Taking the pulse of ERP

The traditional, inward-looking enterprise resource planning (ERP) system is morphing into ERP II that goes beyond the four walls and supports supply chain collaboration.

By -- Modern Materials Handling, 2/1/2001

For years, enterprise resource planning (ERP) systems have been something like the Boston Red Sox: perennially loaded with promise, yet always falling short of expectations.

In the early 90's, ERP was touted as the panacea for whatever ailed your business. Whether it was getting your financial house or your warehouse in order, ERP vendors claimed they had a solution to fix the problem.

While some systems delivered the goods, the reality was often long implementation times, cost over-runs, and disappointing results. Users went from a "peak of inflated expectations" to a "trough of disillusionment," according to Brian Zrimsek, research director of the manufacturing applications strategies group, at the Gartner Group, Stamford, Conn.

An entire industry sprang up to provide software applications that would plug the functionality gaps in ERP systems, and to integrate those applications together so they could share information across a business.

Last fall, many were questioning the long-term health of the industry. In fact, Gartner, the consulting firm that created the term a decade ago, claimed ERP was dead.

But Gartner also recognized that the need for an information backbone for an enterprise hasn't gone away. If anything, the need is greater than ever. As e-business becomes business as usual, sharing accurate real-time information about orders and inventory is critical to success. And not just across an enterprise. Now, business needs to move that information across a supply chain.

For that reason, Gartner has coined a new term to describe the enterprise systems for the 21st century: ERP II.

What's the difference? In a word, it's collaboration.

"In 1990 when we coined the term, ERP was enterprise centric with very little awareness of anything going on around it," says Zrimsek. "Today, we're moving towards collaborative commerce, or c-commerce. To do that you have to share information outside the enterprise."

ERP II systems, then, are not just the backbone of the enterprise. They are also the information link for an enterprise in the supply chain. That's because the business of tomorrow is going to play multiple roles in multiple supply chains, from traditional sources to electronic marketplaces.

The challenge for ERP II is two-fold. First, it's to aggregate and manage the data surrounding all the transactions of an enterprise as accurately as possible in real time. Then, it's to open up the system to make that information available to trading partners.

Surprisingly, Gartner has an ally in an unlikely source: the ERP vendors themselves. The talk from solution providers today is not about technological revolutions or even new functionality: the basics of financial, manufacturing, and distribution applications haven't dramatically changed.

Rather, suppliers are focusing on integration with point solutions such as warehouse management software and with systems that have Web-based architecture. Meanwhile, ERP II software is becoming component based, allowing users to roll out new modules quickly, inexpensively, and with little disruption to an existing business. It also lets users bite off only what they can chew when implementing ERP II, a far cry from traditional ERP systems that took years to implement. And perhaps most important of all, this new family of software will have a reach beyond the four walls of the enterprise, promoting collaboration between trading partners.

In fact, it's hard to find disagreement between suppliers about these developments.

"The weakness of ERP solutions in the past was that they could only see as far as the corporation," says Ross Mackie, director of marketing for Supply Chain Products, interBIZ, Islandia, N.Y. "Today, ERP has moved from being insular to being outward facing."

"Going forward, ERP is all about sharing information and collaboration," says Bob Reary, director of product strategy for the supply chain at PeopleSoft, Pleasanton, Calif. "ERP is providing that platform."

"ERP has to be an outwardly looking system rather than an inwardly looking system," says John Bridges, vice president of marketing for IFS North America, Chicago, Ill. "Information has to be shared because the technology is there to allow it to be shared."

"ERP is no longer about your business, it's about your supply chain," says Andy Carlson, director of worldwide marketing for J.D. Edwards, Denver, Col. "Companies need to mold their ERP systems into a Web-friendly, cross-enterprise, collaborative tool."

What's more, collaboration is potentially as important for small- to mid-size enterprises as it is for the Fortune 2000. Even an industry heavyweight like SAP is touting the fact that more than a third of its customers have annual revenues of less than $200 million. Clearly, ERP is no longer just for the big boys.

Zrimsek has identified six key differences between ERP and ERP II systems.

Role: Traditional ERP was concerned with optimizing an enterprise. Internal optimization, however, will only take you so far. ERP II systems are about optimizing the supply chain through collaboration with trading partners.

Domain: ERP systems focused on manufacturing and distribution. ERP II systems will cross all sectors and segments of business, including service industries, government, and asset-based industries like mining.

Function: As ERP systems cross sectors and segments, they will no longer be able to be all things to all people. Zrimsek expects ERP II vendors to pick the industries in which they're going to play, and focus on providing deep functionality for those users.

Process: In ERP systems, the processes were focused on the four walls of the enterprise. ERP II systems will connect with trading partners, wherever they might be, to take those processes beyond the boundaries of the enterprise.

Architecture: Old ERP systems were monolithic and closed. ERP II systems will be Web-based, open to integrate and interoperate with other systems, and built around modules or components that allow users to choose just the functionality they need.

Data: Information in ERP systems is generated and consumed within the enterprise. In an ERP II system, that same information will be available across the supply chain to authorized participants.

Are ERP II systems available today? The answer is yes, but not yet exactly as described by Gartner. "No vendor has all the pieces," says Zrimsek. "But the major players are all working on these systems and each has their strengths."

Zrimsek doesn't expect to see a fully realized ERP II system deployed before 2005. At the same time, few users have addressed the shortcomings in their existing business processes or systems that would allow them to take advantage of an ERP II system. "We've gotten to the point where technology can enable processes that are beyond what most people are ready for," says Zrimsek.

The challenge to business today is to prepare for tomorrow. To do that, they must not just invest in e-business solutions, (which might be in the "peak of inflated expectations" today) but to continually move towards an ERP II solution through upgrades to existing systems. "To truly collaborate and take advantage of e-business companies will have to invest in ERP II systems along with e-business applications," says Zrimsek.

Three companies in particular-Willamette Valley, Cybex, and Eric Scott Ltd.-have already started down the road to reinvent their ERP systems. Each of the three is at a different milestone along that road. Here's a look at the steps each has taken so far and what managers think the new systems will mean to their respective companies when completed.

Cybex:

Shaping up with ERP

Cybex is a Medway, Mass., producer of high-end exercise equipment. With $125 million in annual sales, the company ships more than 200 different products to a network of 150 dealers around the world.

Some products, like treadmills and bikes, are built to stock while weight training equipment is built to order.

Cybex began shopping for a new ERP system in the fall of 1998. "At the time, we had three plants running on three different systems," says Brian Lyman, manager of e-commerce for Cybex. "Our order management department had at least two screens on every order entry person's desk, and none of the systems was talking to the other."

Logistics was especially challenging. A typical order might involve equipment from two different plants that had to arrive at one location at the same time. "When a health club places an order, they don't care what we have to do, they just want us to get it there and get it there on time," says Lyman.

Using a solution from PeopleSoft (800-380-7638, www.peoplesoft.com ), Cybex integrated inventory, order management, and purchasing systems across the company. That allowed Cybex to present one face to both its customers and suppliers.

At the end of 1999, Cybex added real-time order visibility with eCybex.com. Integrated with the ERP system, the portal allows fitness dealers and field sales personnel to place an order for an in-stock item, use a configurator to create a customized piece of equipment, and order spare parts in real time. The system also provides order status and tracking information.

Because eCybex.com is integrated with the ERP solution, a customer order triggers a series of events across the company. The financial system performs a credit check. The order management system sends an order to the manufacturing plant for a custom-built product, or to the warehouse for an in-stock item or repair part. Orders received by 10 a.m. are shipped out that day. Removing an item from stock also potentially triggers a requisition to purchase components for replacement stock. A shipment triggers online tracking through the customers' preferred carrier and an invoice. And it all happens in real time.

In the coming months, Cybex is adding event management capability to notify dealers, customer service reps, and salesmen in the field when a scheduled ship date changes. The company is also experimenting with a wireless system that will allow sales reps to check order status from their cell phones.

"For us, this has become a competitive advantage," says Lyman. "We have some very large competitors, but no one else in our industry is doing anything like this right now. It's kept us ahead of the curve with our customers."

Eric Scott Ltd.:

Expanding customer service with a hosted solution

Several years ago, Eric Scott Ltd., St. Genevieve, Mo., began a transformation process. The company had been an assembly line manufacturer of leather goods from motorcycle saddlebags to covers for personal digital assistants. In the future, it wants to be a full-service provider of product design, contract manufacturing, order fulfillment and distribution, and consulting services in the leather goods industry and beyond.

"We developed a 3D model of the soul of our company," explains Joe Young, director of information systems. "Diversify, distinguish, and develop the company. Our goal was to provide any service our customers could think of to anybody, anywhere, and at anytime."

The first step in that process was to replace the legacy systems running the company's various facilities with an integrated ERP package from Made2Manage (317-532-7000, www.made2manage.com ). "We faced problems in three areas," says Young. "Communications, costing, and e-commerce. There was no way to evaluate information in real time. We couldn't integrate with point solutions from third-party providers, and we couldn't interface with the Web."

Cost cutting wasn't an explicit goal. Rather, the company's aim was to implement a system that would allow them to grow and adapt to customers' changing needs. However, four key improvements were a byproduct of integrating business processes:

• On-time deliveries improved 15%;

• Inventory levels dropped 10%;

• Product shortages declined 10%; and,

• Plant capacity utilization increased 10%.

Last September (2000), Eric Scott implemented M2M VIP, a supply chain management initiative hosted by Made2Manage. While the ERP system resides in-house and is integrated with M2M VIP, Made2Manage acts as an application service provider, or ASP for the supply chain solution. The software provider hosts and manages the solution for a monthly fee based on the number of customers that access the software.

"We realized that if we want to acquire new customers in both the consumer and B2B environment, we have to open up our system and reach out," Young explains.

Now, a customer with Internet access can review Eric Scott's product catalog, request a quote, collaborate on product design, place orders, and review the status of orders.

"We believe opening up our system is going to build customer loyalty by offering better service," says Young. "The cost of not doing it in a global environment might just be that you're no longer in business."

Willamette Valley, Co:

Laying the groundwork for growth

Two years ago, the Willamette Valley Co., a Eugene, Or., producer of adhesives, found itself in a position familiar to many traditional manufacturers. Out-of-date information was slowing the company's ability to expand into new markets here and abroad.

"We ran our business on a legacy system with different databases for each department," says Gerald Nakamura, Willamette's IT director. "By the time you pulled together information, the need for that data had passed."

As an example, raw material wasn't entered into the inventory system until well after it had been putaway, creating a lag before it was available for production.

In the spring of 1999, Willamette assembled a team of twelve senior managers to choose an ERP system. The team identified a series of goals.

• Replace an aging infrastructure with an integrated ERP system that would allow Willamette to meet its customers' needs for quality and delivery.

• Become ISO 9000 X compliant.

• Lay the groundwork for future supply chain management efficiencies after more basic issues had been addressed.

During the first 6 mo of the selection process, the team divided its time between talking to vendors, attending conferences, and evaluating Willamette's business flow and requirements. The company didn't want to automate inefficiency.

Once a business plan was in place, the team approached five vendors with a request for a proposal. Key to the RFP was a conference room pilot simulating their business requirements.

Based on the pilots, the list was narrowed to three vendors who were asked to arrange site visits with references. "We wanted to see how their customers ran their businesses and to hear both the positives and the negatives," says Nakamura.

Following the site visits, two vendors were invited to submit final quotes including application components and implementation costs. They chose IFS North America (847-592-0200, www.ifsworld.com/united_states/ ) last summer, roughly 14 months after the process began.

IFS brought three critical issues to the table beyond functionality. "All the solutions we looked at worked," says Nakamura. "We wanted a vendor that had experience with basic manufacturing companies, and was willing to work with us as a partner in our business. By the time we began to implement the solution, IFS understood our business and how it would work with their software."

Willamette has taken a slow but steady approach to rolling out a new system across the company.

"We've implemented the system in three of our five divisions," says Nakamura. "As we become comfortable with the system, we'll also extend the system to the other two divisions, and then across our supply chain. But first, we're addressing the core components we need to effectively run our business."

Where customer relationship management fits

If there is one new application that illustrates the changing focus of ERP systems, it's customer relationship management, or CRM.

Two years ago, the typical manufacturer or distributor, like the typical ERP system, was focused on ways to increase the efficiency and productivity of internal operations. It was an introspective view of the world.

As businesses connect through the Internet and as customers expect and demand new levels of service, a customer-centric view of the world has evolved.

CRM allows that to take place by managing the relationship with a customer from the point of first contact through the servicing of an account long after an order has been delivered.

That information has often been available in the past only through disparate systems. Salesmen created customer profiles when they first made contact. Customer service departments created files when that contact became client. Warranty and after-market departments created files when issues of service arose. But rarely was that information available in one place that was also integrated with production, inventory, transportation, and finance departments. CRM addresses that short-coming.