ERP hits its quarter century

Posted on 27 Mar 2015 by Malcolm Wheatley

Far from moribund, Enterprise Resource Planning software continues to evolve, finds IT Contributing Editor Malcolm Wheatley.

Believe it or not, it’s exactly 25 years since analyst firm Gartner Group coined the term Enterprise Resource Planning, commonly abbreviated to ‘ERP’. Now a vast $25 billion global market, it is still dominated by the German software company that Gartner had in mind when coining the term: SAP, which together with Oracle accounts for a full third of ERP sales.

The software itself existed long before 1990, of course. First, as MRPI—or Materials Requirements Planning – which had been around as a reasonably mature product since the 1970s. And second, as MRPII, which aimed to plan and manage a broader set of resources, including labour.

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And from MRPII it was but a small step to bolt on the accounting capabilities and sales order entry functionality that was required in order to get pretty much everything that is needed for a basic ERP system.

But 25 years on, today’s manufacturers want more than a basic ERP system. Much, much more than a basic ERP system. Because as ERP has evolved over those 25 years, the old view of ERP as a competitive leveller has turned 180 degrees.

ERP as a competitive leveller? Let’s step back a moment. Once, sceptics asked what competitive differentiation ERP supplied, in a world where every manufacturer ran ERP systems that were largely the same. At the time, it was an argument that had persuasive logic – hence the appeal of niche ‘best of breed’ software solutions, as a counter.

But today, manufacturers understand that ERP systems needn’t be all the same – and that a business with a better ERP system, or with an ERP system that was more appropriate for its needs, was indeed in a genuinely stronger competitive position than its peers running ‘me too’ generic ERP systems.

In short, ERP has become the exact opposite of a competitive leveller – prompting manufacturers to seek out those better ERP systems, and craft them ever more closely to their needs.

So what exactly are manufacturers looking for in ERP systems these days? And what exactly is it that constitutes a ‘better’ system? Look closely, and some broad trends are evident.

Custom-built, but off-the-shelf

The first trend can roughly be summarised as ‘improved functional fit’. In short, manufacturers are looking for systems that come ever closer to the specifics of their own industry vertical and own business model.

It’s a move that isn’t without its internal tensions, of course. ERP systems were once used to re-engineer business processes, and even today in-built ERP processes are marketed by many vendors as proven best practice that is usable ‘out of the box’. So the more that a manufacturer customises the ERP solution, the greater the risk of departing from best practice.

Manufacturers are looking for systems that are closer to the specifics of their own industry vertical and business model.

Industry-specific templates going a long way to plugging the gap. Available from either vendors directly, or from their development partners – Microsoft in particular has a rich eco-system of such partners—they’re a way of getting a better fit, but without departing so radically from best practice.

In the world of electronics, for instance, a decent solution needs to be good at managing things such as Bill of Materials ‘back flushing’, and customer-supplied parts. The food industry, too, needs capabilities such as reverse bills of materials—taking a chicken for instance, and making multiple products from it. Likewise, the automotive industry needs lineside sequencing capabilities, while other industries need strong project management and build-to-order functionality.

So look closely at leading ERP vendors – companies such as Infor, Exel, Syspro, Microsoft and SAP – and you’ll see rich capabilities in all these areas, becoming ever-more refined and fine-tuned as the years pass, and as business models change.

Cloud deployment and ‘ERP as a service’

The second broad trend can best be summed up as an evolution in the relationship between a manufacturer and their ERP vendor. Once the model was simple: choose a system, install it on your server, and pay the appropriate licensing fee.

Cloud-based deployment disrupts that. Not only are there no longer any ‘on-premise’ servers to worry about, but the whole business model can also move to ‘ERP as a service’, paid for monthly, with software updates continually rolled out as the vendor delivers enhancements.

And talk to ERP vendors such as Infor and QAD, and the statistics in respect of cloud deployment are impressive, with QAD reckoning that around a half of all new ERP deployments are cloud-based, rather than on-premise.

Supply Chain Cloud
Cloud-based deployment disrupts the traditional ERP model.

No wonder, then, that analyst firms such as Gartner have taken to describing on-premise ERP – especially traditional, heavily-customised, on-premise ERP – as ‘legacy’ ERP.

Device-agnostic mobile deployment

The ERP industry spent years talking about the Cloud before customers really got the message. So too with mobile deployment.

What’s changed? Simply this: the past five years have seen a revolution in mobile device form factors and capabilities. Tablet computers, for instance, and smart phones. And these days, ERP transactions on such devices, using purpose-built apps, involve almost no compromise or limitations due to form factor or processing power.

So given the low price-point of such devices, it becomes readily possible to deploy them in situations where desktop computers aren’t as convenient – such as on the factory floor, in the warehouse, or on the road.

So far, so unexpected. The game changer is that ERP vendors have decided not to try and pick mobile technology winners, but to develop apps for all the main mobile platforms. Microsoft Dynamics AX for Android? You’d better believe it – here and now.

And the really good news is that having grasped the ‘device agnostic’ nettle, ERP vendors are unlikely to reverse tracks. Once again, computing is becoming more open.

Continued development

Roll it all together, and it’s clear that there’s a lot going on, and on a wide variety of fronts.

And that’s before getting into specific technology developments such as in-memory processing, where SAP and Oracle are making waves, and the emerging ‘Internet of Things’ paradigm, where Microsoft is again making the running.

25 years old this year, ERP is arguably just getting into its stride. Interesting times lie ahead.