Enterprise Resource Planning systems have become the core platform for both internal and cross-company business processes. By integrating business functions, data and interfaces, they can bring many benefits, process efficiencies, improve customer service and — if coupled with the right business strategy — amplify business advantage.
The main reasons to use ERP, and the main reasons ERP is so visible in a company, are really business drivers, and include such motivations as:
- Compliance with industry standards or regulations;
- Customer mandates (avoiding chargebacks and minimizing returns, for example);
- Supply chain economies and opportunities; and,
- Competitive pressures (customer retention, rapid response).
Because ERP systems are so central to business planning and operations activities of so many companies, they are often the focus of CFO as well as CIO attention. Thus, the ERP vendor usually gets the full attention of the executive team, not just because of the importance of their product to the business, but because of the implementation cost or complexities involved.
Things Left Unsaid
In the process of discussing a system and implementation, there are certain things the ERP vendor may leave unsaid. If you as the customer don’t know to discuss them, they could come back to bite you later. Well-prepared customers can control their own destiny.
ERP is no longer for internal applications only. The latest releases from the ERP vendors like SAP, Oracle, etc. are focusing more on value-chain business functions and processes, rather than strictly on internal business functions and processes. They see their customers participating in business networking, and apply more emphasis on implementation monitoring and management of business processes across enterprise boundaries, and on partner-specific business processes. Achieving that vision requires a much higher level of customization, and also much greater emphasis on integration.
So, the ERP vendor tries to keep things as simple as possible. In the process, it might be easy to miss items like these five caveats.
- ERP Systems in and of themselves do not impart business advantage, the key words being “in and of themselves.” They are critical core systems in achieving competitive advantage, but what really delivers advantage is unique capability in your market. And that normally means some degree of customization, integrating — as much as possible — the ERP system with other internal and external systems. Integration does pay off, according to IDC Research, which says that revenue gains may range from 7 to 16 percent, cost reductions from 9 to 15 percent. So this suggests that ERP is just the first step, not the ultimate destination.
- Integrating your ERP with other applications can be complex, expensive and hard to control. A company has a certain degree of choice as to how difficult this might be. Every one of these connections is an opportunity to do something well or not-so-well. The result depends on a variety of factors: business strategy, how a company chooses to implement integration solutions, flexibility to change and more. Almost every company is going to be faced with application integration, not just with internal applications but with business partners as well. These integration points are critical to the overall success of an ERP project. Estimates vary, but integration costs can range from twice the cost of the software itself to 10 times the cost of the software. This will vary not just by the cost of the software but by the ambitions that a company may have regarding its ERP projects. So the cost and effort of integration is not a trivial consideration, by any stretch.
- Most ERPs lack adequate support for B2B integration, which can be very important for a company. Besides the obvious operational aspects, business intelligence aspects are important to success. Companies must be able to integrate with partners, implement touch-points, answer questions and implement operational considerations. B2B integration requirements are significantly beyond what most ERP vendors provide.
- ERP integration is a process, not a project. There will not be a point in your ERP integration effort where a company will be able to say “We’re done.” The reason is simple: A business changes constantly, and its systems must reflect the change. Any changes that occur to your supply chain, your customer relationships, your internal business processes, will have a ripple effect on your integration touch points. Flexibility is essential, and in order to maintain that flexibility, interfaces between systems should be isolated (partner and ERP, for example), which protects the system from the impact of change. Be able to implement changes quickly. Don’t look at integration as a one-time requirement; you’ll need to live with it forever. Integration can be a necessary thing, in order to circumvent rigidity or complexity in trying to implement requirements within the ERP system itself. It can be simpler to implement outside the ERP system, using tools that make it fast and easy.
- Your vendor’s ERP integration strategy might not fit your non-ERP integration needs. Over the past 10 years, ERP vendors have begun to appreciate the importance of integration. Beyond the intra-enterprise applications, the concept of business networking has really taken hold. Most large vendors provide some built-in capabilities to do integration. However, there are cases where what the ERP vendor provides is not adequate. How do you solve those integration solutions beyond their ERP? You may be able to use the vendor’s tools, but generally speaking, these vendors put primary focus on the capabilities of their own application. The may not be really interested in SAP working with Oracle Financials, for example. Look at all the options, and see what approach is best. The options include manual coding; point solutions; an integration broker; integrated ERP services, and the ERP infrastructure.
Companies can address most or all of these issues by realizing that help will likely come from beyond the ERP vendor’s own resources. By paying attention to these details, especially planning on the integration before the ERP system is installed (or worse, deployed), companies will be better equipped for success.
James O’Leary is vice president of product management at Extol International, provider of B2B and internal integration software for resource constrained companies.
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