ERP TECHNOLOGY REPORT
Manufacturing & Logistics IT spoke with a number of leading analysts about recent developments within the world of ERP solutions and some of the challenges that users have faced during the pandemic.
Supply chain disruption over the past year has been massive with traditional demand forecasting practices/methodologies rendered almost useless. As a result, David Krebs, executive vice president, enterprise mobility & the connected worker, VDC Research, is seeing greater emphasis placed on traceability efforts to create more resilient supply chains while also diversifying supply chains. “From an ERP perspective, the focus needs to be a shift from purely transaction-focused solutions to more advanced solutions that leverage machine learning intelligence to more quickly alert to changes and sense disruption,” he says.
Shift towards cloud-first architectures
Krebs mostly sees a continuation of the ERP-related trends/themes the market saw heading into 2020 – just now amplified by the COVID-19 pandemic and its impact on WFH, e-commerce and an overall acceleration of digital investments. “From the perspective of ERP, that means continued shift towards cloud-first architectures (ERP has lagged as a category here), greater integration of IoT and edge computing platforms,” he says. Krebs is also seeing greater emphasis towards personalisation of ERP solutions – taking on more of an industry-specific focus.
In terms of some of the key drivers for change, Krebs makes the point that over the past year it has been about ensuring that customers have the required flexibility to support WFH. “That means everything from access and connectivity to ensuring cybersecurity policies are sufficiently robust,” he says. “What we also saw over the past year was pressure around visibility into operations to allow organisations to quickly pivot if necessary.
This was especially acute in retail with the massive shift to e-commerce (accelerate by 3-5 years) and pressures for retailers to leverage stores and store inventory as fulfilment centres. Without complete/accurate visibility into operations and integration of applications (including order management, e-commerce, POS, etc.) retailers would fall short of meeting customer expectations. Again, while these are not new trends per se – we have been talking about omni-channel retailing for years now – this was put into hyper-drive over the past year. Some organizations were ready while others fell way short. This need for flexibility and speed will serve as the pressure points for ERP solutions moving forward.”
Move to a platform- and product-centric approach
Tim Faith, senior director analyst, Gartner, explains that the ERP for product-centric enterprises market continues to transition from on-premises to cloud deployment. In terms of strategic planning assumptions, Faith believes that by 2022, 30% of large enterprises will have moved to a platform- and product-centric approach with standardised ERP capabilities at the platform core. By 2025, he maintains that the top four ERP vendors will rebrand themselves as business platform providers, and through 2025 some 40% of ERP implementations will underachieve as a result of underinvestment in integration.
“ERP represents the single largest category of enterprise software spending,” Faith points out. In 2019, ERP software grew at 8.8% overall, with a global market value of US$38.8 billion, according to Gartner’s ‘Market Share: Enterprise Resource Planning, Worldwide, 2019’. Gartner forecasts that this figure will grow at an annual rate of 7% through 2022 on a constant currency basis, with a forecast market value of $44 billion by 2022.
“Product-centric ERP revenue makes up roughly half of the overall ERP market,” says Faith. “The ERP market continues in a generational technology shift, driven by the wider acceptance of cloud computing. HCM and financial management cloud solutions are leading the way in cloud adoption. Supply chain, manufacturing and operations and enterprise asset management cloud adoption rates are moving at a faster pace in the last three years than before. Cloud ERP revenue growth has exceeded 25% per annum. We expect this growth trend to continue.”
Faith also explains that public cloud SaaS solutions that support operational ERP capabilities are maturing fast and are now viable for midsize, large and global enterprises. “The largest segment of adoption of operational cloud ERP solutions has been in the midsize enterprise market,” he says. “However, we expect large enterprises ($1 billion to $5 billion) to surpass midmarket adoption levels in the next five years. The market for operational cloud ERP continues to pivot to cloud deployment for enterprises of all sizes and complexity.”
Jason Chester, director of global channel programs, InfinityQS, highlights the following trends/innovations/developments that he believes are impacting the ERP arena currently and will become increasingly prevalent in the near future:
Cloud – “Cloud-based deployment models of enterprise applications are becoming increasingly accepted,” he says. “In addition to more robust and secure application delivery, cloud-based deployment models provide organisations with greater flexibility in deploying application capabilities as well as being easier to own, deploy and maintain.”
Integration – “The ERP model of large-scale monolithic applications in my view is no longer compatible with the future of manufacturing. Instead, ERP solutions will increasingly become a component part of a digital manufacturing ecosystem,” believes Chester. “As a result, more capable, flexible, and ubiquitous integration capabilities, based on open industry standards, will have to become a dominant feature of all ERP solutions. While there is increasing demand for capabilities such as advanced analytics, AI/ML, IIoT, and M2M integration, I don’t believe that it is a viable strategy for organisations to rely on these capabilities from a single ERP solution but rather through a highly integrated ecosystem of best-of-breed solutions across these domains.”
Industry Specific – “Historically, ERP solutions have been ‘all-things-to-all-men’, which has led to highly complex systems able to support the needs of a broad range of industries – either through massive monolithic codebases, myriads of different add-on modules, or through extensive and costly bespoke development and customisation,” says Chester. “I believe that this continued approach is unsustainable and will instead allow for industry specific, or highly customisable solutions, to be able to match the precise requirements of industrial sectors more closely.”
Usability – “ERP traditionally has a reputation for being functionally/information dense with highly complex user interfaces,” says Chester. “As we march towards web-based and mobile-based accessibility, and see new generations of workers entering the workforce, ERP solutions will have to become easier to use, more intuitive to understand and navigate, and less complex. At the same time, they will need to provide increasingly important capabilities that organisations will require in the future.”
Chester believes these developments are being driven by two fundamental trends. “First, advances in existing and emerging, technologies, software architectures and deployment models are making these innovations a reality now,” he says. “But just because technology is now a reality, this does not mean this is what is driving their adoption.”
This leads to what Chester maintains is the second fundamental trend in the markets that most industrial sectors are dramatically changing. “Consumer trends, e-commerce, liberalisation and democratisation of markets, global supply and demand chains and logistics innovations are radically altering markets,” he says. “For manufacturing, this means more intense operational performance challenges across many different dimensions such as efficiency, productivity, flexibility, and quality. This is driving the trends towards real-time digital manufacturing environments (Industry 4.0, Digital Transformation, Smart Factories and IIoT et al.). Combined, these two uber trends are what are driving ERP vendors (and other software domains) in one direction, and one direction only. If ERP vendors and others do not respond, I do not believe they will be around in 5-10+ years.”
Ed Spotts, ERP manager, Panorama Consulting Solutions, maintains that most ERP products now are truly cloud-enabled. “Even though most vendors have been offering a cloud solution for several years, many of them had only partial functionality in their web applications,” he says. “Workarounds such as a locally installed client or a remote desktop in the cloud were required for specialised or complex ERP transactions. Many vendors were only capable of single tenant hosting. With the continued advancement of technology, more and more vendors are now capable of using multi-tenant technology, which reduces cost and improves reliability. This means ERP buyers have a much wider selection of cloud-based systems to choose from.”
Spotts believes the COVID pandemic has driven droves of workers to working at home. “Many companies which demanded that employees work on-site have now seen that people can be productive working remotely,” he says. “Due to the demand, software developers have improved the ability to work remotely. Web meeting software, once a toy for kids, is familiar to every age group. The software has improved, and people are comfortable with it.”
One version of the truth
Bryan Ball, vice president & group director, Aberdeen Strategy & Research, believes the fundamentals of ERP and the message around the technology continues to revolve around the mantra ‘one version of the truth’. “That's still a good, solid trend for virtually all the main ERP vendors,” he says. One further trend is that since the pandemic hit, Ball has seen that financials are being strengthened. “When the finance teams started working from home following the shutdowns, they had to close their books remotely and virtually but many didn't know whether or not they could do that as they had never been in this situation before,” he says. “Fortunately, they found out that they could. They had the technology within their systems, but many of them just hadn’t used it until now. Somewhat of a surprise was the fact that they found that it can actually make life a lot easier.”
Another trend Ball is seeing within finance is a push for more real-time data, so ERP users don't have to do everything at month-end. “Users want to be able to do many things such as reconciliations during the month,” he says. “The month-end statutory close date for legal reporting and regulatory reporting is still in place, but greater access to real-time data during shutdowns can be invaluable – finance teams want to know where their company is at certain points in time, particularly in terms of cash flow.” Using an analogy, Ball considers that the finance teams are at the stern of the boat in many cases, because they are after the facts rather than being up there with the captain influencing and guiding the direction of the vessel. “However, what they really want is to be up there making some of the bigger decisions,” he says. “It's not that they don't have the business acumen, they just need more access to real-time data and where the company stands on cash flow at any given minute. The shutdowns have shown that more access to real-time data is now seen as more of a must have.”
A further trend Ball is witnessing is more companies looking to leverage cloud opportunities – again, largely as a consequence of the shutdowns. “The good thing about many modern systems is that companies don't have to rip and replace; they can add the pieces of functionality they want and integrate them quite effectively,” he explains. “This is a big advantage because many companies don’t want to take on a big transformative IT project right now while there's so much economic uncertainty. There was a point before the shutdowns where we were hearing about large digital transformation projects spanning a couple years. However, understandably, many of these projects were put on hold because of the pandemic. The companies who saw most risk pulled back. That doesn't mean in some areas they weren't still moving forward where they were already so far down the line and where they had a clear direction. But the main priority in many instances became simply trying to keep the ship afloat.”
Ball cites the food industry as a good example of there volatility really hit during the pandemic. “Many companies needed to change their algorithm because one minute they were delivering to restaurants, fast food outlets and businesses in hospitality as well as to supermarkets and grocery stores. The next minute, restaurants and the like were closed and the supply chain had to be focused on supermarkets and stores. Those with the more superior ERP systems, maybe with some AI functionality for example, performed the best in making these changes and getting back to some level of stability quite quickly. And to achieve this type of stability you want some smart people looking at demand planning and forecasting because you need business acumen at that level at this point because it's the front end of where you get your requirements, which are going to drive much of what takes place inside the ERP. Companies need organisational focus and to achieve this it doesn't mean they have to change everything. Many of their processes might already be fine, but I think most companies have suffered some level of instability due to the pandemic, even if their immediate business wasn't affected, and this has made them think harder about what they need from their ERP going forward in order to be best prepared for any similar scenario in the future.”
In terms of the growth of AI, Ball don't think this is as far along the road as many companies would like within the world of ERP. However, he believes it is certainly moving in the right direction and cites the fact that many companies are reaping some major benefits from the technology. “AI is often involved in transaction systems,” he explains. “One area is procurement where companies want to make sure they are getting all the data and payments from customers and are ensuring their suppliers are fulfilling all their obligations and providing the information the company needs as they buy. AI is also very effective at finding and analysing anomalies. There are three main type of anomaly in the world of ERP.
One is the data itself can suffer anomalies such as why does a particular number jump up to double what it typically is? That's obviously a red flag. Another is the source of the anomaly comes from the same source, so you can tell that there is consistency in terms of where the problem is coming from – it isn't just a random event. The source could be a supplier or customer, or it could even be related to a particular country. AI can help you determine the source and map trends related to when the anomalies occur to determine patterns of behaviour – does this anomaly happen at this time of the month is it month-end, for example? AI can dive right in and grab the data to indicate where those anomalies occur and then by comparing that with all the available data go back and say there's a pattern here month-to-month or client-to-client etc.”
Have ways of best integrating ERP with other complementary systems developed to any notable degree over the past year or two? Chester considers that integration methods and architectures have not changed that much in the past 1 to 2 years. “Yes, improvements have been made, but I believe that they have been smaller, more incremental improvements to existing integration approaches,” he says. “And there is still a myriad of different approaches. But I still think there is a significant way to go before we get to a true real-time and ubiquitous method of secure integration that is easier to setup and maintain.”
Spotts makes the point that while basic API technology has been in existence for many years, many ERP vendors have matured their offerings. “Even though a vendor had APIs, they were often very limited with only basic capabilities,” he says. “More and more ERP transactions are available making calls through APIs. Along with more mature cloud hosting solutions, most software can now be accessed via a wide variety of mobile devices. The problem remains that many ERP transactions are very complex and require a large screen to be readable. In such situations, tablets and notebook computers are a great solution. Voice recognition continues to make steady improvement and more customers are familiar with it thanks to automated telephone systems and speaker-based tools in the home.”
Krebs explains that many mobile solutions – especially in supply chain environments such as warehouses and distributions – still rely on legacy interfaces such as terminal emulation. “While these solutions have served the market well in that they provided the necessary speed/response times so critical in these environments,” he says. “We are seeing a shift to more native/hybrid solutions that better leverage the capabilities of modern mobile solutions. Many ERP vendors are offering/investing in developing their own native mobile clients. The question will be whether they can keep up with market requirements or whether third-party vendors/solution providers continue to primarily serve this need.”
Has the level of functionality notably increased within today’s state-of-the-art ERP systems? Spotts reflects that functionality continues its gradual growth as access to systems in the cloud has driven innovation. “Vendors are listening to their customers, who now have access to their ERP in places they could never do so before,” he says. “The natural evolution is that users ask vendors why can’t I do a certain function remotely? For several years now, review and approval of workflows has been available, but those workflows have grown more and more user friendly with added functionality.”
How has the Software as a Service (SaaS) model impacted the ERP software solutions space? Chester believes SaaS/Cloud is impacting the whole enterprise application software market. “Increasingly, more companies are realising that SaaS/Cloud deployment options are now more economical but also more agile, robust and secure,” he says. “And that momentum will continue to grow to be by far the dominant model of the future. As many more organisations are moving from a ‘we’ll consider SaaS/Cloud’ mindset to one of ‘cloud-first policy’ it will become a dominant feature of software selection and shortlisting.”
Chester adds that there is an increasing realisation that it is not software per se that delivers business value. “Instead, it is the capabilities it provides and what it enables organisation to do that delivers business value,” he says. “This therefore is decoupling the value-software equation to a much greater degree and will continue to do so in the future. With SaaS/Cloud, organisations don’t need to be concerned with the software or the infrastructure required to run it, instead they just enjoy the commercial benefits of the capabilities that it provides.”
Spotts reiterates his earlier point that most vendors have now truly embraced the cloud SaaS model and their software has been redesigned and optimised to operate in that environment. “Issues such as latency make cloud computing impractical for some real time situations,” he says. “Vendors have responded by making available more on-premises data collection, MES, SCADA solutions that plug into a cloud-based ERP.”
The impact of mobility solutions
Are mobility solutions such as mobile computers and tablet PCs having an impact or influence on ERP? Spotts observes that modern mobile devices have matured and that many functions are now available when detached from the web. “When a web connection reappears, data that was collected off-line can be synchronised automatically,” he explains “Spotts adds that in an almost opposite direction, availability of WiFi continues to improve, so there are less and less dead spots. He also makes the point that users are able to access the web in more and more places.
The digital transformation effect
How is digital transformation (e.g. IIoT, Industry 4.0, BI, Analytics, Blockchain and Big Data) having an impact on the world of ERP solutions, if at all? Chester believes digital transformation will have a big impact on ERP solutions, not least because it will significantly diminish their dominance in the universe that they once enjoyed, but also because there is no single digital transformation solution. “Instead, DX is an approach which is made successful by the integration of the digital manufacturing ecosystem of many different technologies – similar to a digital fabric that is weaved throughout every facet of manufacturing operation right up to and including the consumption of products,” he says. “No single ERP solution is going to be able to provide an end-to-end digital manufacturing solution despite what the vendors might try and promote. Therefore, it will have a big impact on how ERP vendors position themselves and how they learn to play nicely with other technologies and applications.”
Spotts makes the point that ERP systems come with excellent query, reporting and dashboard tools. “Customers who can meet most of their needs with a single ERP solution no longer need a business intelligence tool,” he says, adding that customers who have a best-of-breed solution will need data warehouse, business intelligence or big data. “With the new, improved APIs that vendors offer, extracting data has become easier for data warehouses,” says Spotts.
Blockchain remains primarily in the innovation stage, according to Spotts. “A huge amount of data is still exchanged using EDI, showing just how slow the intercompany data exchange progresses,” he says. Spotts also references the Internet of Things (IOT), which he believes is making a huge change. “It is a much easier implement such a change because manufacturers have been collecting data in the factory for many years,” he says. “IOT simply enables that process to occur over an internet connection. Users are flocking to such solution to measure pressure, temperature, wind, vibration, weather.”
What might be the next key developments to look out for in the world of ERP software over the next year or two? Over this period, Chester doesn’t think we will see any stark innovations/developments other than progress to those trends/innovations that he has already outlined in this report. “It’s a question that reminds me of Amara’s Law, named after the Roy Amara, which states that we tend to overestimate the effect of new technology in the short term but underestimate the effect over the long term,” he says. “So, will the ERP software industry look much different in 1 to 2 years from now? Probably not. Will it look much different in 5 to 10 years from now? Yes, and probably profoundly so.”
Spotts believes that integration of systems will continue to improve and will flourish. “The dream of a plug and play ERP system made up of multiple vendor components will come closer and closer to reality,” he believes. “Some of the drivers include subcontracted manufacturing, international procurement, availability of more and more standard functionality.”