ERP: What does it mean to us today?

Posted on 1 Mar 2010 by The Manufacturer

The wonderful TLA ERP. We have heard this term used for last two decades, but what does it really mean and, in particular, how does it help in today’s changing world. Well, let’s start by expanding the TLA: ERP stands for Enterprise Resource Planning.

Let us return to the 1970’s, when I left university and joined Rolls Royce as a commercial postgraduate apprentice. The key was to be able to plan our build production schedule, working back accordingly to determine the material resources we would need to use. Materials Requirement Planning (MRP) and its development, MRP II, was some of the first software I used; a whole weekend to get the plan for the repair and overhaul line, and God help us if the punch cards were dropped or out of sequence! But of course there are other resources that we need to plan: human, financial, etcetera. And so, in 1990, the term ERP was born — coined by Gartner. defines ERP as, “An amalgamation of a company’s information systems, designed to bind more closely a variety of company functions including human resources, inventories and financials while simultaneously linking the company to customers and vendors.”

ERP software packages are based around a single premise: their ability to manage all the information and functions of a company, from shared data stores in a seamless manner. We can expand this definition by stating that an ERP system typically has modular hardware and software units and services that communicate on a local area network. The modular design allows a business to add or reconfigure modules — perhaps from different vendors — while preserving data integrity in one shared database that may be centralised or distributed.

An ERP package, therefore, consists of a number of function silo support components on top of a common infrastructure. The key is that the software vendor has incorporated best practice into the processes supported in the package. On top of this, the vendor provides the ability to customise and extend the package to fit special requirements of the purchaser. The current modular structure in the majority of current ERP packages is still based on functional silos.

A changing world
With money being tight, companies are looking evermore closely at their investments. When it comes to ERP, however, for some the question remains unanswered. So what are the business issues that ERP has to cover, and what do these mean to way ERP has to work? Table 1 gives you my list.

SAP Business Suite has had a major focus on this — customers can install just the functionality they need.” It can be seen that Agility also means speed of adopting new innovation, leading to speed of implementation.

On the effect of social networking on ERP, Rick Veague, chief technical officer of IFS North America, says, “Enterprise 2.0 and social media tools are designed to draw information out of people, to get them to talk. This will become more of a business critical issue as the current generation of senior manufacturing operations and maintenance professionals prepare for retirement, only to be replaced by a smaller, less experienced but more technologically sophisticated generation.” Crampton-Thomas also sees that the incorporation of social media will lead to new business applications where the ability to handle unstructured data will be key. Both he and Hammann see this working hand-in-hand with mobility technology.

“Mobility isn’t new, but has massive potential,” he says. “Combined with social media/networking tools, it gives the ability to provide consumer oriented applications on mobile phones where high degree of collaboration and networking adds value.

Currently, the keyboard facilities on these devices can be restrictive.” Support for mobility using appropriate user interfaces is, quite clearly, a further criterion for successful ERP.

As economists and financial analysts suggest that the global economy is moving towards recovery, the focus is very much on operational and strategic initiatives that will help to position companies for the upturn. Visibility, collaboration and control across the global supply chain are key, with successful strategies in these areas separating the industry leaders from the laggards. This means real time location and associated details are crucial, ERP having the ability to work completely in realtime across the whole supply chain of different companies. If we couple this with the green collaborative supply chain initiatives of sharing loads and routes to reduce carbon footprints, I see that there is a need for open integration across supply chain software and ERPs.

A recent article on ERPWire stated, “Formerly, ERP was purely restricted to fortune 500 companies, in the sense only they could afford to invest on them. This put the small and medium industries at a large disadvantage, as they were not able to make use of the application to gain the necessary benefits. However, this drawback has been removed after the intervention of open source facilities. The concept of Software as a Service has also helped in removing the difficulties faced by small and medium enterprises.” The current battleground for ERP vendors is undoubtedly, therefore, the SME market.

ERP for tomorrow
The term ERP II has been coined to describe the new ERP models that we need in the 21st Century.

The term was first used by Gartner in a research note, and was defined as, “A business strategy and set of industry domain-specific applications that build customer and shareholder value by enabling and optimising enterprise and interenterprise, collaborative operational and financial processes.” ERP packages of the future must have, I believe, two key capabilities. Firstly, software licensing needs to become increasingly flexible. SaaS and SOA componentisation must be available to allow companies to purchase only what they need, in a way that meets their budgets, and to be able to integrate without any issues. Jon Reed, an independent analyst, SAP Mentor and blogger at, writes, “I think the economy is a game changer. Even when it returns, it will return in a way that will support different ERP business models than have been dominant in the past. Companies that can re-invent themselves, with more flexibility around service offerings, that’s going to be key.”

Secondly, ERP must have the ability for users to use any type of mobile device — from mobile phones to computers to access the information when and where they require it. Mark Soden told me, “Twenty-first century workforces will demand increasingly flexible and up-to-date software that responds to the expectations set by consumer software. Thanks to the structural strengths of SOA, systems can now be more agile and responsive to such demands. As more manufacturers adopt social media aspects and integrate with their ERP systems, the benefits of enhanced usability will continue to accelerate a revolution in the enterprise software user-experience.”

James Maguire holds that, “The dream of enterprise resource planning systems is that a single application can track and monitor all of a business’s functions.

In a perfect world, a manager opens a single ERP app to find data about any aspect of the business, from financials to HR to distribution schedules.” Companies wanting to automate their processes using IT services have to clearly know what they want from an ERP before thinking of implementing them. David Wood, head of inventory and logistics at MSI Defence, who recently chose IFS as their ERP, told me, “Our ERP system was some 25 years old, and not compatible with the changes in our business. We are a very projectrooted business, with a large amount of iteration of design changes. Support for engineering change, therefore, was also important. Our other business need was for support for service management to provide the necessary services for our overhaul and repair business. Knowing these requirements was important in helping us make the choice of ERP we have made.”

So the ERP package has to be process and event driven, rather than transaction driven. It has to have fewer moving parts and allow configuration to be minimised as well as much easier to perform — not forgetting faster. We are looking for ERP packages to be modularised so that not only can we choose only the ones we are interested in, but be able to integrate based on standards to other packages with no issues. Our future users are much more computer literate than the current generation, but they are used to instant gratification from wherever they are. Our future ERP must accordingly have new user interfaces such as queries in texting language, carousels and other iPhone-like capabilities.

Lastly, software licensing must be more flexible; not only in terms of costs for maintenance, but in recognition that manufacturing has different capex life cycles than software. I’m not asking for much, really, am I?

Visit ERP CONNECT 2010