The new world of ERP

Posted on 12 Feb 2010 by The Manufacturer

Sally Waterston, director of Business and IT consultancy Waterstons, on new developments in ERP.

It is ten years since the last boom in sales of Enterprise Resource Planning (ERP) solutions. Given that five or six years was always considered a reasonable life expectancy for this type of application, due to the speed of changing technology, one would expect a similar surge in sales to have occurred during the past few years. It is interesting to contemplate what factors, other than current financial ones, have led companies to retain their old applications and whether new applications have kept pace with the sector’s needs.

Sally Waterston, Director at Durham based IT Consultancy Waterstons comments, “It is possible that some of the apparent lack of enthusiasm for new applications stems from a general dissatisfaction with implementations done in the past.” A recent whitepaper sponsored by Oracle and published by the Economist Intelligence Unit ‘Technology and growth in mid-sized companies’ indicated that 60% of the 535 companies surveyed did not believe their software packages were effective and they were actually inhibiting growth. Many solutions have been around a long time with a philosophy and structure grounded in mainframe ERP solutions of 20 or 30 years ago.

Yesterday, relationships between manufacturer and customercould be rather remote. Some manufacturers made product to stock, some made product to order. Products were designed based on market research; manufactured and sold to customers. Within this linear process supplier and customer held discrete responsibility for specific stages in the product lifecycle. The classic KPI was usually OTIF (On Time In Full); salespeople were accused of overpromising, and not managing customers’ expectations; manufacturing managers argued and squeezed quarts out of pint pots- sometimes at quality’s expense.

Today supplier/customer relationshipsare closer and more demanding. To maintain market share manufacturers embed themselves within their customer’s supply chain and embed suppliers into theirs. They must be able to respond quickly and appropriately to constant buffeting fromfast, unpredictable winds of change. The key question is whether software vendors have recognised this and can react to change as quickly.

Product Lifecycle Management (PLM)

There is an emphasis on collaborative design. PLM systems which used to be the prerogative of the fashion industry now sell to more traditional Engineer to Order (ETO) companies designing and making everything from electronics to undersea cables in collaboration with customers and suppliers down the supply chain. PLM requirements are more sophisticated than the product configurator modules offered with traditional ERP solutions.

Product information is much more complex. Gone are the days of an annually reviewed static bill of materials, or even dynamically created bills of materials made to order. Waterston explains “Products evolve quickly; up-to-date information must be available across departments, companies and worldwide because of overseas manufacturing and outsourcing. To minimise errors and ensure that time to market is as fast as possible every node on the supply chain needs access to the most current information.” Document sharing and collaboration is essential, providing drawings, legal documentation, shipping information, pricelists and detailed bills of materialsacross departments and companies in realtime. Complexity has exponentially increased.

A product’s cost is not just made up of labour and materials. Design costs, shipping costs, allowances for quality, packaging and post-delivery servicing all must be accounted for. Value-add elements can include software, administration, services and unforeseen costs.

Because the route to market is complex, workflow is a critical component of successful product delivery. Design and manufacturing stages are no longer linear, making it vital that everyone in the chain understands the critical path to market.

Well-respected ERP companies such as IFS and Oracle now offer PLM functionality to model collaborative processes through a complete lifecycle from iterative design, through manufacture, deployment, post-saleservicing, and product disposal. Waterston comments “It is an important selection criterion to identify sector focus; some vendors target specific markets, some applications have been adapted and configured for specific sectors by partners.”

Post Implementation Agility and Service Oriented Architecture (SOA)

Another complaint addressed at ERP vendors is the high cost of ownership. Modifications before or during implementation, and most significantly post-implementation (when changes are instigated by customer demand) must all be included in calculating costs. A recent survey report by CFO Research Services (‘the High Cost of Change in ERP’) claimed that 80% of respondents had made significant changes to the package implemented. The costs and risk of change can be prohibitive, leading to disappointment when processes are left outside the system (often on spreadsheets).

A new generation of agile ERP solutions claims to address this problem using SOA (Service Oriented Architecture), a philosophy allowing processes from one or many applications to be broken into manageable pieces of functionality. These can be linked together in a chosen sequence or sequences using workflow and data exposed by one application or module can therefore be accessed by another; theoretically meaning operations can be linked together in a chain which can be broken and resequenced without requiring bespoke development. Different applications share a common user interface. Changes can be made to processes very easily. It should, for example, be easy to add a step into a process to manage re-packaging or sub-contract work. Some of these systems are fairly new, so it is important to see them working and configured.

Software as a Service (SaaS)

Another newer option in the ERP scenario is to operate SaaS where applications are web-based,with data hosted ‘in the cloud’. Some vendors are experiencing success in this area; among them Netsuite and Plex Online. Benefits of this approach are reduced initial capital investment and implementation speed. Downsides include higher annual revenue costs and discomfort with the concept of data being ‘out there’ in the cloud, not under direct control. It is likely that among SMEs resistance will reduce if costs can be proved to be lower. Many SMEs have operated web-based CRM applications for some time.


Sally Waterston explains: “A new generation of vendors and applications are attempting at least to keep up with changes in the manufacturing world. Technology is moving on and manufacturing companies should expect much from their software in terms of agility and a greatly reduced cost of ownership. Informed research is as essential to success as detailed planning of the implementation.”