The Game Plan - ERP report May 2008

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ERP remains a critically important component within any manufacturing or logistics organisation’s information armoury. But things are changing, and for the better. Manufacturing & Logistics IT spoke to some of the key spokespeople within the analyst community to survey recent developments and the way forward.

The essential nature and benefits of an Enterprise resource planning (ERP) systems have remained the same for a number of years; facilitating the integration of an organisation’s disparate sources of data within a common database so that this information can be easily accessed and shared from department to department. Such a system is also contains software components that are modular in design, allowing additional programs to be implemented as and when required.

However, the ERP space has undoubtedly seen some marked developments in recent times. For example, as TATA Consultancy Services’ Tim Edwin observes, there has been a movement on the part of ERP suppliers away from providing general discrete manufacturing capabilities towards more vertical-specific functionality. This functionality, as Edwin points out, covers a number of distinct market sectors; including Defense, Construction, Process Manufacturing, Industrial Manufacturing, Automotive Manufacturing, MRO, CMRO, Petro-Chemical, Utilities, Financial Services, and Public Sector. Tim Edwin-TATA

Edwin has also witnessed that an emphasis on open architectures has seen design philosophies move away from producing inflexible monolithic systems – something that had dominated the ERP world in the past. “The thinking is now moving ERP application solutions to a more componentised architecture, partly driven by the focus on Service-Oriented-Architecture (SOA) frameworks,” he said. “Today, many ERP vendors offer preconfigured ERP applications designed to meet the business and operational needs of different types of organisations, including small to midsized companies. This allows state-of-the-art software to be deployed quickly, allowing potential business-process benefits and financial ROI to be realised faster. The days of long and costly ERP implementations are no longer acceptable, so the possibility of delivering ERP best practices – in the form of preconfigured component modules that are rapidly deployable and flexible enough to adapt to a business need or different business requirement – is an attractive proposition to a potential ERP business user.”

Butler Group’s Angela Eager also observes that over the past few years much of the development effort around ERP solutions has been focused on architecture as vendors have worked on the transition from client-server to SOA. “Ultimately, that will bring benefits in terms of flexibility and innovation, but in the interim it has resulted in a degree of stagnation in terms of innovation at the application functionality level,” she said, adding: “That is changing now that the technology to enable SOA is largely in place. However, rather than just returning to the old model of adding more and more functionality, vendors are paying more attention to how their systems will be used; so are working on areas such as the user interface, support for multiple devices, and embedded analytics. Usability and business insight are the drivers for the current round of development.”

Gartner’s Tim Payne points out that all the leading Tier 1 vendors and the mid-market players have moved ahead in terms of developing the depth of their systems’ functionality. “This is particularly true in supply chain, both from an execution and a planning perspective,” he said. And like Edwin, something else that Payne has seen become much stronger over the past two or three years is vendors’ focus on particular industry verticals, particularly with regard to mid-market ERP companies. “These SME-focused vendors are getting quite squeezed now because the traditional Tier 1 vendors such as Oracle and SAP are also targetting their space; SAP’s Business ByDesign solution for example,” he said. “So what the SME-focused ERP vendors are finding from a survival perspective is that they need to concentrate on a few key verticals where they can offer functionality and capability that differentiates them in some respects within these chosen industries. If you look at IFS, Lawson or QAD, for example, they’re all very heavily industry/vertical-focused. Now, that’s not to say they weren’t doing this before, but their strategies are now more centred here. Payne also cites technology as another key change driver within the ERP world, in particular the move to SOA.

Niche content

Capgemini’s Neil Collings is seeing more niche content coming into play within the ERP community.Neil Collings “ERP in the ’90s was all very transactional based and standardised, but now more and more ERP vendors are offering specific niche content in order do differentiate themselves.” He adds that, in his view, what is helping to drive this content and specialisation is the SOA approach. “The key players in the Tier 1 space, such as Oracle and SAP, are driving their solutions forward in this respect,” he said. “I think this gives solutions a degree of flexibility that they’ve not really had in the past. These sorts of large ERP systems were quite difficult to adapt and change, but there’s starting to be more flexibility. And because a business and its supply chain increasingly wants to be able to quickly adapt to changing market requirements, this is driving the vendors’ solutions to be more adaptive, and able to react quicker.”

And what technological or service-based attributes are currently giving vendors an edge within the ERP marketplace? Edwin observes that this space is now beginning to see significant consolidation, which is resulting in more rationalisation than innovation. However, he points to a number of value-adds including Software-as-a-Service (SaaS). “This business model has opened a new adaptation of ROI, by its differentiated pricing mechanism,” he said. “This new delivery model dramatically reduces the effort and cost required to obtain new enterprise software features and avoid infrastructure investments. Some 12 per cent of users are already using SaaS applications, with another 40 per cent reporting that they are interested in the SaaS model.”

Edwin also points out that most of the vendors are offering solution support to establish a shared services model, and elevate it to a business process outsourcing (BPO) provider to generate sustainable business value. He also highlights the fact that some vendors are offering value engineering capabilities and knowledge to minimise Total Cost of Ownership (TCO) and to accelerate and maximise ROI in their solutions. In addition, Edwin points to the benefits of rapid solution introduction; which can provide a standardised process for introducing standard products, and helps clients achieve rapid business value at various degrees of optimisation.

Edwin adds that other value added services offered by some vendors include the financing of enterprise solutions, which can provide an all-inclusive, predictable, and affordable financing option for companies of all sizes. Then there is hosting and application management, which operates, manages and maintains enterprise solutions for organisations of any size. Lastly, Edwin maintains that ERP vendors are offering ready adapters for integration to the standard systems and with the trading partner systems, in case of the Best of Breed solutions.

Faster ROI

For Payne, the value adds can be found largely around implementation services. “Today, end users are looking for faster times to achieve ROI, and, particularly in the case of the mid-market, they look for vendors who offer fast implementation,” he said. “So it’s really around templating, pre-packaging and pre-configuring the software, and almost committing in some cases to certain days’ worth of services for implementation. And particularly in the mid-market, so long as the solution is well focused on the industry in question and the end user doesn’t need too much in the way of customisation, this can work well.”

Also, the configurability of the solutions is much better now, believes Payne. “Vendors are doing well with pre-packaged templated solutions,” he said. “For example, Lawson does this with its QuickStep program, and SAP has All-In-One – a business suite product that is in many cases templated by partners. This is aimed at achieving quicker more standardised implementations in order for the user to get the time to value much faster. And in the case of solutions such as All-In-One, even bigger companies will look at it because they’re getting a templated and pre-configured solution whilst not being excluded from additional functionality should they need it at a later date.”

In Edwin’s view, the focus on ERP systems peaked following the rush to close the issues of the Y2K phenomenon. The result, he maintains, was a saturation of the ERP market across the top end of the enterprise business sector, which has seen this aspect of the ERP marketplace become more of a replacement/upgrade business. However, he believes that the small to midsized enterprise market is a much more buoyant ERP business sector; a sector that all the major ERP vendors are now targeting. But whether this market is saturated or not, for Edwin it is clear that ERP as a competitive differentiator for any of the enterprise-software vendors is starting to lose its market visibility. “Some of this change is possibly a market perception, which is beginning to be driven by the commoditisation of ERP systems functionality,” he remarked. “Nearly all business users using an ERP system are running basically the same core ERP functional processes, and therefore, these processes by themselves cease to be strategic differentiators.”

New capabilities

Edwin adds that the commoditisation effect has seen nearly all ERP vendors begin to add new capabilities to their ERP product portfolios, including: Customer Relationship Management (CRM), Supplier Relationship Management (SRM), Product Life Cycle Management (PLM), Supply Chain Management (SCM), Warehouse & Logistic Management, and Documents Management functions. “While lots of customers clearly haven’t bought all of these applications, most of those waiting on the sidelines will acquire them as a means of achieving an industry best practice base line,” he said.

Edwin also observes that many ERP vendors are now looking to find the next ‘white space’ to help differentiate their ERP systems. “One emerging area falls under the aspects of governance, risk, and compliance (GRC),” he said. “Others come from more obscure areas such as shop floor and process operational integration of ERP functionality to Manufacturing Execution system (MES) and Supervisory Control and Data Acquisition (SCADA) systems.” Another ‘white space’ driver Edwin has detected is in the area of financial management. “Most core ERP financial functionality covers the practicalities of operational bookkeeping and reporting,” he said. “These functions, however, do not provide assistance in meeting the strategic needs of ‘C’ level management. Therefore Business Intelligence, Performance Management and Analytics are elements that ERP vendors are adding to their systems to create differentiators. The key factor in this area is that the core data that exists within the ERP system provides the basis for these strategic reporting processes.”


For Eager, the level of maturity within the ERP sector means that the leading vendors offer similar levels and breadth of functionality, and therefore this is no longer an area of differentiation. “Differentiation occurs through the provision of vertical offerings and pre-defined processes, with the processes acting as value-add components, particularly where they address industry-specific processes,” she said. “These vendor-provided processes are becoming more granular as the players use them to demonstrate their differences and have been enabled by the move to SOA.”

In Payne’s view, there are certainly some well defined differentiators within the ERP world, and this comes back to the industry-vertical focuses many ERP vendors, particularly SME-focused vendors, have adopted. “When vendors acquire other companies or when they have developed capability for certain customers on a bespoke basis in the past, this can give them a stronger level of capability focusing on a particular industry sector, and secure them a higher business-win ratio in those markets,” he said.

Payne again stresses the strength to be had through a strong vertical industry focus: “Take Lawson, for example; it has done a lot of work in fashion apparel and footwear, and has developed some functionality that’s very specific to, for example, the postponement techniques that are used in fashion, and provided the ability to forecast demand for the size, colour and style of goods,” he said. “So if you looked at Lawson for fashion you’d say its solution has some really good functionality for this purpose. However, if you then looked at Lawson for general manufacturing you’d maybe say I can’t really put much between its offering and some other ERP vendors’ offerings. The same would be true for companies such as IFS, which is strong on project manufacturing. Capital equipment can be very bespoke and project oriented insofar as the manufacturer brings the pieces and the resources together – maybe just for one piece of equipment – before things are disassembled and the manufacturer moves on to something else. Vendors such as IFS have functionality that is very good for this type of environment. So, within aerospace and defence and heavy capital equipment, IFS suits that environment very well.”

Collings has noted that within the Tier 1 space, there have been changes in terms of system differentiation over the past few years, but this is something he refers to as organic growth. For example, he points out that the market has seen the move to a more common interface. “I deal mostly with SAP and I can remember the old green screens from years ago,” he said. “Nowadays, the interface has grown in terms of the ability to integrate far more into a company’s intranets with a common look and feel. And I think this level of flexibility has driven quite a lot of advancements and a lot of acceptance out there within the user community.”

Strategic KPIs

And what of the increasing prevalence of globalisation generally within the world of manufacturing and logistics? For Edwin, this phenomenon is driving the need for greater collaboration capabilities with trading partners across the supply chain and web-enabled solutions. “Information made available through these product-based solutions – in balancing supply chain visibility and velocity – is key to achieve strategic KPIs,” he stressed. “The lack of a harmonised global business operating models plagues the ability of supply chains to support and meet client needs. We have seen clients who have streamlined and harmonised their operations across multi-sites and created a collaborative networked model between suppliers, partners and manufacturers – and in some cases (CPG industry in the areas of real-time demand planning and replenishments), they have produced in excess of 50 per cent more improvement in the value stream Order-to-Delivery and Procure-to-Build.”

Edwin adds that companies engaged in multi-site order fulfilment experience a number of challenges that single-site distributors do not. “For example, planning must take place to determine which items will be stocked at what point in the supply chain,” he said. “Also, decisions must be made as to how best to organise and use distribution centre networks to fulfil individual orders. ERP software vendors have been adding Demand Planning, Network Optimisation Planning and Holistic Supply Chain capabilities, linked into the Order Fulfilment processes of their functional portfolios, to attempt to assist organisations to handle these supply chain dynamics.” In Eager’s view, the need to work with distributed teams located across divisions and partners, in different locations and time zones, has highlighted the need for tools that enable project work, collaboration and an overview of business operations, which are all finding their way into ERP systems. However, she points out that much of the work to enable this type of functionality relies on architectural changes such as enabling event driven services.   

Payne observes that the ability to do multi-site planning and operations was always the realm of the Tier 1 ERP vendors, because of the size and scope of many of the customers they supply their solutions to. “The mid-market vendors are now also having to do this, and over the past two or three years they’ve increasingly released functionality in this area to enable more multi-site planning,” he said. “Even in the mid-market now there is more globalisation. For example, a European company might want to run its European operations off one ERP platform but need visibility across inventories in different factories and want to move components from one factory to another, or focus the factories to provide product to multiple selling regions withinEurope.”  

Extending core capabilities

As for the future of ERP, Edwin believes that although ‘basic’ product solutions will support a significant portion of organisations business requirements, there will be times when there will be a need to enable business differentiating capabilities, which will necessitate the ‘extension’ of core product capabilities. “The approach will be to leverage Composite Application Framework (CAF) as the foundation for development of extensions,” he said. “The CAF is a design and run-time environment for the development of composite applications that provides a model and metadata driven environment for modelling and generation of applications. It is both a repository and runtime framework with aggregated APIs to allow access to services and objects. One such example is where we have worked closely with SAP to position xMII as an ideal platform for building shop-floor oriented composites. It also created the first certified composite on xMII – RapidSigma. It has also created a portfolio of modular add-on components on xMII, which are capable of being incrementally deployed. TATA Consultancy Services and SAP have conducted several joint marketing campaigns to create awareness on Adaptive Manufacturing based on SAP xMII.”

Collings believes the ERP world must look at how it can feed more data to mobile devices. He believes there are major benefits to be had in pushing information from ERP out into the area of field service operations etc. in order to facilitate greater communication across the enterprise. “ERP has always been an environment where you’re looking inwards from an enterprise resource perspective, but I can see this become more diversified as more mobile technology comes to the fore over the next few years,” he said.

Payne observes that the bigger vendors are going to go for more of the business process platform approach; that is, the infrastructure or architecture in which companies get business value from SOA. “The big thing for SOA is for the users to get business value from it beyond the fact that it should be easier and slightly cheaper to integrate, which is more of an IT issue,” he said. “So, for the business user it’s going to be about how SOA is used to create more flexibility and agility in the way that the ERP solution and additional services can be bundled together to support business processes that are inevitably going to change and need to be more dynamic in the future.”

BI convergence 

Another area of development from Payne’s perspective will be the greater convergence of Business Intelligence and business applications, including ERP. “This is again facilitated through SOA, and if you look at the fact that SAP bought Business Objects, Oracle bought Hyperion, IBM bought Cognos, and Lawson has developed Lawson Business Intelligence, it’s all about how you integrate BI with the process application where the process is held,” he said. “Traditionally, these two things have been very separate; companies have their ERP solution where they have their processes running and somewhere separate they have their BI tools. So they go to the BI tools to try to make a decision based on analytics or route-cause analysis, then they turn to the ERP solution or other business applications to actually take the decisions; for example, to cut the order, to change the forecast, re-route the product, change the productivities on the workbench, or whatever it might be. And therefore the integration between these two systems is the user. We call it ‘swivel chair’, because the user needs to turn from one set of technologies to another.” However, what will happen in Payne’s view is that, increasingly, the BI and the business applications will converge. “What we’ll see is more analytics, more interplay between gaining insight from BI and then being able to change a business process because of gaining more flexibility in the applications through SOA etc.,” he concluded. “And this will result in more closed-loop performance management-type capabilities for users.”

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