joint achievement (Bowersox and Closs. Customisation
Supply Chain Management Components Integration
The management components of SCM The SCM management components are the third element of the four-square circulation framework. buyer-supplier relationships. 1996). adding more management components or increasing the level of each component can increase the level of integration of the business process link. A secondary level participant (specialized). 1985). thus including secondary level components. that is what kind of relationship the components may have that are related with suppliers and customers accordingly. Quality. ranging from low to high. and 2) Best practice benchmarking. Also.
M. Volume29. manufacturing capabilities. 93). Pages 65-83
. (2000). does not lead us to the conclusion about what are the primary or secondary (specialized) level supply chain components ( see Bowersox and Closs. For Customer Service Management: Includes the primary level component of customer relationship management. p.8): 1. that is what supply chain components should be viewed as primary or secondary. Issue 1 .1 and 3. 2. which are a) planning and Coordination flows. and postponement (order management). and secondary level components such as benchmarking and order fulfillment.
Kaushik K. in accordance with these secondary level components total cost analysis (TCA). customer profitability analysis (CPA). information flow facility structure is regarded by two important requirements. For Performance Measurement: This includes the primary level component of logistics performance measurement. and logistics (secondary level components). Baziotopoulos (2004) suggests the following supply chain components (Fig. In general. and returns to stakeholders. 5. For Product Development and Commercialization: Includes the primary level component of Product Data Management (PDM). 1996. 3. Consequently. and which are the fundamental branches of the secondary level components. For Outsourcing: This includes the primary level component of management methods and the company's cutting-edge strategy and its vital strategic objectives that the company will identify and adopt for particular strategic initiatives in key the areas of technology information. direction. personnel management.D. and b)operational requirements. Manufacturing support and Procurement: Includes the primary level component of Enterprise Resource Planning (ERP). Industrial Marketing Management. decision and policy measurements. January 2000. & Cooper. profit margins. Baziotopoulos reviewed the literature to identify supply chain components. operations. which is correlated with the information flow facility structure within the organization. material management.g. For Physical Distribution. manufacturing planning.components may be included. 4.. Secondary level components may include four types of measurement such as: variation. and how should these components be structured in order to have a more comprehensive supply chain structure and to examine the supply chain as an integrative one (See above sections 2. and secondary level components such as market share.  Based on this study. Lambert and Cooper's framework of supply chain components. More specifically. with secondary level components such as warehouse management.1). and Asset management could be concerned as well. that will support the primary level channel participants. customer satisfaction.
1974. 1993. 2004 2. 1990 8.). 2001. Prater et al. 2003. 2002.. ^ Yusuf et al. Williamson. 1998. Monden. Williamson.. 1989. ^ Vickery et. ^ Drucker. Hemila. 1985 7.. Hofstede. Bowersox and Closs. 1996.. Joyce et al. Bowersox. 2003 16. ^ Zhang and Dilts. ^ Baziotopoulos. 1996. 1990. 1996. 2002 14. 1999 3. ^ Cooper et al. ^ Hedberg and Olhager. Turnbull. ^ MacDuffie and Helper.. ^ Stevens. 2004 13.. Ellram and Cooper. Application of the SCOR Model in Supply Chain Management. 1978 9.. 1989
1. 1991. 2003
• • • • • • • • • • • • • • •
Beer Distribution Game Bullwhip effect Calculating Demand Forecast Accuracy Customer Driven Supply Chain Demand chain management Distribution e-business e-logistics Information technology management Fulfilment Logistic engineering Logistics Liquid Logistics Management information systems Marketing 30
. S. Courtright et al. 1999 4. Management Information Systems For the Information Age (3rd Canadian Ed. ^ Hemila. 2001. 1998. 1997. 1989 10. ^ Mills et al. Cummings. D. R. McCubbrey. Christopher. ^ Macneil ... Womack and Jones. 2004 12. ISBN 1-934043-10-9. Dilts. (2006). Hewitt.. Poluha. Kern and Willcocks. 1989. Gunasekaran. 1997..1975. 2002 15. 1992. ^ Stevens. M. Bowersox and Closs.• •
Rolf G. 1993. Tapscott. A. Haag. Pinsonneault.. & Donovan. 1997..Vickery et al. 2004 . 2000.al. 1996.1996. ^ Lewis and Talalayevsky. Youngstown. 1994 6. ^ Outsourcing and Partnerships 5. NY 2006. Christopher. 1993 11. Lambert et al. Ellram and Cooper. Canada: McGraw Hill Ryerson ISBN 0-072-81947-2 Handfield and Bechtel. ^ Ellram and Cooper. Houlihan.
face the same daily practical problem . This means that some level of planning is required.
The scope of MRP in manufacturing
All manufacturing organizations. This is a particularly severe problem for food manufacturers and companies with very short product life cycles. or the wrong item. money is being wasted the excess quantity ties up cash while it remains as stock and may never even be used at all. plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand. A few examples are given below:
If a company purchases insufficient quantities of an item used in manufacturing. An MRP system is intended to simultaneously meet 3 objectives:
• • •
Ensure materials and products are available for production and delivery to customers. However. Although it is not common nowadays. Maintain the lowest possible level of inventory. whatever it is they produce.that customers want products to be available in a shorter time than it takes to make them. all at the lowest possible cost. Plan manufacturing activities. If a company purchases excessive quantities of an item. Making a bad decision in any of these areas will lose the company money.• • • • • • • • • •
Military Supply Chain Management Procurement Procurement outsourcing Reverse logistics Strategic information system Supply Chain Security Supply chain Supplier relationship management Vendor Managed Inventory Warehouse Management System
Material requirements planning
Material Requirements Planning (MRP) is a software based production planning and inventory control system used to manage manufacturing processes. it is possible to conduct MRP by hand as well. delivery schedules and purchasing activities. some purchased items
. they may be unable to meet contracts to supply products by the agreed date. Companies need to control the types and quantities of materials they purchase.
How much is required at a time 2. Details of the materials. This lays out the dates that the purchased items should be both received into the facility AND the date(s) the Purchase orders. Reschedule notices. Fixed Lot Size.k. components and subassemblies required to make each product.
Note that the OUTPUTS are RECOMMENDED. This applies to items that are bought in and to subassemblies that go into more complex items. These RECOMMEND cancel. ==*# The END ITEM(s) being created (a.e.
Beginning production of an order at the wrong time can mean customer deadlines being missed. Lot sizing technique(s) (i. Level "O" on BOM)
• • •
1. the recommended outputs
. delay or speed up existing orders. since the last MRP / ERP system Re-Generation. Bills of materials.a. Pull/Work Cell and Push commands. with quantities. and other inputs. Lot-For-Lot. Scrap Percentages. Labor and Machine Standards. purchasing excess is necessary.
Messages and Reports:
MRP is used by many organisations as a tool to deal with these problems.
Outputs There are only two (2) outputs and a variety of messages/reports
Output 1 is the "Recommended Production Schedule" which lays out a detailed schedule of the required minimum start and completion dates. Records of NET materials AVAILABLE for use already in stock (on hand) and materials on order from suppliers. therefore. Economic Order Quantity). or Blanket Order Release should occur to match the production schedules. When the quantity(s) are required to meet demand Inventory status records.will have a minimum quantity that must be met. Planning Data. This includes such items as: Routings. increase. An order to a supplier to provide materials. Due to a variety of changing conditions in companys. HOW MANY are required and WHEN are they required by. This includes all the restraints and directions to produce the end items. The questions it provides answers for are: WHAT items are required. Independent Demand. for each step of the Routing and Bill Of Material required to satisfy the demand from the MPS Output 2 is the "Recommended Purchasing Schedule".
Parts must be booked into and out of stores more regularly than the MRP calculations take place. (especially if it is an "open store".
Problems with MRP systems
The major problem with MRP systems is the integrity of the data. but must interface to the MRP. to include more than the factory production and material needs. these other systems can well be manual systems. Most vendors of this type of system recommend at least 98% data integrity for the system to give useful results. Oliver Wight contributed the evolution to MRP II. These actions are beyond the linear calculations of the MRP computer software. MRP/ERP Systems were first introduced by George Plossl and Joseph Orlicky in the late 1960s. without regard to quantity being made. However this is largely dealt with by MRP II. with customer orders in the system for both the old design. Production may be in progress for some part. and the new one. For example systems to control changes to the parts used to make a product must be in place. If there are errors in the inventory data. It is no good for an MRP system to say that we do not need to order some material because we have plenty thousands of miles away. For example. A manufacturer may have factories in different cities or even countries. whose design gets changed. to be considered a true MRP II system must also include financials.need to be reviewed by TRAINED people to group orders for benefits in set-up or freight savings. ERP evolved with the change in hardware / software capability and "Interface" interpretations between software. and intercommunicate needs so that each factory can redistribute components to serve the overall enterprise. The overall ERP system needs to have a system of coding parts such that the MRP will correctly calculate needs and tracking for both versions. Note. and into the future. Additionally. MRP II referes to a system with integrated financials. or other items being made simultaneously in the factory. An MRP II system can include finite / infinite capacity planning. Generally. Another major problem with MRP systems is the requirement that the user specify how long it will take a factory to make a product from its component parts (assuming they are all available). This means it will give results that are impossible to implement due to manpower or machine or suppler capacity constraints. The overall ERP system needs to be able to organize inventory and needs by individual factory. This means that other systems in the enterprise need to work properly both before implementing an MRP system. concurrently. But. the bill of material data or the master production schedule then the output will also be incorrect.) The other major drawback of MRP is that takes no account of capacity in its calculations.
. the system design also assumes that this "lead time" in manufacturing will be the same each time the item is made. a 'walk around' stocktake done just prior to the MRP calculations can be a practical solution for a small inventory.
. the free encyclopedia
(Redirected from Software as a Service) Jump to: navigation. daily technical operation. multi-tenant architecture) than to a one-to-one model.See also
Manufacturing resource planning (MRP II) Enterprise resource planning (ERP)
Software as a service
From Wikipedia. partnering. commercially available (i. and management of. enabling customers to access applications remotely via the Web application delivery that typically is closer to a one-to-many model (single instance.
• • • • • • •
1 Key characteristics of software delivered by SaaS 2 Types of SaaS providers 3 On-demand open source software 4 ASP versus SaaS 5 Drivers for SaaS adoption 6 Factors mitigating against SaaS adoption 7 See also
Key characteristics of software delivered by SaaS
The key characteristics of SaaS software. and management characteristics
. pricing. and support for the software provided to their client. small business.e. it assumes the software is delivered over the internet. Software can be delivered using this method to any market segment including home consumers. not custom) software activities that are managed from central locations rather than at each customer's site. SaaS is a model of software delivery rather than a market segment. including architecture. search Software as a service (SaaS) is a model of software delivery where the software company provides maintenance. according to IDC. include:
• • •
network-based access to. medium and large business.
they can access their data and download the applications if they are not satisfied with the service being offered. the cost is often more economical to small and mid-sized companies. monitor. such as hosting Microsoft Office and making that available across the web to customers who pay a fee per month for access to the software. like Salesforce.
. the application code is proprietary and not available to the end customer. current net-native SaaS applications or independent portions are updated regularly. host. In both these scenarios. In the first type of provider.
ASP versus SaaS
The reason for moving away from the term ASP or application service provider is that the ASP generation was merely traditional client-server applications with HTML frontends added as an afterthought. This means that one copy of the software is installed for use by many companies who access the software across the web. update and support the Open Source applications for their clients. a licensing fee and a monthly fee are separate and are paid to the maker of the software and to the hoster of the software. These applications were hosted by third-parties who ordinarily did not have application expertise. Since the core open source is free and no licensing fees are included in the service price.com.
On-demand open source software
On-demand open source offers clients software as a service where the application code is used under GPL or LGPL licenses. The second type of SaaS provider offers what is often called software on-demand. The first has often been referred to as an Application service provider (ASP) where a customer purchases and brings to a hosting company a copy of software. but were only managing servers. With mature SaaS providers. With the second type of hosting there is no division between licensing and hosting fees and traditionally there is little or no customization of software for customers. performance was poor and application updates were no better than self managed applications.Types of SaaS providers
There are two types of SaaS providers. On-demand open source service providers offer open source applications as a service. many daily. or the hosting company offers widely available software for use by customers. on-demand solutions can be highly customized. A big advantage of on-demand open source is that customers are not locked in to their service provider . Because the applications were not written as net-native applications. Companies that offer traditional software on-demand. either build the application from the ground-up or take an existing application and host it on their own servers. where a company offers to customers software specifically built for one-to-many hosting. These companies integrate. By comparison.
But ASPs generally did not build the application themselves. the only way to change a workflow was to modify the code.
Everyone has a computer: Most information workers have access to a computer and are familiar with conventions from mouse usage to web interfaces. Applications are standardized: With some notable. an applicant screening tool. As a result. most people spend most of their time using standardized applications. they’re suitable for cost reduction and outsourcing. rather. or a salesforce automation package) and ran it for customers. the applications were viewed as strategic. Several important changes to the way we work have made this rapid acceptance possible. Computing and application licenses are cost centers. and pricing information—that matters. a spreadsheet. A specialized software provider can target a global market: A company that made software for human resource management at boutique hotels might once have had
. and e-mail systems that have emerged in recent years. or an e-mail system are all sufficiently ubiquitous and well understood that most users can switch from one system to another easily. Parametric applications are usable: In older applications. The adoption of SaaS could also drive Internet-scale to become a commodity. The focus in SaaS is more on what the customer wants rather than what the vendor could give as was the case in an ASP. and as such. more reliable applications than companies can themselves. Today. But it’s only in recent years that SaaS has truly flourished. The use of SaaS-based applications has grown dramatically. cheaper. as reported by many of the analyst firms that cover the sector. a service provider can offer better. corporate mainframes were jealously guarded as strategic advantages. people know it’s the business processes and the data itself—customer records. workflows. This allows organizations to create many different kinds of business logic atop a common application platform. Early SaaS approaches were application service providers (ASPs) who ran a turnkey application on behalf of their clients. they took an off-the-shelf application (such as a messaging platform. an enterprise requirements planning tool. industry-specific exceptions. spreadsheet. Computing itself is a commodity: In the past. More recently. external applications is lower and less handholding by internal IT is needed. This is evident from the number of web-based calendaring. An expense reporting page. Many SaaS providers allow a wide range of customization within a basic set of functions. But in more recent applications—particularly web-based ones—significantly new applications can be created from parameters and macros.This gradual shift in the terminologies also is a direct reflection of the change in the business requirements demanded by clients.
Drivers for SaaS adoption
The traditional rationale for outsourcing of IT systems is that by applying economies of scale to the operation of applications. the learning curve for new.
• • • • • •
Application service provider Software appliance Utility computing Vendor-independent solutions provider Supply Chain Interconnect Driven Server
1. But a hosted application can instantly reach the entire market.•
a hard time finding enough of a market to sell its applications. need access to data while offline. Amy Konary (June 2005).saasblogs. Security is sufficiently well trusted and transparent: With the broad adoption of SSL organizations have a way of reaching their applications without the complexity and burden of end-user configurations or VPNs. most people are willing to use the public Internet.  Another mitigating factor is need for disconnected use. IDC. 2005 Software as a Service Taxonomy and Research Guide 7. making specialization within a vertical not only possible. Retrieved on 2006-08-25. organizations developing enablement technology that allow other vendors to quickly build SaaS applications will be important in driving adoption. many companies have either built enablement tools or platforms or are in the process of engineering enablement tools or platforms. user privacy was minimal and the flexibility allowed to the individual user was limited. A Saugatuck study shows that the industry will most likely converge to three or four enablers that will act as SaaS Integration Platforms (SIPs). Much of the explosive success of the PC after its introduction in the late 1970s and early 1980s was due to the power it gave to individual users. Many consumers may feel that in SaaS the gradual erosion of their privacy and control has reached an unacceptable limit. solutions are not optimal and not all vendors provide such functionality. ^ a b Traudt. the Hypertext Transfer Protocol and the TCP/IP stack to deliver business functions to end users. Because of SaaS' relative infancy.com/2006/09/26/scale-as-a-commodity-2/ SaaSBlogs: Scale as a Commodity 37
. Although some vendors provide offline modes that synchronize data. but preferable. ^ http://www. Many users. such as traveling salespeople. 2. Web systems are reliable enough: Despite sporadic outages and slow-downs.
Factors mitigating against SaaS adoption
SaaS is conceptually similar to the original mainframe computing model in which control was centralized. Availability of enablement technology: According to IDC. Erin. This in turn means that SaaS providers can often deliver products that meet their markets’ needs more closely than traditional “shrinkwrap” vendors could.
. a doctor may provide solutions to his clients (patients). and most of the time they have a very close relationship with the provider of the product. Many companies that make products that are not free will also not let anyone provide their products independently. For example. Within the field of Information Technology. they may provide both the product and the service.
1 Independent Solutions Provider o 1. the term "Solutions Provider" is more often used to refer to a company that provides a business solution. anyone else who provides the service is called an authorised provider. in this case it is a service. It is often associated with someone else's product or service. In this case they are not independent. This someone else is then a simple Solutions provider.3. a Solution is really a Solution based approach or a recommended methodology for resolving a business problem. from astronomy to health and information technology. company.1 How to identify an ISP o 1. with some products (such as drugs) not provided by the doctor directly. These companies will provide the service themselves. certified partner (see Microsoft Certified Professional) or official resaler. A Solution is referenced in just about every field of study. Retrieved on 2006-09-01. consisting of a product and associated services. The outcome of a project is one or more work products or deliverables. also known as a vendor-independent solutions provider is related to the service provided by either a company or a group of people. If the product is free in the spirit of free software and open source.2 The service provided by an ISP
2 See also
Independent Solutions Provider
An Independent Solutions Provider (ISP). A solution may be implemented via a project.0: Saugatuck Study Shows Rapid SaaS Evolution to Business Platforms (April 2006). ^ SaaS 2. organization.
A 'Solutions Provider' is an entity (person(s).) that provides solutions. etc.
How to identify an ISP
It is very difficult to know whether a company of this type is really independent. In order for the solutions to be independent, the company or people involved must not be under any influence by major economic interests from the one who produces the product.
They do not provide products or final services directly (except when the solution is free software). All the products and final services are provided by other groups that are not linked with the ISP in any significant way. It must allow the client to identify the good solutions among many possible solutions, but let him total freedom of choice between various soutions. It must have a long-term vision and avoid proprietary lock-in
The service provided by an ISP
The range of services provided by an ISP is very large. It may go from simply helping the client find a good solution to helping him to deploy it. It also depends on what kind of solution: software-related, healthcare-related, etc... Degree of service:
• • • •
help find a solution by providing the possibilities for the client. In this case the client is supposed to find himself the good solution. help find the good solution actively: the company will send someone to the client and discuss their needs not only help the client find the good solution, but also help him buy the product (if any) then deploy the product not only help find, buy, deploy, but also help with training on how to utilize products
Type of service:
• • •
Software related: help find the software that will do the work Healthcare related: help find a doctor or a hospital, or a possible treatment Justice related: help understand the law in order to choose the best strategy and to make good decisions
ISP related: o Strategic planning o Software as a Service o Knowledge management General: o Service provider o Service 39
Application service provider On-demand
SAP AG (ISIN: DE0007164600, FWB: SAP, NYSE: SAP) is the largest European software enterprise, with headquarters in Walldorf, Germany. SAP was founded in 1972 as Systemanalyse und Programmentwicklung by five former IBM engineers in Mannheim, Germany (Dietmar Hopp, Hasso Plattner, Klaus Tschira, Claus Wellenreuther and Hans-Werner Hector). The acronym was later changed to stand for Systeme, Anwendungen und Produkte in der Datenverarbeitung ("Systems, Applications And Products in Data Processing") and since the 2005 annual general meeting the company's official name is just SAP AG. Henning Kagermann became the sole CEO of SAP in 2003
SAP AG Type Aktiengesellschaft (ISIN: DE0007164600, FWB: SAP, NYSE: SAP) Founded Weinheim (1972) Headquarters Walldorf, Germany Key people Henning Kagermann, CEO Hasso Plattner, Co-CEO Shai Agassi, Development Leo Apotheker, Sales & Field Operation Industry Computer software Products ERP Revenue 9.4 billion EUR (2006) (or 12.2 billion USD) (as of the exchange rate of 1.30 at the end of 2006) Employees 39,300 (2006) Website www.sap.com
SAP is the largest software company in Europe and the third largest in the world. It ranks after Microsoft and IBM in terms of market capitalization. SAP is also the largest business application and Enterprise Resource Planning (ERP) solution software provider in terms of revenue.
• • •
1 Reputation 2 Products 3 See also
4 External links
SAP's products focus on ERP, which it helped to pioneer. The company's main product is MySAP ERP. The name of its predecessor, SAP R/3 gives a clue to its functionality: the "R" stands for realtime data processing and the number 3 relates to a 3-tier architecture: database, application server and client (SAPgui). R/2, which ran on a Mainframe architecture, was the first SAP version. Other major product offerings include Advanced Planner and Optimizer (APO), Business Information Warehouse (BW), Customer Relationship Management (CRM), Supply Chain Management (SCM), Supplier Relationship Management (SRM), Human Resource Management Systems (HRMS), Product Lifecycle Management (PLM), Exchange Infrastructure (XI), Enterprise Portal (EP) and SAP Knowledge Warehouse (KW). The APO name has been retired and rolled into SCM. The BW name (Business Warehouse) has now been rolled into the SAP NetWeaver BI (Business Intelligence) suite and functions as the reporting module. The company also offers a new technology platform, named SAP NetWeaver. While its original products are typically used by Fortune 500 companies, SAP is now also actively targeting small and medium sized enterprises (SME) with its SAP Business One and SAP All-in-One. Reportedly, there are over 100,800 SAP installations at more than 28,000 companies. SAP products are used by over 12 million people in more than 120 countries. SAP holds a partnership with Hewlett-Packard. This partnership will expand around new services linked to NetWeaver and Enterprise SOA (service-oriented architecture). The software infrastructure for business applications developed by SAP is to be upgraded by Hewlett-Packard. One of the services to be upgraded is the Discovery System which was launched by SAP earlier this year. Among other services there are assessment, government and architecture for R3. 
List of SAP products SAP Implementation
SAP.com official site. Customer Magazine of SAP AG in German and English 41
Data migration is the transferring of data between storage types.
The ABCs of ERP
Getting started with Enterprise Resource Planning By Christopher Koch
• • • • • • • • • • • •
What is ERP? How can ERP improve a company's business performance? How long will an ERP project take? Will ERP fix my integration problems? What will ERP fix in my business? Will ERP fit the ways I do business? What does ERP really cost? When will I get payback from ERP—and how much will it be? What are the hidden costs of ERP? Why do ERP projects fail so often? How do I configure ERP software? How do companies organize their ERP projects?
. It is required when organizations or individuals change computer systems or upgrade to new systems. October 4.
• • •
data conversion data transformation Scriptella ETL Open source ETL (Extract-Transform-Load) and script execution tool. January 30. Usb4ever. Data migration is usually performed programmatically to achieve an automated migration. formats. 2006. ^ Wharton School. Knowledge@Wharton.• •
SAP Design Guild SAP's resource & forum for people-centric design Yahoo! .com. 2. "Henning Kagermann: Balancing Change and Stability in the Evolution of SAP's Enterprise Software Platform". or computer systems. 2007. ^ "HP and SAP Partners to Offer New Services".SAP Aktiengesellschaft Company Profile
1. freeing up human resources from tedious tasks.
Back in the ‘90s ERP was developed as a tightly integrated monolith. often being keyed and rekeyed into different departments’ computer systems along the way. The software attempts to integrate all departments and functions across a company onto a single computer system that can serve all those departments’ particular needs. Meanwhile. but most vendors’ software has since become flexible enough that you can install some modules without buying the whole package. doesn’t live up to its acronym. for example. Typically.
. Take a customer order. "You’ll have to call the warehouse" is the familiar refrain heard by frustrated customers. Many companies. except now the software is linked together so that someone in finance can look into the warehouse software to see if an order has been shipped.• • • • • •
Is a "single instance" of ERP better? How difficult is it to upgrade ERP software? Will service-oriented architecture (SOA) replace ERP? Can ERP Serve as My SOA? How does ERP fit with e-commerce? Can I use ERP to manage a network of foreign suppliers?
What is ERP?
Enterprise resource planning software. ERP vanquishes the old standalone computer systems in finance. and all the keying into different computer systems invites errors. Building a single software program that serves the needs of people in finance as well as it does the people in human resources and in the warehouse is a tall order. All that lounging around in inbox causes delays and lost orders. Forget about planning—it doesn’t do much of that—and forget about resource. no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department. That integrated approach can have a tremendous payback if companies install the software correctly. Finance. This is ERP’s true ambition. But ERP combines them all together into a single. a throwaway term. will install only an ERP finance or HR module and leave the rest of the functions for another day. to get into the warehouse’s computer system to see whether the item has been shipped. for example. integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other. that order begins a mostly paper-based journey from inbox to inbox throughout the company. But remember the enterprise part. HR. or ERP. when a customer places an order. and replaces them with a single unified software program divided into software modules that roughly approximate the old standalone systems. manufacturing and the warehouse all still get their own software. manufacturing and the warehouse. Each of those departments typically has its own computer system optimized for the particular ways that the department does its work. for example.
Finance did its job. The software is less important than the changes companies make in the ways they do business. It flickers with the customer’s credit rating from the finance department and the product inventory levels from the warehouse. and customers get their orders faster and with fewer errors than before. The reality is not so rosy. rather. To find out where the order is at any point. It doesn’t handle the up-front selling process (although most ERP vendors have recently developed CRM software to do this). That is why the value of ERP is so hard to pin down. That. People in the warehouse who used to keep inventory in their heads or on scraps of paper now need to put that information online. the new software could
. But it’s not just the customer service representatives who have to wake up. such as employee benefits or financial reporting. If you simply install the software without trying to improve the ways people do their jobs. When a customer service representative enters a customer order into an ERP system. ERP takes a customer order and provides a software road map for automating the different steps along the path to fulfilling the order. customer service reps’ screens will show low inventory levels and reps will tell customers that the requested item is not in stock. People in these different departments all see the same information and can update it. With ERP. the company’s inventory levels from the warehouse module and the shipping dock’s trucking schedule from the logistics module. at least. The ERP screen makes them businesspeople. People don’t like to change. responsibility and communication have never been tested like this before. the order process moves like a bolt of lightning through the organization. you may not see any value at all—indeed. When one department finishes with the order it is automatically routed via the ERP system to the next department. If they don’t. Not anymore. If you use ERP to improve the ways your people take orders and manufacture. the warehouse did its job. and if anything went wrong outside of the department’s walls. Did the customer pay for the last order yet? Will we be able to ship the new order on time? These are decisions that customer service representatives have never had to make before. it was somebody else’s problem. the customer service representatives are no longer just typists entering someone’s name into a computer and hitting the return key. Let’s go back to those inboxes for a minute. ship and bill for goods. is the dream of ERP. ERP can apply that same magic to the other major business processes. he has all the information necessary to complete the order (the customer’s credit rating and order history from the finance module. you need only log in to the ERP system to track it down. but it was simple.How can ERP improve a company's business performance?
ERP’s best hope for demonstrating value is as a sort of battering ram for improving the way your company takes a customer order and processes that into an invoice and revenue —otherwise known as the order fulfillment process. That is why ERP is often referred to as back-office software. you will see value from the software. That process may not have been efficient. and the answers affect the customer and every other department in the company. With luck. for example). and ERP asks them to change how they do their jobs. Accountability.
in a broad sense. Those short (that’s right. or the implementation was limited to a small area of the company. was just like the ones that they were intended to save you from—monolithic. or the company used only the financial pieces of the ERP system (in which case the ERP system is nothing more than a very expensive accounting system). the management consultants who installed the stuff. on average—but rather to understand why you need it and how you will use it to improve your business. it became clear that enterprise software was another chunk—a much larger and better integrated chunk to be sure. And that kind of change doesn’t come without pain. as soon as companies began buying these products. sold ERP as a magic bullet that companies could use to escape the coming Y2K apocalypse.
. It was an irresistible sell to businesspeople. the ways you do business will need to change and the ways people do their jobs will need to change too. of course. more forcefully. create seamless technology integration across the company and force your silos of isolated. highly integrated and difficult to change. The architecture of these systems. enterprise software vendors. Who needs other systems when we’re creating the whole thing right here? Of course. customers completely satisfied). but that misses the point. It’s true that ERP was designed to solve integration problems. To do ERP right. which have improved over the years.
Will ERP fix my integration problems?
No. but still a chunk—of software in a complex architecture of IT systems that desperately needed to talk to one another and exchange information. six months is short) implementations all have a catch of one kind or another: The company was small. Developers who believe they are modeling an entire business in software don’t spend much time thinking about how that system will connect with other systems. Don’t be fooled when ERP vendors tell you about a three. Unless. The important thing is not to focus on how long it will take—real transformational ERP efforts usually run between one and three years. It seems almost quaint to think of it today. but it worked only in the theoretical environment of the vendors’ development labs.or six-month average implementation time. proprietary methods of connecting their systems with others. your ways of doing business are working extremely well (orders all shipped on time. The vendors created clunky.slow you down by simply replacing the old software that everyone knew with new software that no one does. but back in the days before Y2K. and. in which case there is no reason to even consider ERP. productivity higher than all your competitors.
How long will an ERP project take?
Companies that install ERP do not have an easy time of it. sociopathic bureaucrats to start working together.
anyway) standards for integration in Web services. But who could afford to install enterprise software as it was envisioned in the vendors’ R&D labs? Very few. about replacing systems that had more and better functionality than the enterprise software they were installing in order to be more integrated. Some of your maintenance and support fees are going to future R&D. CIOs built complex integration links from enterprise software to other systems to keep the business running. they may have gotten there. This is not to say that ERP is a boondoggle. The high degree of integration envisioned in the R&D lab was tenuous at best inside most organizations.No problem. For the few companies that could afford to install enterprise software in the manner envisioned in the vendors’ R&D labs. not inside them. And it’s great stuff. looking ever more like the Dark Princes of Lock-In while the originators of the lock-in concept. How ironic that those companies that were going to save your CEO from integration in 1999 have been the laggards in developing truly useful enterprise integration. The enterprise software vendors have been conspicuously absent from the Web services standards movement. looked like white knights for doing the lion’s share of work to create free (so far. But back in 1999. Many are still maintaining the custom code they had to write for outraged business users who lost capabilities they had in the old software. we’ll let you upgrade to the next version for free and you can gradually get rid of all those other troublesome chunks.
. Gradually. Even though most vendors have had some big bumps in the road. Again. which didn’t change much. said the vendors. enterprise software vendors came to realize that to serve customers better. Or they chunked up the installation.
What will ERP fix in my business?
There are five major reasons why companies undertake ERP. The final death knell for the original enterprise software architecture model came in 2004 when the major enterprise software vendors all announced that they were offering packages of integration middleware—tacitly acknowledging the reality that had been clear since middleware was first invented decades ago: Integration happens best outside of specific software applications. or even that the software isn’t valuable to the companies that bought it. most of their products work well. As we develop new pieces to add in to our highly integrated suites. The happiest customers are those who used enterprise software to create new capabilities and processes that they could not express in software with their old systems. building dozens or even hundreds of unique installations of the same enterprise software to meet the needs of individual departments or businesses that all had to be linked together. it sounded great to the people buying the stuff— businesspeople. IBM and Microsoft. many CIOs talked about ERP as an integration strategy. more efficient when the new software was installed. they needed to break up their suites into application components and create complex ways to link to them over the Internet so that customers would not have to rewrite connections to pieces of the suite such as financials.
reducing the finished good inventory at the warehouses and shipping docks. each industry has quirks that make it unique. he may find many different versions of the truth. 2. you need supply chain software. inventory and shipping among many different locations simultaneously. Most ERP systems were designed to be used by discrete manufacturing companies (that make physical things that can be counted). Standardize HR information—.Manufacturing companies—especially those with an appetite for mergers and acquisitions—often find that multiple business units across the company make the same widget using different methods and computer systems.As the CEO tries to understand the company’s overall performance.
Will ERP fit the ways I do business?
Before the checks are signed and the implementation begins. The most common reason that companies walk away from multimillion-dollar ERP projects is
. HR may not have a unified.ERP helps the manufacturing process flow more smoothly. 4. and the different business units may each have their own version of how much they contributed to revenue. In the race to fix these problems. rather than scattered among many different systems that can’t communicate with one another. By having this information in one software system. Finance has its own set of revenue numbers. which immediately left all the process manufacturers (oil. To really improve the flow of your supply chain. ERP can fix that. sales has another version. simple method for tracking employees’ time and communicating with them about benefits and services. ERP systems come with standard methods for automating some of the steps of a manufacturing process. increase productivity and reduce headcount.ERP systems can become the place where the customer order lives from the time a customer service representative receives it until the loading dock ships the merchandise and finance sends an invoice. Integrate financial information—. Standardizing those processes and using a single. integrated computer system can save time. Integrate customer order information—.Especially in companies with multiple business units. and it can help users better plan deliveries to customers. but ERP helps too. and coordinate manufacturing. While most packages are exhaustively comprehensive. 5. ERP creates a single version of the truth that cannot be questioned because everyone is using the same system. it’s critical for companies to figure out if their ways of doing business will fit within a standard ERP package. and it improves visibility of the order fulfillment process inside the company. 3.1. That can lead to reduced inventories of the materials used to make products (work-inprogress inventory). Each of these industries has struggled with the different ERP vendors to modify core ERP programs to their needs. chemical and utility companies that measure their products by flow rather than individual units) out in the cold. Reduce inventory—. companies can keep track of orders more easily. companies often lose sight of the fact that ERP packages are nothing more than generic representations of the ways a typical company does business. Standardize and speed up manufacturing processes—.
320. midsize and large companies in a range of industries—the average TCO was $15 million (the highest was $300 million and the lowest was $400. upgrading and optimizing the system for your business are felt. the project will cost much more and take much longer than one in which ERP is simply replacing an old transaction system. which is that the installation will cost about six times as much as the software license. introduce dangerous bugs into the system and make upgrading the software to the ERP vendor’s next release excruciatingly difficult because the customizations will need to be torn apart and rewritten to fit with the new version. and so can failure to consider data warehouse integration requirements and the cost of extra software to duplicate the old report formats. There is a sketchy rule of thumb that experts have used for years to predict ERP installation costs. Needless to say.
What does ERP really cost?
There aren’t any good numbers to predict ERP costs because the software installation has so many variables. A few oversights in the budgeting and planning stage can send ERP costs spiraling out of control faster than oversights in planning almost any other information system undertaking. software. While it’s hard to draw a solid number from that kind of range of companies and ERP efforts. The TCO numbers include getting the software installed and the two years afterward. Research companies don’t even bother trying to predict costs anymore. Meta came up with one statistic that proves that ERP is expensive no matter what kind of company is using it: The TCO for someone who uses the system a lot over that period was a staggering $53. financial executives should plan to write checks to cover consulting. which will mean deep changes in long-established ways of doing business (that often provide competitive advantage) and shake up important people’s roles and responsibilities (something that few companies have the stomach for). such as: the number of divisions it will serve. Underestimating the price of teaching users their new job processes can lead to a rude shock down the line. professional services and internal staff costs. the number of modules installed. Or they can modify the software to fit the process.
. At that point there are two things they can do: They can change the business process to accommodate the software. the readiness of the company to change and the ambition of the project—if the project is truly meant to be a battering ram for reengineering how the company does its most important work. A few years ago. the amount of integration that will be required with existing systems. integration testing and a long laundry list of other expenses before the benefits of ERP start to manifest themselves. and the price tags on the front end are enough to make the most placid CFO a little twitchy. In addition to budgeting for software costs. Among the 63 companies surveyed—including small. the move to ERP is a project of breathtaking scope.000). the dearly departed Meta Group did a study looking at the total cost of ownership (TCO) of ERP. process rework. But this has become increasingly less relevant as the market for ERP has slowed over time and vendors have offered deep discounts on the software up front. including hardware. which will slow down the project.that they discover the software does not support one of their important business processes. which is when the real costs of maintaining.
it will be up to your IT and businesspeople to provide that training. Veterans say ERP is more a cost of doing business to make the company operate more efficiently than something that offers dramatic payback. A typical manufacturing company may have add-on applications from the major—e-commerce and supply chain—to the minor—sales tax computation and bar coding. it will bring more value than if the project is treated as a simple systems replacement. suppliers or partners. It will be the best ERP investment you ever make. A Meta Group study of 63 companies a few years ago found that it took eight months after the new system was in (31 months total) to see any benefits.
What are the hidden costs of ERP?
Although different companies will find different land mines in the budgeting process. And even if ERP does bring dramatic change. Armed with insights from across the business. finance people will be using the same software as warehouse people and they will both be entering information that affects the other. They are focused on telling people how to use software. Remember that with ERP. ERP pros vote the following areas as most likely to result in budget overrun. Ultimately. they have to have a much broader understanding of how others in the company do their jobs than they did before ERP came along. Prepare to develop a curriculum yourself that identifies and explains the different business processes that will be affected by the ERP system. value depends on ambition. 1.When will I get payback from ERP—and how much will it be?
Don’t expect to revolutionize your business with ERP. So take whatever you have budgeted for ERP training and double or triple it up front. considering that ERP projects at big companies can cost $50 million or more. those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. The median annual savings from the new ERP system were $1. 2. because it affects mostly existing "back office" processes such as order management rather than creating new revenue opportunities. If you
. All require integration links to ERP. Training—Training is the near-unanimous choice of experienced ERP implementers as the most underestimated budget item. To do this accurately. outside training companies may not be able to help you. Integration and testing—Testing the links between ERP packages and other corporate software links that have to be built on a case-by-case basis is another often-underestimated cost. Its contribution is optimizing the way things are done internally rather than with customers.6 million—pretty modest. Training expenses are high because workers almost invariably have to learn a new set of processes. You’re better off if you can buy add-ons from the ERP vendors that are pre-integrated. If ERP is the focus of an effort to bring dramatic improvements to the way a company does business. One enterprising CIO hired staff from a local business school to help him develop and teach the ERP business-training course to employees. Worse. And most veterans say it takes six months or more to get the new systems and processes running up to snuff. not just a new software interface. the bottom-line value may not be much. not on educating people about the particular ways you do business. Again.
Data analysis—Often. Maybe it will work. Consultants ad infinitum—When users fail to plan for disengagement. those companies are more likely to underestimate the cost of the move. a specific number of the user company’s staff should be able to pass a project-management leadership test— similar to what the consultants have to pass to lead an ERP engagement. The bad news is a company must be prepared to
. Although few CIOs will admit it. As with training. consulting fees run wild. Consequently. The upshot is that the wise will check all their data analysis needs before signing off on the budget. such as customer and supplier records. and something to be avoided if at all possible. from order entry through shipping and receipt of payment—the whole order-tocash banana—preferably with the participation of the employees who will eventually do those jobs. Data conversion—It costs money to move corporate information. Replacing your best and brightest—It is accepted wisdom that ERP success depends on staffing the project with the best and brightest from the business and IS divisions. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Include metrics in the consultants’ contract. One expensive solution is custom programming. for example. and ERP systems do a poor job of indicating which information has changed from day to day. Upgrading the ERP package—no walk in the park under the best of circumstances—becomes a nightmare because you’ll have to do the customization all over again in the new version.
7. the vendor will not be there to support you. But even clean data may demand some overhaul to match process modifications necessitated—or inspired—by the ERP implementation. the data from the ERP system must be combined with data from external systems for analysis purposes. No matter what. To avoid this. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget—and they should expect to do quite a bit of work to make it run smoothly. The customizations can affect every module of the ERP system because they are all so tightly linked together. making selective warehouse updates tough. You will have to hire extra staffers to do the customization work. You’re playing with fire. This happens when the ERP software can’t handle one of your business processes and you decide to mess with the software to make it do what you want. from old systems to new ERP homes. expect things to get ugly. companies should identify objectives for which its consulting partners must aim when training internal staff. and keep them on for good to maintain it.3. Veterans recommend that instead of plugging in dummy data and moving it from one application to the next. The software is too complex and the business changes too dramatic to trust the project to just anyone.
need to build the links yourself. Customization—Add-ons are only the beginning of the integration costs of ERP.
5. Users are in a pickle here: Refreshing all the ERP data every day in a big corporate data warehouse is difficult. testing ERP integration has to be done from a process-oriented perspective. product design data and the like. most data in most legacy systems is of little use. you should run a real purchase order through the system. maybe it won’t.
6. is actual customization of the core ERP software itself. Much more costly.
while the project team expects a break and maybe a pat on the back. To get the most from the software. long before the ERP project has demonstrated any benefit. Neither expectation applies to ERP. And it is in analysis—and. you have to get people inside your company to adopt the work methods outlined in the software. Though the ERP market is not as hot as it once was.
Why do ERP projects fail so often?
At its simplest level. Most of the systems don’t reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system. Once the software is installed. But after ERP. Huddle with HR early on to develop a retention bonus program and create new salary strata for ERP veterans. The implementers are too valuable. In a recent Deloitte Consulting survey of 64 Fortune 500 companies. and the business goes into spasms. Many are forced to beg for more money and staff immediately after the go-live date. The true percentage is undoubtedly much higher. few IS departments plan for the frenzy of post-ERP installation activity. and fewer still build it into their budgets when they start their ERP projects. Implementation teams can never stop—Most companies intend to treat their ERP implementation as they would any other software project. insight—that companies make their money back on an ERP implementation. 10. Unfortunately. And the project team is not going to be rewarded until their efforts pay off. If you let them go. Post-ERP depression—ERP systems often wreak cause havoc in the companies that install them. The most common reason for the performance problems is that everything looks and works differently from the way it did before. they panic. When people can’t do their jobs in the familiar way and haven’t yet mastered the new way. manufacturing and the warehouse. they figure the team will be scuttled. If the people in the different departments that will
. Companies can’t afford to send their project people back into the business because there’s so much to do after the ERP software is installed. 8. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least. one in four admitted that they suffered a drop in performance when their ERP system went live.replace many of those people when the project is over. including in finance. one hopes. you’ll wind up hiring them—or someone like them—back as consultants for twice what you paid them in salaries. Waiting for ROI—One of the most misleading legacies of traditional software project management is that the company expects to gain value from the application as soon as it is installed. they know more about the sales process than the salespeople and more about the manufacturing process than the manufacturing people. Because the implementers have worked so closely with ERP. 9. and everyone will go back to his or her day job. consultancies and other companies that have lost their best people will be hounding yours with higher salaries and bonus offers than you can afford—or that your HR policies permit. you can’t go home again. ERP is a set of best practices for performing the various duties in the departments of your company.
the inherent difficulties of implementing something as complex as ERP is like. literally. The mistake companies make is assuming that changing people’s habits will be easier than customizing the software. however. By presenting only one way for the company to do each task—say. As the table settings are decided. thousands of them. The horror stories you hear in the press about ERP can usually be traced to the changes the company made in the core ERP software to fit its own work methods. But figuring out precisely how to set all the switches in the tables requires a deep understanding of the existing processes being used to operate the business. run the payroll or close the books—a company’s individual operating units and far-flung divisions are integrated under one system. and besides. If your company is resistant to change. few big companies can avoid customizing ERP in some fashion—every business is different and is bound to have unique work methods that a vendor cannot account for when developing its software. The packages are built from database tables. that IS programmers and end users must set to match their business processes. This is where ERP projects break down. Though this method dominated early ERP implementations because of the need to revamp old systems for Y2K. Most ERP systems are preconfigured for most of the major processes. The Big Bang—In this. few companies
. the most ambitious and difficult of approaches to ERP implementation. expensive customization efforts to modify the ERP software to fit with powerful business barons’ wishes.
How do companies organize their ERP projects?
Based on our observations. IT gets bogged down in long. they will resist using the software or will want IT to change the software to match the ways they currently do things. But IT can fix the bugs pretty quickly in most cases. each table has a decision "switch" that leads the software down one decision path or another. these business processes are reengineered.use ERP don’t agree that the work methods embedded in the software are better than the ones they currently use. well. there are three commonly used ways of installing ERP. allowing just hundreds—rather than thousands—of procedural settings to be made by the customer. companies cast off all their legacy systems at once and they install a single ERP system across the entire company. ERP’s way. It’s not. Political fights erupt over how—or even whether—the software will be installed. then your ERP project is more likely to fail.
How do I configure ERP software?
Even if a company installs ERP software for the so-called right reasons and everyone can agree on the optimal definition of a customer. Because ERP covers so much of what a business does. Getting people inside your company to use the software to improve the ways they do their jobs is by far the harder challenge. teaching an elephant to do the hootchykootchy. Customizations make the software more unstable and harder to maintain when it finally does come to life. a failure in the software can bring a company to a halt.
Plan for this strategy to take a long time. The goal here is to get ERP up and running quickly and to ditch the fancy reengineering in favor of the ERP system’s "canned" processes. Yet many discover that a slammed-in ERP system is little better than a legacy system because it doesn’t force employees to change any of their old habits. Independent ERP systems are installed in each unit. Most of the ERP implementation horror stories from the late ‘90s warn us about companies that used this strategy. Most use it as an infrastructure to support more diligent installation efforts down the road. using the first implementation as a kind of inhouse customer reference. doing the hard work of process reengineering after the system is in can be more challenging than if there had been no system at all because at that point few people in the company will have felt much benefit from the new software. a separate system and database. while linking common processes. Also. In many cases. the team begins selling other units on ERP. Usually. ERP offers neither the range of functionality nor the comfort of familiarity that a custom legacy system can offer.
. Getting everyone to cooperate and accept a new software system at the same time is a tremendous effort. across the enterprise. these implementations begin with a demonstration or pilot installation in a particularly open-minded and patient business unit where the core business of the corporation will not be disrupted if something goes wrong. Once the project team gets the system up and running and works out all the bugs. Slam dunk—ERP dictates the process design in this method. the business units each have their own "instances" of ERP—that is. In fact. This has emerged as the most common way of implementing ERP. The slam dunk is generally for smaller companies expecting to grow into ERP. for example). Few companies that have approached ERP this way can claim much payback from the new system. No one within the company has any experience using it. or for processes that don’t vary much from business unit to business unit (perhaps HR benefits). In most cases. many companies that initially installed ERP using a franchising strategy are now trying to consolidate as many of those different instances of ERP as possible down into a handful or even one for the entire company. largely because the new system will not have any advocates. the speed of the new system may suffer because it is serving the entire company rather than a single department. ERP implementation requires a direct mandate from the CEO. Franchising strategy—This approach suits large or diverse companies that do not share many common processes across business units.dare to attempt it anymore because it calls for the entire company to mobilize and change at once. so no one is sure whether it will work. The systems link together only to share the information necessary for the corporation to get a performance big picture across all the business units (business unit revenue. ERP inevitably involves compromises. such as financial bookkeeping. where the focus is on just a few key processes. such as those contained in an ERP system’s financial module. Many departments have computer systems that have been honed to match the ways they work. In most cases. Interestingly.
global corporations to install dozens—even hundreds—of instances of software from a single ERP vendor. and bandwidth was still expensive enough that linking globally based divisions together on a single database was expensive. But despite these benefits. There are some compelling reasons to undertake such a project now. eliminating consolidation errors and greatly reducing the time it takes to close the books. AMR estimates that companies should budget $4. But few companies installed ERP that way. networks and storage systems couldn’t handle the load. all of a company’s financial data will live in one application and will originate from one source. With a single instance. many of those early barriers have come down. it depends.3 million for a single-instance order management module versus $7. The original vision of ERP was that companies should have a single instance— that is. rip-and-replace is a difficult pill for CIOs to swallow. Web services could —with the emphasis on could—allow CIOs who have invested in best-of-breed solutions to integrate their standalone systems without either shelling out millions for single instance or tying their company’s future to a single vendor. For starters. Also. And they’re wondering if there isn’t another cure for their integration headaches: Web services and the promise of service-oriented architecture (SOA). So does it make sense to create a single (or a significantly reduced number) of instances—while also getting rid of outdated or feature-poor systems from other vendors? Like most complex technology issues. Upgrading the software would also be easier than with multiple customized instances of ERP across the company. places where they could reuse equipment or leverage purchasing power. many of whom are just shaking off the multiyear.1 million for multiple instances. the Sarbanes-Oxley Act.
. First. there were the technology limitations: databases. Having a single data source could also create new revenue opportunities and cut costs. Web services and SOA are still immature and require complex planning and a long list of programming and architectural talents inside the IT department—and don’t forget implementation time and cost. It would mean no duplication of information in different departments or in different geographic divisions and thus better integration and information quality across the company. multimillion-dollar hangover of their first ERP project. Today. Worse. the government’s post-Enron accounting legislation requires that financial reports have a verifiable audit trail. All these factors combined caused many big. Companies would be able to run reports that show cross-promotion opportunities. Trouble is. a single implementation of the software running on a single database—that serves the entire company. different business units often had unique processes or resisted the ones that came in the ERP box.Is a "single instance" of ERP better?
An "instance" refers to the number of discreet versions of ERP software you have in your company.
and it made their lives hell. ERP vendors would not support customized versions of their software.. Most experts recommend waiting for better integration standards if the costs of operating your systems as-is don’t outweigh the costs and benefits of ripping and replacing with a single instance and the business is not missing out on important revenue opportunities because of problems with the current system. see Ben Worthen’s piece "Extreme ERP Makeover" www. but take that logic to the departmental head who won’t be able to serve her customers as well with the process in the software box and suddenly reengineering sounds less compelling. and CIOs will need to choose which path to lead their company down. simple.com/archive/111503/erp. customers sometimes could not afford to install them because they had made so many changes to the previous version. Change your business to fit the system. vendors pursued a vision that has since been disproven: Business processes built into the software should be adopted by every customer. but that doesn’t help CIOs today. In the early days of ERP. CEOs like the sound of reengineering.
• • •
Have fairly commonplace business processes that extend across all divisions Have older systems that need to be replaced Have multiple ERP instances from a single vendor
You should consider an integration layer if you. CIOs were forced (or acquiesced) to tinker with the innards of these packages to avoid losing valuable chunks of business processes.cio. Those processes couldn’t be any good anyway if they hadn’t made it into the vendors’ best practice pool when they developed the stuff. CIOs had built so many different links to the enterprise systems to get them working with other systems in the company that an upgrade was akin
. They thought changing the system to fit your own processes meant you were a weak girly man who couldn’t stand up to your business people. Essentially. Vendors ignored this reality for years.Most pundits believe some form of standard..
• • •
Have divisions with unique business processes that can’t be changed Consider an existing investment in best-of-breed solutions a competitive advantage Want an environment in which it is easy to integrate new applications
How difficult is it to upgrade ERP software?
It’s extremely difficult.. For much more detail on this choice.html Here are some very basic guidelines: You should consider single instance if you. dude. unless you are one of the rare companies that did not tinker with the system while installing it. Tough luck. single instance and Web services/SOA are two ways to get to the same place. When a new version of the highly integrated suite arrived with cool new features. Modifying the core code of ERP was like turning your Pinto into a low rider. vendor-independent integration will emerge over the long term. You just voided the warranty..
sales of new software slowed to a crawl and vendors said they were forced to charge for new components. When the ERP boom crashed after 2000.” Customers could continue to get support. And CIOs stuck with the old suites began wondering where all their maintenance fees had gone. It may be true. When vendors began breaking up and componentizing their suites to make them easier to integrate with each other and with legacy systems inside the company. But it was all so integrated together that every custom link had to be redone. rather than ripping apart connections to all the different systems it may need to communicate with. But the economics became untenable for vendors. componentized version of the vendors’ software models and if they could. Adding. but it ended the short era of “free” upgrades. The services strategy entails building an integration layer that is separate and distinct from any of the software applications—including ERP—in a company’s portfolio. The largest percentage of those fees went to R&D rather than to support and maintenance of existing software. enterprise software vendors started charging fresh license fees for the new components they developed. And many of those rewrites were completely pointless. early users of ERP paid for those new versions of the software through yearly maintenance fees to the vendor that every ERP vendor charges. Many of the old links had to be torn apart and rewritten to fit with the new version. a good messaging infrastructure can perpetuate the chaos by making it easier to deal with. They couldn’t afford to upgrade to the newer. Freed of the suite model. but newer features cost extra and worked much better—or sometimes only—with the newer version of the vendor’s software. it doesn’t free business processes from their mainframe prisons. Many early ERP suites had their development “frozen. But companies are realizing that ERP is shifting from being the sum total of their software architecture strategy to being a component of a larger strategy based on expressing technology as specific business services that business people can easily understand—such as “customer record” or “get credit rating. or provide any impetus to create a useful architecture. even to the pieces that didn’t change. changing or removing a system becomes a matter of modifying a single link. they’d pay a new license fee for their trouble.
. Every company needs a core transactional system that records the information from its most important business processes. or eliminate redundancies in applications. In theory. they also broke up one of the value propositions that had been so enticing in the first place: “free” upgrades. But while the messaging infrastructure makes connecting systems easier. The foundational piece—known as the messaging infrastructure—is like a good executive assistant—translating. Indeed. routing and monitoring information from different systems without these systems needing to connect directly.” for example—rather than arcane software applications like ERP.
Will service-oriented architecture (SOA) replace ERP?
No. The new suite might have one new piece and nine others that had changed little since the last version.to starting over.
Verizon developers wanting to get at that critical lump of data would have to build links to all 25 systems—adding their own links on top of the web of links already hanging off the popular systems. of development time each time the service is used. Services extract pieces of data and business logic from systems and databases around the company and bundle them together into chunks that are expressed in business terms.
Can ERP Serve as My SOA?
With the growing popularity of the service-oriented architecture (SOA) concept over the past few years. the major ERP vendors have all announced strategies to rebuild their ERP applications as a set of services (see the ABCs of SOA for a deeper explanation) that are connected together using Web services standards. But view their pronouncements skeptically because if they do it well they will eliminate an important piece of their competitive differentiation: dominance over the software acquisition process of their customers. This is an old concept. Before building the “get CSR” service. At telecom company Verizon. and Web services so that customers can more easily link ERP with other types of software in the architecture.Messaging has long lacked a higher purpose. But with the “get CSR” service sitting in a central repository on Verizon’s intranet. the service called “get CSR” (get customer service record) is a complex jumble of software actions and data and business logic extractions that uses Verizon’s messaging infrastructure to access more than 25 systems in as many as four data centers across the country. When CIOs call themselves a “SAP shop” or an “Oracle shop. those developers can now build a single link to the carefully crafted interface that wraps around the service using the Web services standard simple object access protocol (SOAP). Vendors who make integration with their software truly universal eliminate the built-in advantage they have with existing customers. or customers are charged a fee for using the middleware to link with software from another vendor. known as middleware. sending customer information to the new application and saving developers months. The most interesting new “feature” being developed by the ERP vendors today is the extent to which they will make their software part of a service SOA using their own homegrown integration software. Service objects (or just plain “services”) are that strategy. Each vendor has claimed fealty to the concept and each has its own vision of how to create an integration layer independent of its own software that is capable of linking to any other piece of software in the universe. Those 25 systems immediately line up and march. even years. based on object-oriented programming from the ‘80s. a strategy. Some ways that vendors use their new middleware strategies to keep customers: The middleware is offered only to customers who upgrade to the latest version of ERP. for example.” it’s because software from those companies dominates their architecture and new software from those providers works better with their existing code base than does code from other vendors. and it is the second core piece of the integration layer. Instead of tightly integrating all the
But the rise of service-oriented architecture has produced a shift in integration strategy. That worked for you. In this scenario. integration standards interfere with ERP vendors' traditional ways of gaining and keeping customers and market share. As a result. integrated application suites fetched a high price and required long-term maintenance and support contracts that promised a steady. than headlines in The Wall Street Journal. all had their own ways of doing things that required you to use their software—you couldn't suddenly swap your vendor out for a new one. Better to have disappointed users. The Web happened because it reached incredible scale before vendors could intervene to push their own. predictable stream of revenue from customers. proprietary ways to display webpages or communicate over the Web. traditionally known as middleware. The purveyors of integration software. although both are sticking with the big. (Both dominant enterprise software vendors. The application's vendor doesn't matter anymore. CIOs' fear of integration pain gave vendors a built-in sales advantage whenever a company wanted to add a new application to its stack. SOA and Web services standards haven't been so lucky. an SOA approach will take those processes and split them up into independent chunks that can be more easily changed independently of the other processes and linked with other systems through the use of integration language that all the vendors agree to adopt in their software—the software integration equivalent of everyone agreeing to adopt HTTP and HTML as the standard ways to communicate over the Web and display their websites. Indeed. Oracle and SAP. packaged software is a piece of the service. not by processes contained within an enterprise application vendor's software box. your integration strategy was simple: Buy as many preintegrated applications from a single vendor as possible. It was easier for the CIO to pick a preintegrated application from the dominant vendor than to take a risk on a best-of-breed newcomer—even if its application had better functionality—because expensive integration disasters had become the much-publicized bane of the industry. CIOs reasoned. Technology is constructed according to services specified by the business. Before the Web came along. But beware the kumbaya approach to integration.)
.different business processes expressed within the ERP system into a single. have begun offering integration middleware to go along with their software suites. CRM and old mainframe legacy systems. the vendors' integration strategies have become more important than the features of their software. the linkages between the applications are the important thing. SOA makes the radical assertion that the enterprise application infrastructure is irrelevant. Even those CIOs who risked a best-of-breed strategy had to pick a vendor to hook the different systems together. and it worked extremely well for the vendor. monolithic system that is difficult to change and integrate with other systems in the company. just another component in a larger business process—such as an insurance claims process that links a jumble of functions and data inside ERP. Even better. integrated software suite vision.
including middleware software that is the linchpin for its SOA pitch. everybody has a proprietary hook somewhere.In the brave new world of SOA. those standards remain very incomplete) and controlled by the CIO—not the vendors—is one of the best protections against lock-in. Though mixing and matching chunks of ERP from different vendors and linking them together in an SOA world will be easier. software developers are eager to create software that works with Windows because it means they can reach the most customers and make the most money. Only 35 percent saw vendor consolidation as a good thing. long the dominant player in ERP. even with the solutions offered by the ERP vendors. But CIOs on the whole fear dependency. SAP is busy service-enabling its applications and using its new middleware software. and 57 percent said they believe it will reduce pressures for vendors to innovate. to entice companies to build software to run on the NetWeaver platform (which incorporates Web services standards). the big enterprise software vendors are trying to ensure their futures in an SOA world by assembling ecosystems around their core applications. Consequently. While 65 percent of CIOs said vendor consolidation makes for a more integrated software infrastructure. But post-SOA. Oracle's Fusion applications will work only with Oracle's database. Similarly. especially in the current wave of consolidation in the software industry. As a result. For years. both they and the ERP providers are still looking for ways to keep their customers. 61 percent believe it will decrease price competition. the most startling change in strategy comes from SAP. For example.com has created AppExchange. according to Gartner and Forrester Research. meanwhile. 87 percent said vendor consolidation will lead to lock-in. the big software vendors have decided to take a page from Microsoft's playbook and duplicate the Windows strategy. SAP resisted alliances with other software vendors and insisted on building its own applications. Oracle. according to a 2005 Accenture survey. For example. an SOA built as much as possible using Web standards (sadly. The bottom line for CIOs? Beware ERP vendors—or any vendor—pledging to build your SOA for you. Unless you're not worried about continued dependence on your vendor. has been busy building its platform through acquisitions. despite the abundance of Web services standards embedded in their products to ease integration headaches. Although the middleware companies have much more experience with the foundational elements of SOA. NetWeaver. such as integration and messaging between dissimilar systems. SAP's new applications require the use of NetWeaver middleware. With the Windows operating system running on 95 percent of PCs. Even the middleware companies still have enough proprietary elements to make it difficult to swap out their integration software. where developers can download free software to integrate their software add-ons with Salesforce's core software. remember that no one vendor can be all
. Online CRM software provider Salesforce. and 61 percent believe it will reduce their vendor management burden. the thousands of applications available for Windows today ensure its dominance in the operating system market tomorrow. For true SOA believers.
These two audiences want two different types of information from your ERP system. The bottom line. due to the cost of installing and managing the links at the supplier. But now customers and suppliers are demanding access to the same information your employees get through the ERP system—things such as order status. without all the ERP software jargon. however. though they certainly all realize that they must do it and have been working hard for years to develop it. Consumers want order status and billing information. But no matter what the details are. who are highly trained and comfortable with the tech jargon embedded in the software. For those companies that were smart—or lucky—enough to have bought their ERP systems from a vendor experienced in developing e-commerce wares. is that companies with ecommerce ambitions face a lot of hard integration work to make their ERP systems available over the Web. richest) of suppliers. ERP is complex and not intended for public consumption. It assumes that the only people handling order information will be your employees.
How does ERP fit with e-commerce?
ERP vendors were not prepared for the onslaught of e-commerce. adding easily integrated applications from that same vendor can be a money-saving option. E-commerce means IT departments need to build two new channels of access into ERP systems—one for customers (otherwise known as business-to-consumer) and one for suppliers and partners (business-to-business).things to everyone. the best—and possibly only—option might be to have a combination of internal staff and consultants hack through a custom integration. through your website. Traditional ERP vendors are having a hard time building the links between the Web and their software.
Can I use ERP to manage a network of foreign suppliers?
ERP was designed at a time when process management was an internal affair. inventory levels and invoice reconciliation—except they want to get all this information simply. In third-world manufacturing
. companies could link their ERP systems through expensive electronic data interchange (EDI) connections. For those companies whose ERP systems came from vendors that are less experienced with e-commerce development. But EDI links (and ERP systems themselves) never penetrated much beyond a manufacturer’s top tier (read biggest. Companies that have the flexibility to integrate a new business capability into their software infrastructure as soon as it is available—rather than whenever their preferred vendor gets around to building it—will have an advantage over their competitors. The systems have lagged behind the explosive growth of globalization and offshore outsourcing of manufacturing.S. When most U. manufacturing was still mostly local. which is key to getting integration off on the right track. and suppliers and partners want just about everything else. solving the difficult problem of integrating ERP and ecommerce requires careful planning.
. even an Internet connection is often a luxury. Related article: The ABCs of Supply Chain Management.” is only now beginning to emerge.destinations. Senior Editor Christopher Koch can be reached at ckoch@cio.) of the “extended supply chain. The market for managing the core ERP information (orders.