ERP and the Net: Mutate or Die

NEW YORK (03/24/2000) - Over the past few years, a cold wind has blown through the market for enterprise resource planning (ERP) software, one of the hottest IT business trends of the mid-1990s. But even though some users have cooled on rushing to implement traditional ERP systems, and profits of some of the software's vendors seem frozen at year-ago levels, the technology has the potential to evolve and become, if anything, even more important in the Internet-fueled new economy.

This at least is the message from a virtual panel of industry insiders assembled by ebizChronicle.com Inc. (http://www.ebizchronicle.com/), a Web site dedicated to "the business of e-business" and aimed at corporate executives responsible for implementing e-business strategies.

In a series of columns, the last of which is to be published on the site today, executives from traditional ERP companies and consultancies examine the potential problems and opportunities that ERP vendors and their customers face.

The Internet has opened up new ways for suppliers, manufacturers, retailers and customers to communicate and do business. But the rise of the Internet-driven new economy does not mean that ERP will become outmoded -- at least, not for those users and developers that use the Internet to extend enterprise systems, according to these industry insiders.

Companies including SAP AG, Oracle Corp., Baan Co. NV, PeopleSoft Inc. and J.

D. Edwards & Co. created a multi-billion U.S. dollar business in the mid-1990s with ERP technology that automated and connected what had once been disparate parts of corporations - human resources, manufacturing processes, inventory supply and financial planning. These companies rode the wave of the corporate BPR (business process re-engineering) trend that gathered steam in the middle of the decade.

"Then, as 1997 changed to 1998, the ERP industry began to misfire, slow down and see its growth sputter. The main reason: the Internet revolution and the surprising speed with which e-business began to change the way business was done," according to Sarwar Kashmeri, publisher and chief executive officer of ebizChronicle.com, in his introduction to the ERP series.

"Out with those monthly reviews of 'purchases year-to-date vs. purchases last year,' and 'percent late deliveries this year vs. last,' which the ERP backbone so wonderfully provided," Kashmeri says. "Virtually, and without warning, business had become Web-centric -- the Internet's gale force winds had slammed into the ERP industry."

The problem with 90s-flavor ERP is that it is too inward-looking, according to Kashmeri and the industry executives on his virtual panel of experts. To be sure, some of these experts have a vested interest in ERP staying alive -- SAP's growth, for example, was based on the ERP mania in the 1990s.

But executives at companies like SAP know -- and concede, at least privately -- that startups such as Ariba Inc., which specializes in creating B2B (business-to-business) exchange marketplaces on the Internet, have gotten a jump on the networked economy by taking advantage of the fact that the Net blows down the traditional barriers among companies.

However, this does not mean that the internal efficiencies that can be achieved by ERP systems are no longer crucial.

"For most companies, a well-implemented ERP system is more critical today than it has perhaps ever been," according to a column in the ebizChronicle series by Michael J. Herzog, managing director of e-Integration Solutions, and Aysin Neville, managing director of Oracle Solutions for the Americas, at KPMG Consulting LLC.

After all, the executives point out, "If you are running a Web storefront and cannot tell your customer whether you have a product in stock and when you can deliver it, you will likely lose the order."

Most of the executives commenting in the ebizChronicle series would likely agree on this point. Before a company can tap the Internet to set up instantaneous communications with suppliers and customers, it must first have its own house in order.

"To IBM, ERP sets a solid foundation for e-business, breaking down traditional silo mentalities and taking a unified look at the customer through common business processes, procedures and data," according to Jack Wagner, business development executive at IBM Corp.'s Global ERP Solutions. And, as departments within a business increasingly interrelate, they then naturally migrate to an external market viewpoint, he says.

The Internet, with its ability to bring down the costs of communications among companies, will in fact force ERP vendors and implementers to better serve their customers, whether they be customers in the B2B arena or the B2C (business-to-consumer) market, according to several of the executives in the series.

In the past, ERP vendors and consultants would naturally attempt to ensure user loyalty to their software by setting up proprietary systems, difficult to link to third-party software.

In fact, even in the Internet era, the ideal of 100 percent interoperability among software from disparate vendors is likely to elude users, according to Doug Massingill, president and chief executive officer of financial and IT consulting company J.D. Edwards & Co., in a searingly honest assessment.

"I believe that elements of human nature, like greed and fear, will prevent us from truly achieving the ideal of plug-and-play," Massingill says.

Vendors still need to differentiate themselves from one another, which means that pure interoperability will be difficult to attain, he acknowledges.

However, the Internet will force vendors to go a long way toward that goal.

"One thing is absolutely certain: we must deliver to our customers a superior level of interoperability," Massingill says.

Internet and object-oriented software such as XML (extensible markup language), as embodied in Microsoft Corp.'s BizTalk, are just some of the technologies that traditional ERP vendors such as SAP can use to integrate their flagship products into the new business models arising in the Net economy, according to Chris Larsen, president of SAP America Inc.

Taking the long view, the ERP of the 1990s was just one step on a road that had begun a decade earlier, with MRP (material requirements planning) software - "the now-forgotten predecessor to ERP," according to Lou Unkeless, senior director of applications marketing at Oracle.

MRP arose from the need to link manufacturing and production functions, and ERP brought it to the next level -- integration of those processes with the rest of the enterprise. Now, after companies have tied their internal processes together, they look to the next vista -- linking to customers and business partners and external processes.

"What's important to note is that through all of these incarnations, enterprise software has, at its essence, been about maximizing efficiency and competitive advantage," Unkeless says. "This was true of MRP, it was true of ERP, and it's true of the newest incarnation of enterprise software, the e-business suite."

The bottom-line message from these industry insiders is that the internal efficiencies that can be achieved by ERP systems -- not forgetting the millions of dollars that these systems cost to implement -- can be used as a basis for efficient communications with customers and business partners in the Internet economy.

EbizChronicle can be reached in New York at +1-212-686-4408 or at http://www.ebizchronicle.com/.

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