ERP: Much maligned, now please don’t call it ERP

If ever a technology had a bad name, it was enterprise resource planning (ERP).

A development out of MRP (manufacturing resource planning) and MRP II (material requirements planning) — note that these definitions are sometimes reversed — ERP gained a reputation for being big, expensive, disruptive, slow to implement and questionable as to whether it actually did the job or not.

Gartner claims to have invented the term “ERP” in a paper in April 1990 as “a vision of the next-generation MRP II”. That vision entailed a method for planning and scheduling materials for complex manufactured products, and gradually extended into interoperability with financials and human resources.

Interestingly, that initial Gartner publication came under the generic heading “Computer integrated manufacturing”, a term rarely heard these days but descriptive nonetheless. Other names for the concept at the time included enterprise requirements planning, enterprise logistics planning, and COMMS (customer-oriented manufacturing management systems).

Since then, we have had ERM (enterprise resource management) from IDC, and ERP II from Gartner to describe the next phase of the technology.

The thing about “ERP” is that the term is misleading. It definitely is as much about processes as it is resources, and management as much as planning. The one key term is “enterprise”, which is where it is differentiated from MRP, largely a manufacturing orientation.

Prior to 1990, there were ERP implementations, although not by that name.

Concentrating initially on manufacturing organisations, early ERP seemed only suitable for large organisations — the only ones that could afford the often very high consulting and implementation costs that went with ERP software, described at times as a 10:1 ratio. ERP implementations either initiated or gave rise to opportunities to restructure the operations of organisations, feeding off the BPR (business process re-engineering) boom that funded a lot of the major consulting firms.

Many BPR projects apparently failed in driving business gains, so ERP copped some of the blame. As Gartner consultant Kristian Steenstrup puts it: “ERP had a bad name in the 1990s due to cost overruns and being given the blame for all corporate ills. [Nonetheless] it remained the core of electronically managed businesses. It became ubiquitous like the telephone and the fax.”

Some of the blame should also rest with the user. As Adam Hunt, group manager IS for Turners & Growers, NZ, (an SAP customer) says: “I think it is fair to say ENZA (precursor of T&G) struggled with the implementation of ERP. The underlying issue seems to be that the E in ERP stands for Enterprise. It only works if the organisation as a whole understands that it involves the use of total quality management principles — standard ‘best practice’ processes, well planned incremental improvement and so on. Organisations often fail to grasp that workloads and processes change, and without a quality and enterprise understanding, the installation will fail.”

Not all ERP implementations are horror shows. Glen McLean, CIO of Powercor (another SAP user), says that in 2000 his organisation successfully upgraded a 3.0F installation to 4.6B using 90 per cent internal resources, delivered on time and under budget. There was no such thing as a “one size fits all” ERP implementation — a great deal of customisation was required, thus the role of consultants.

A significant milestone has been the development of more standardised ERP packages that can be more quickly and cheaply implemented, opening the market to smaller customers (a good thing for vendors, who were running out of large organisations to target).

Simultaneous is a push to industries beyond the traditional manufacturing customers, in particular to service industries.

Other developments include a more phased approach rather than the Big Bang style of implementation that often wreaked havoc with an organisation’s processes and culture, not to mention time and resources required.

Web-enabled ERP systems for global access, e-invoicing, interactive voice response scripting, portals, “push” technologies, intelligent agents, and self-service access to financial and HR applications are other developments mentioned.

The most important though is as much philosophical as technical — looking out beyond the back office to the front office, beyond the enterprise to its upstream and downstream relationships.

This is what Gartner meant in 2000 when it announced that “ERP is dead — long live ERP II”. Whether ERP II is something entirely different to ERP I, or more a case of ERP + SCM + CRM + KM, is a topic that can be debated.

IDC senior analyst in enterprise applications Bharati Poorabia says: “We are beginning to see more convergence between enterprise solutions such as ERM [=ERP], SCM and CRM whereby these solutions are more closely intertwined with one another within the enterprise IT environment.

Organisations are starting to view their business holistically and are less likely to implement IT solutions in silos, especially since it is often more costly to maintain a variety of internal and external interfaces between various enterprise systems.

“Technology should increasingly focus on the use of integration, collaboration and simplifying processes across ERM and the supply chain,” Poorabia says.

“Organisations should aim for tight integration of back-office, CRM, business intelligence and analytics to enhance business process management.”

It seems that the future of ERP is as much in the hands of the enterprise itself, and its own internal organisation, as it is to the development of the technology. And for something as amorphous and often ill-defined as ERP/M/II and the like, that’s probably the most logical way to go.

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