ERP II: Its Alive!
About this time last year, as the stampede to the Internet and e-business grew, you could stick a fork in the ERP market. It was dead. Muerto. Not alive.
Enterprise resource planning, common wisdom held, didnt fit e-business. Not only were most ERP software suites still based on outmoded client/server technology, they focused on improving internal processes such as finance and accounting rather than using the Web to reach outside the enterprise to customers and suppliers. So, much to the chagrin of big ERP vendors such as SAP AG and PeopleSoft Inc., many enterprise customers that had spent much of the 1990s on big-bucks ERP deployments began to shift their IT spending elsewhere.
But not Turner Industries Ltd., in Baton Rouge, La. While others were burying it, Turner, led by CIO Patrick Thompson, was breathing new life into ERP. Even before the companys ERP vendor, J.D. Edwards & Co., had rolled out a fully Web-based version of its software suite, Thompson and Turner Industries built their own Web front end to Edwards World ERP product to give customers real-time information from their systems via Web browsers. Now, hes working on allowing Turner Industries employees to access and collaborate with the companys human resource systems over the Web.
The payoff? Its been huge. By allowing customers to do business with it more easily, the ERP-to-Web extension project has contributed to the construction companys growth from $290 million in revenues in 1994 to an estimated $800 million annual rate today. Now Thompson is in the process of migrating Turner Industries to J.D. Edwards full-blown Web-based ERP release, OneWorld Xe, over the next four years.
"ERP is the kind of project that never dies," Thompson said. "My feeling is that a company without ERP is like a Mercedes without tiresyou arent going far without it. Extending ERP has proved to be our competitive advantage."
Thompsons move to embrace and praise ERP, not bury it, is becoming more common, experts say, as companies realize that the business management system is crucial to conducting collaborative commerce online. Companies such as Turner Industries, Owens Corning, Super Discount CDs & DVDs, and Crestone International LLC, having spent millions of dollars and years deploying ERP, are now building on their initial investments and making ERP a critical component of their e-business strategies. Their goal: to link ERP systems to the Webeither by migrating to a new generation of Web-based ERP products or extending existing ERP suites themselvesto open traditionally closed systems to partners and customers. In the process of moving to what market research company Gartner Inc., in Stamford, Conn., calls ERP II, many e-businesses hope to create true online collaboration and responsive supply chain processes.
Not that IT and e-business managers are entirely satisfied with every aspect of their past and current ERP investments. Deployments can still be complex and costly, and many ERP vendors still lag in their efforts to roll out fully Web-based versions of their products. Still, experts say, the trend at many companies today is to reinvest in ERP and pull it into the mainstream of e-business.
"ERP will play a large role as the foundation for a lot of things," said John Bermudez, an analyst at AMR Research Inc., in Boston. "The corporations that put in a lot of time and effort into ERP will benefit because theyll have things in electronic format, improved business processes and cleaned-up data. This will allow them to move into e-business much easier than those with a haphazard collection of systems that dont work that well."
The search for results
The fact is, e-commerce didnt kill ERP. It only increased the need for integrated back-end systems to Web-based front-end processes, experts say. A survey of 60 IT managers by PA Consulting Group Ltd., in London, showed that while 92 percent of IT managers were dissatisfied with results achieved to date, more than 80 percent of organizations surveyed are investing more money in their ERP systems, hoping to gain value from their existing investments.
The level of those commitments to extend and Web-enable ERP systems wont equal spending on initial ERP deployments. Still, experts say, they will be significant. AMR in October estimated that spending on ERP applications, which averaged 42 percent of IT budgets last year, will represent about 37 percent of IT budgets next year.
After dragging their feet, traditional ERP vendors, including SAP AG, J.D. Edwards, PeopleSoft and Microsoft Great Plains Business Solutions, a division of Microsoft Corp., are beginning to take advantage of renewed enterprise interest in ERP to support e-business. All have already rolled out Internet-enabled modules and versions of their software platforms.
And, while it remains to be seen if the big ERP vendors have rearchitected their strategies and products fast enough to satisfy customers, their efforts in some cases are beginning to pay off in improved financial performance. PeopleSoft, after faltering badly last year, recently reported a first-quarter earnings increase of 228 percent over the same period last year. SAP in the first quarter announced a similarly substantial increase.
Some organizations didnt bother to wait for their ERP vendors to get around to delivering Web-based versions of their products.
Consider Turner Industries. Turner is a large, diverse construction corporation with over 100 job sites and 14 regional offices. Thompson purchased the AS/400-based World ERP platform from J.D. Edwards in 1993 primarily to streamline the operations of two businesses, the companys construction services line and its fabrication services line. Combined with Primavera Systems Inc.s P3 scheduling applications and custom-built project control and estimating systems, the ERP package was part of a systemdubbed Interplanthat Turner Industries used to run its construction, turnaround, shutdown and maintenance projects.
In 1996, Thompson and other Turner Industries executives decided to give customers real-time online access to information in the Interplan system. Rather than communicating with Turner Industries via fax or even e-mail, customers could access information more quickly themselves. As part of an upgrade to the OneWorld next-generation J.D. Edwards suite running on IBM Netfinity Web servers and AS/400s, Thompson used proprietary middleware to extend his ERP system to the Internet, translating World character-based screens into a GUI.
Last year, Thompson chose to take this interim strategy one step further by moving on to the OneWorld Xe Web-based platform to increase collaboration with customers and suppliers.
Using OneWorld Xe and a business intelligence software from MicroStrategy Inc., Thompson plans to build a portal that will allow managers to access information about particular projects. Through the portal, employees on remote job sites will be able to set thresholds and receive early warning alerts when a job is in trouble.
"You cant have collaborative commerce without ERP," Thompson said. "ERP is the backbone, the back office of the organization, but its also become more of the storefront and the front office as well. If you dont have good ERP, then chances are your collaborative commerce will be up against some big odds."
Thompson estimates the company spent $2 million on its initial ERP deployment. Compared with that original investment, the cost of subsequent enhancements has been "nominal," he said.
Building on a foundation
Like Thompson at Turner Industries, officials at Owens Corning said they wanted to make sure channel partners had up-to-date information online.
To that end, the company has been investing in allowing business customers and channel partners to access ERP information directly over the Web and to collaborate with the company online. Eventually, like many companies, the idea is to give supply chain partners direct online links to back-end systems and processes such as order and inventory management and customer relationship management.
The builder of material and composite systems, in Toledo, Ohio, began planning its ERP system back in 1995 and began deploying the projectcalled Advantage 2000in 1996. The goal at that time was to build a common and global architecture that would tie the corporations subsidiaries to one platform and one set of common business rules. Meeting Y2K compliance for a number of its systems was also a concern, said Paul Fortner, director of e-business and new digital technologies at Owens Corning. Now Fortner wants to build on those common processes and that common information.
"A quality ERP engine behind the scenes will allow us to be very effective in the integration of technology into all areas of operation," he said. "It really comes down to having a set of robust processes behind the curtain. When you dont have someone to translate that status code, it defeats the entire purpose of e-business."
Owens Cornings first step toward opening ERP systems and processes to online access by partners has been to upgrade its R/3 system to Version 3.1.1. The company has also added components of mySAP.com to its environment. Products such as SAP Advanced Planner and Optimizer allow Owens Corning to share demand forecasts from its customer base with suppliers and partners online and participate in e-marketplaces. Customers are able to access the Owens Corning system to order new supplies and determine their delivery times.
Owens Cornings next step will be to move to SAPs fully integrated Internet-enabled platform, R/3 Release 4, next year. The company is looking at SAPs other portal products as well.
Already, the strategy is paying off. The company, Fortner said, is better able to anticipate and meet customer orders, and thats resulting in better customer service ratings.
"Our processes have enabled us to improve our ability to meet our customer commitments," he said. "ERP just seems to be a project that continues forever. The one lesson weve learned over time is that continuous improvement is always possible."
Even companies that have been subjected to ERP deployment hell say their investments will pay off and that ERP will be a key part of their e-business strategies.
Upsilon Corp. subsidiary Super Discount CDs & DVDs, of Irvine, Calif., for example, ended up suing the integrator it hired to help it deploy Microsoft Great Plains Business Solutions eEnterprise Version 5.5 ERP package in 1998. Still, CIO David Hurwitz said hes convinced that the Web-based suite will enable his company to reduce payroll processing costs and fulfill orders faster.
"I am always shocked when people don?t look to develop ERP and add benefit to their system because there?s so much you can do around collaborative commerce," Hurwitz said. "The people who think ERP is dead just dont understand what its all about."
Katie Dailey, a project manager at Crestone International LLC, based in Suwanee, Ga., which will finish its upgrade from PeopleSoft 7.5 to the Web-based Version 8 in June, agreed.
"Rather than fade, ERP has become even more critical for us," Dailey said. "We operate over the Internet, and our consultants use it as their main means of communicating with us. It was a requirement to have an Internet-enabled suite in order to streamline the business."