Net presents ERP with new challenges

Net presents ERP with new challenges

Something is happening in the ERP (enterprise resource planning) market. ERP vendors have been offering the ability to integrate their software with related, customer-focused management systems and as a result, the ERP market is picking up again, according to market researchers.

Early indications are that the ERP market is showing double-digit growth again after a slowdown in the late 1990s. Worldwide licence and maintenance revenue for ERP systems was worth $US21.5 billion in 2000, according to preliminary figures compiled by Andrew Golloboy, ERP research manager at market research company International Data Corp (IDC), who is in the middle of doing the survey. This represents revenue growth of 13.1 per cent from 1999, when the worldwide market was worth $19 billion. In comparison, IDC's preliminary figures show a growth of 8.1 per cent between 1998 and 1999, when the worldwide market for sold licences and maintenance was $17.6 billion.

The update in sales is ascribed by industry insiders to vendor efforts to link traditional ERP systems with CRM (customer relationship management) and SCM (supply chain management) software, and allow users to access the resulting integrated information over the Internet. ERP systems integration with various third-party software is far from seamless, however, and as a result ERP developers still have their work cut out for them if they want to attract more users and turn what is just the beginning of an upturn into sustained growth, observers said.

Integrating ERP systems with related software packages from different vendors - and letting end users tap into the system over the Internet - is not easy, for ERP vendors or for the users implementing the systems.

"I know a number of customers who have tried to do this, but failed," said Joshua Greenbaum, principal of US-based Enterprise Applications Consulting.

One vendor that has extended its ERP system recently is Dutch software developer Baan, which announced a move to integrate its ERP, CRM and SCM systems with WonderWare's FactorySuite manufacturing management software at the recent CeBIT trade show in Germany. Baan and WonderWare have been affiliated since WonderWare's parent, Invensys, bought financially beleaguered Baan last year.

Another vendor, JD Edwards & Co, announced at the CTIA Wireless show in Las Vegas a deal under which it will support Microsoft's Pocket PC platform for its OneWorld ERP package - another suite of integrated software.

Database giant Oracle is currently marketing its own version of integrated software, the so-called E-Business suite of products. Just like its competitors, Oracle is offering an ERP system that is connected to a CRM as well as an SCM system.

The biggest ERP vendor by far is Germany's SAP with a 35 per cent market share, according to research company Gartner Group. SAP has its own well-known version of integrated software called, a suite of ERP, CRM and other products that can be linked together using Internet portals.

User demand for these types of integrated systems is illustrated, for example, by Swedish ERP vendor Intentia International's recently announced sale of its product suite Movex - a combination of ERP, CRM and other management software - to Luxury Timepieces International, a watch-making unit of Gucci Group.

The reason ERP vendors are now opening up their systems to be linked to other software is that the Internet has changed the fundamental way companies do business. Customers now demand the ability to tap into their suppliers' management software to track orders and information, and this has created a new generation of ERP, according to industry observers.

In the past, ERP systems were designed to integrate various departments within an enterprise - typically, manufacturing businesses - by offering different components. These components - such as distribution, accounting, human resources and factory floor automation modules - could all be linked in a configuration customised to individual companies, with data flowing among the various modules. But the integration remained within the four walls of the enterprise, according to Gartner research director Nigel Raynor.

End users now wants to go straight into a distributor's system over the Internet and see whether a product is in stock before he orders it. A distributor wants to see where in the manufacturing chain a product is at each precise moment, according to SAP chief executive officer Henning Kagermann at a press conference at CeBIT. This means integrating the traditional ERP modules with CRM and SCM software.

"The connection between ERP, CRM and SCM must be integrated in the software solutions," said Thomas Ochs, chief information officer at Villeroy & Boch. The company uses SAP's R/3 ERP system. Also, the vendor must have "a view for the problems and business of their customers", he said.

Nigel Raynor at Gartner agrees, and stresses the importance of opening up the information stored in integrated ERP systems via a Web-based interface, so customers of an enterprise can view appropriate information.

"ERP vendors must open up their systems to use XML (extensible markup language) as the interface," he said. The XML specification for formatting data on Web pages gives more complete information about data than HTML (Hypertext Markup Language), and can be used by different software programs to share data over the Internet.

Also, some vendors are developing their own middleware to connect systems together. JD Edwards, PeopleSoft and Oracle are doing this, Raynor added.

"We are calling this ERP2," said Raynor.

In other words, a company should be able to use the systems so that a customer who wants to order, say, 10,000 shoes from a shoe manufacturer logs onto a CRM system over the Internet, said Enterprise Applications Consulting's Greenbaum. The customer places an order which is then processed by the CRM system. The system checks the customer against an existing database to see if the customer has any specific requirements or outstanding debts, for example. If the system gives the okay, then the order can be fulfilled, he said.

The order goes automatically on to the SCM system, which checks whether there is enough raw material in the factory to make all these shoes. If there isn't enough materials, the SCM system, or possibly the ERP system, should be able to order more supplies so that the shoes can be made, Greenbaum said.

Then the ERP system will process the order and prepare the shipping papers. It connects to the SCM system again, which alerts the logistics partners to make sure the shoes will be delivered to the right place at the right time. Then the information is linked back to the financial part of the ERP to send out confirmation of delivery and invoices, Greenbaum said.

"In an ideal world, this should all be automatic," said Greenbaum. "But it will only work if everyone in the chain is completely automated, otherwise this whole thing is going to break down."

For all of this to work over the Internet, the software vendors must first integrate their systems offline, so that users tapping in to the systems from the Web can get an integrated view of data.

"Typically, the way it works is that the vendor will provide you with the integration tools," said David Boulanger, research director at AMR Research in the US. "SAP has its business application interfaces, and Oracle and i2 Technologies have their application integration modules. These have predefined ways to find the touch-points in other systems," Boulanger said.

Many vendors also use an external supplier's EAI (enterprise application integration) tool, which is a programming tool for developers who want to connect their software to other vendors' systems. SAP for example uses WebMethods' EAI, said Boulanger.

When the systems are connected, they then need to go through an Internet transaction server, for example an XML server, in order to be reachable via the Internet. The end user doesn't see any of this, he or she will just see the transactions happening on his screen from a Web portal, said Boulanger.

While ERP vendors are beginning to deliver on this promise, it remains to be seen whether they can continue to develop seamless links between their traditional systems and more recently developed software, and sustain a growth market for their wares.

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