Ray Richards is founder of Mindspan Consultants and a technology journalist hailing from Ottawa, Canada

Skip site navigation and move to main content of page.

Enterprise Resource Planning

In the perfect IT environment, all business processes would be supported by a single application which managed every aspect of departmental interconnectivity, utilizing a single database from which a fountain of relevant business intelligence might be extracted by any smiling worker that so desired — Xanadu! This is the golden promise of enterprise resource planning (ERP) software manufacturers. These companies are intent on tapping the enormous global market of corporate bodies currently struggling with business unit synergy, resulting from dependence on discrete applications. Has this vision been realized in actual production environments to the satisfaction of users? Well, that depends on who you talk to. While ERP has become vital to the competitive survival of numerous organizations, it has become a millstone about the necks of many others. In this article we will investigate the burgeoning interest in this technology and discuss some of the common pitfalls associated with its implementation.

The Players

Lately it seems that everyone has jumped aboard the ERP bandwagon — and with little surprise: the market, currently enjoying 14.8 billion dollar revenues, is projected by a recent AMR study to top the $52 billion mark by the year 2002... an incredible 350 percent increase over 4 years. While JD Edwards has been gaining momentum lately, SAP, The Baan Co., PeopleSoft, and Oracle are currently vying for top dog status in this extremely lucrative marketplace. In terms of revenue, SAP and PeopleSoft have recently pulled ahead of the pack, occupying first and second place respectively. Posting second quarter earnings of $1.2 billion, SAP has enjoyed a 59 percent increase over the same period in 1997, while PeopleSoft garnered 73.8 percent growth to revenues of $320.5 million for the same quarter. Having recently signed numerous high profile deals including contracts with both the German Federal State Department and aerospace giant Pratt and Whitney, in addition to strategic application development alliances with IBM and Microsoft, SAP appears poised to dominate the ERP market in upcoming months.

Why Now?

Fueling the migration fire, Y2K has certainly been a potent catalyst for ERP product deployment. As both public and private sector organizations examine their key systems for compliance, the necessity for replacement of dated business processes and applications in support of them has become evident. Unfortunately, the exigency of year 2000 concerns has led to many ill-conceived implementations of ERP software solutions. The main reason for this is the failure to sufficiently address the third component of the acronym. Planning is of paramount importance when concerning implementations of this magnitude and requires ample time to complete diligently.

What can it do for Me?

The main impetus behind the development of ERP software solutions has been the private sector's desire to more effectively manage their supply chains. In fact, this aspect of conducting business is so crucial to sustained growth and success that companies are beginning to compete on this basis alone: my supply chain vs. yours. When you consider the fact that entire production cycles can grind to a halt should materials become unavailable due to improper management of the chain, you begin to comprehend the significance of this concern.

With the advent of ERP solutions, companies began to be able to ensure that this situation would never arise; as the responsibility for stocking was shifted to the supplier via electronic links to the company's inventory database. When stock levels reach a predefined threshold, suppliers are instantly made aware and take appropriate action. Customers too may be linked to the manufacturers systems in order that orders might be expedited and sales predictions facilitated. Information regarding all aspects of inventory is made available throughout the enterprise: enabling accurate forecasting and reduction of delivery cycles, empowering the sales-force with the data required to quickly and effectively respond to customer queries and allowing companies to reap the rewards of increased market awareness via the implementation of data warehousing and mining technologies.

The public sector may benefit from ERP in many ways. Tighter departmental integration lessens duplication of effort, reduces project cycle times, facilitates intradepartmental accounting and provides for the streamlining of business processes. Standing offer call ups and inquiries might be handled automatically, especially those concerning routine equipment and office supply purchases, thus drastically reducing the length of the cycle and increasing manpower availability for more complex concerns. Supplier performance metrics could be analyzed and lead to service improvements as well as elucidate competitive comparison.

Resistance

It is natural that the adoption of new technology invariably meets with some resistance; however, this reluctance seems to be even more evident as pertains to proposed ERP implementations. This stems from the myriad of concerns associated with a migration of this scope, chief among them capital expenditure. It is a well-known fact that the real cost of ERP solutions lies not in the initial software purchase but in the planning and implementation phases. A modest sized corporate licence price of $100,000 appears paltry in comparison with the up to $10 of associated professional services required per every dollar of software purchased. All this for a project that, unless masterfully contrived and executed, is doomed to certain failure. Secondly, as ERP packages are becoming increasingly web enabled, security has been brought to the fore as a major concern. Exposing sensitive data to this medium still gives the majority of organisations the willies, despite numerous advances in encryption and secure access technologies. The bandwidth and computer horsepower required to support this extranet is often not inherent in existing corporate infrastructures and leads to the utilisation of additional capital and human resources. It is therefore quite easy to see why even the most zealous technology advocates get nervous when the purchase decision rests with them.

A Few Caveats

When planning an ERP implementation it is often difficult to draw upon industry "lessons learned" through application of best practices; as each installation is so unique that it practically precludes methodology adoption by foreign organisations. There are however, certain maxims that may be followed. "Buy, don't build" is the best strategy when considering whether to customise vendor's products to suit existing departmental business processes. It is far preferable to slightly alter process to correspond with software functionality once, rather than to be forced to write code every time a new revision of the product comes out. If this proves impossible, have the vendor provide the modifications, or search for another package that more closely suits your environment.As previously stated, this is an extremely competitive market, and as such, vendors are often willing to program modules to specification. "Plan to train or prepare for pain" is a statement that certainly holds true in reference to ERP rollouts. As over 90 percent of implementations run late and over budget as a result of inaccurate estimations, adequate attention must be given to the most commonly underestimated project component: training. Gartner Group suggests a figure of between 10 and 15 percent of overall project budgetary expenditure should be allocated to training in order to satisfactorily provide for this element. Those ignoring this advice should be prepared to face large cost overruns and a frustrated user community. "Buy only what you need" seems to make sense to most. However, when faced with the dazzling array of options available in ERP packages, many succumb to the siren song of product vendors at their peril. Just because your organisation can accomplish hitherto unconsidered operations utilising the power of these applications doesn't necessarily mean that it should. Often these divergences result in time consuming BPR and the costly mistakes inherent in attempting to make the business model fit superfluous software functionality.

To Sum Up

Although the journey toward successful deployments of enterprise resource planning software solutions is fraught with danger, the potential rewards certainly justify the exercise. The meek shall not inherit the earth, but the dust of their competitors. Over the upcoming months we will discuss the individual products in greater detail and examine ongoing implementations within the public sector.

Originally published in Government Computer Magazine, October, 1998, by technology columnist, Ray Richards.

Sidebar

Article Index