Feature: What's next for ERP?

Installing an enterprise resource planning (ERP) system to fix year 2000 problems is pretty much a thing of the past.

And for more companies, using ERP software to improve internal efficiency is a ho-hum case of been there, done that.

So now, many users - especially in the manufacturing industries that were the first to latch on to ERP - are moving ahead and looking for ways to better capitalise on their investments.

Their new goal isn't just to modernise corporate systems and cut costs. Increasingly, priorities are shifting toward add-on projects that extend ERP beyond the back office to improve sales, customer satisfaction and business decision-making.

For some companies, that means trying to use their ERP systems to support new e-commerce applications. Others are moving to install customer relationship management and advanced planning software that will be fed data by the ERP backbone they've laboured to put in place.

"The people in my organisation are saying that it's good we've put this [ERP] foundation under us, but now it's getting fun again," says Jim Prevo, CIO at Green Mountain Coffee in Vermont. "It's time to start reaping the rewards."

Until recently, the coffee maker's chief concern was getting off the old minicomputer applications it had outgrown.

It just swapped in similar configurations of PeopleSoft's finance, order-management and manufacturing software without worrying about turning on any bells and whistles - a strategy that was expected to provide "very marginal" returns at best, Prevo says.

Now, the bells and whistles are coming front and centre. This quarter, Prevo says, Green Mountain Coffee plans to start testing a PeopleSoft-based e-commerce system that will let stores and coffee shops place orders online.

It will also look closely at new business analysis applications that PeopleSoft is developing. Senior executives are pushing for help in figuring out "who the good customers are and which ones are costing us a lot of money", Prevo says. "We can analyse gross margins very easily now, but we really want to go to the next level."

Those kinds of applications "need a well-designed ERP backbone to make them work," says Joshua Greenbaum, an analyst at Enterprise Applications Consulting in California. "There are lots of reasons why you want to install an ERP system. Direct and measurable returns are only one of them."

The same kind of business and technology transition is taking place at Rockford, a maker of audio equipment in Arizona, that has been using Oracle's ERP applications since 1995.

Most of the emphasis so far has been on improving back-office operations, says David Richards, vice president of information technology at Rockford. Inventory forecasts are much more accurate than before, and the 10 days that the company once needed to close its books each month have been reduced to about two and a half.

But now, Rockford is trying to extend the ERP system in ways that will help distinguish it from rivals. "After a while, you have to look at what kind of competitive advantage you can create," Richards says. "It gets to the point where you can't cut [product] costs any more."

Like Green Mountain Coffee, Rockford is working to tie its ERP system to new Web-based applications that will let customers configure products and schedule repairs online. And this month, Richards says, it's due to start using the ERP software to feed Oracle-developed analysis software that's expected to help executives track operations more closely so business plans can be changed on the fly.

Both Prevo and Richards say the new projects aren't expected to have a big impact on their IT staffs. But there will probably have to be changes on the business side of each company. Rockford expects some turnover among business managers in order to bring in executives with a more analytical bent, Richards says. And Green Mountain will likely add the same kind of workers in departments such as finance and marketing, according to Prevo.

The increased user focus on getting more from ERP comes at a time when analysts are questioning the software's financial paybacks. Meta Group has released a report saying the average ERP project costs more than it returns in measurable financial gains, although the consulting firm says the software's potential value as a corporate information backbone makes the investments worthwhile.

High-publicity decisions to kill or postpone ERP rollouts also continue to dot the landscape. With that as a backdrop, more companies "are recognising that this is a project that never ends," says Jim Shepherd, an analyst at AMR Research. Project teams once viewed as short-lived are being left in place to work on broadening and extending ERP systems, he says.

And some vendors and consulting firms are starting to pay more than lip service to the idea of proving that ERP can produce a bona fide financial return. Recently, for example, market leader SAP AG announced a consulting service aimed at helping users gauge the potential value of installing its R/3 software.

Other big issues to watch include efforts by SAP and its rivals to make their applications more user-friendly in upgrades due out later this year and to better tailor the software for different vertical industries.

Widening ERP's appeal

The vertical tailoring is aimed at increasing ERP's appeal outside its manufacturing stronghold, which remains the most likely place to find the software. Computer Economics in California, said in a June report that 76 per cent of manufacturers already have an ERP system or are in the process of installing one.

ERP hasn't penetrated other markets to the same degree, Computer Economics said. For example, only 35 per cent of insurers and health care companies are running or installing ERP applications now, according to its study. For federal government agencies, that figure drops to just 24 per cent.

But most vendors have seen their new sales of ERP applications hit the wall this year, due in part to the end of the Y2K buying binge. So even the likes of SAP and Oracle are devoting much of their attention to developing the add-on applications users are now calling for.

Extending the core ERP system is becoming a priority for users ranging from chemical maker Elf Atochem North America in Philadelphia to Pacific Coast Feather, a Seattle-based maker of pillows and down comforters.

"We think we're ready for the next step," says Robert Rubin, CIO at Elf Atochem. The company next year plans to start surrounding its SAP R/3 system with advanced planning tools, data warehousing software and other add-on packages, Rubin says.

Deluxe, a Minnesota company that prints cheques and authorises credit-card purchases, spent $US50 million over the past three years to install SAP's finance and procurement applications. More back-office software, such as SAP's human resources and warehouse management modules, are still being rolled out.

But those were all tactical moves aimed at reducing IT and clerical costs, says John Barton, systems architect at Deluxe. Now, he says, the company is putting together a blueprint for using R/3 more strategically in such areas as customer management and business planning.

Pacific Coast Feather is also starting to look at its R/3 system as more than just a back-office transaction engine. The company wants to tap into SAP's data warehousing software to analyse internal operations and do more unified business planning, says Mari Withnell, Pacific Coast's business applications director.

Until now, Withnell says, Pacific Coast has concentrated on replacing its old systems with similar R/3 configurations that provide more room for growth. But that has left gaps to fill, such as separate planning cycles for the company's sales, finance and manufacturing operations.

"We've done the basics," Withnell says. "But there's a lot more that we haven't looked at yet, and that's going to be our focus for the next year."

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