Those TLAs (three letter abbreviations) get everywhere, don't they? And ERP is one that's getting a high profile, just now. Many of us are aware that is something to do with accounting and computers, so we should know about it. And what's SAP all about? Is that the same as ERP? Let's see.
A Historical Perspective
When computers were first introduced into commercial organisations, in the late forties and fifties, a machine would be dedicated a single task. There was little or no thought given to the integration of the information between different machines, replacing, as they did, hugely labour intensive manual data processing. Gradually, as computing power went up and prices came down, it became possible to run a number of tasks on a single machine, or a small group of machines. Because of the historical distinctness of business applications, the ability to feed summary totals or subsets of data from one application to another seemed like a huge step forward.
The introduction of the PC in the early eighties enabled ever-smaller businesses to use computer based accounting and data processing. By their very nature, these businesses lacked the skilled administrative, accounting and IT personnel that their larger counterparts applied to the data processing task. This led to the introduction of a new type of business application that integrated a range of functions in such a way as to make it possible to enter a piece of information once, and to have that reflected, automatically, right across the application.
As the eighties progressed, the idea of this automatic flow of information through the organisation began to appeal to international manufacturing organisations that needed to find a way of streamlining their production processes. The first step along this route was MRP, Materials Resource Planning, which integrated purchasing stock holding and production control with sales ordering. This enabled the planning of production and procurement, based on known and predicted customer order levels.
ERP
MRP evolved eventually into Enterprise Resource Planning, sometimes referred to as Enterprise-wide Resource Planning. The fundamental principle that underpins ERP is the idea of a single data repository, which represents all of the business information the organisation collects to carry out its business, whether financial, production related, human resources, or whatever. This eliminates the need to transfer information from one system to another, and ensures that any piece of information known to the organisation is simultaneously available to any worker who has the need and authority to access that data.
The ERP concept became really popular in the manufacturing sector, as it enabled the shortening of production times, reductions in stocks and improvements in customer responsiveness, while, at the same time, reducing administrative staffing levels. Today, the manufacturing sector has gone further, to introduce Supply Chain Integration, which links customers and suppliers into the same data processing structure.
Out of manufacturing and into commerce
Having proved the soundness of the concept in manufacturing, it became evident that the idea of a single data resource had benefits to commercial organisations as a whole, bringing the customer focus and potential efficiencies in staffing to a wide range of situations. This is a trend that continues today.
It is rare for any organisation to totally control its own implementation of an ERP system, and equally rare for the software supplier to become involved. The more usual route is to employ an implementation partner ' a consultant with experience of the ERP software, and frequently experience of the particular sector in which the client operates.
So who or what is SAP?
Though there is a wide range of companies offering ERP solutions into the manufacturing sector, four companies, SAP, Oracle, Peoplesoft and Baan dominate the general commercial market. Of these SAP and Oracle currently lead the field in terms of UK implementation. Interestingly enough, though Oracle and Peoplesoft are American, Baan is Dutch in origin and SAP is German, showing that the software market is not all US dominated. Indeed, SAP is the fourth largest software company in the world.
Having captured many of the largest commercial organisations as customers, ERP vendors are now looking to smaller concerns as a potential market. Because the systems are so far reaching, however, the process of installing and configuring the software can overwhelm even a well-resourced smaller organisation. In order to make their products more approachable, all suppliers are now providing some form of preconfigured, rapid implementation solution.
The Downside
To gain full benefit from this type of approach, the systems must run enterprise-wide, typically replacing 90% to 100% of existing IT systems. The scale and complexity of this task leads to a number of ramifications:
- It is inevitable that some degree of cultural change will be required
- Significant modification of the system can be difficult, leading to a requirement to re-engineer business processes to suit the software
- Implementation times can become unreasonably long
- To speed up implementation, a pre-configured set of software may be used. This can fail to involve the underlying working practices, or the workers themselves, and lead to alienation
- It is not always practical to start the implementation with the area of most pressing need to the organisation
- Replacing existing systems on a wholesale basis leads to a large price tag. While it may represent good value to the organisation, it still costs a lot
The Upside
Some of the benefits of introducing an ERP system can be summarised as follows:
- Business process re-engineering is an implicit part of the process. This can help reap benefits in a culture reluctant to change
- Since the ownership of information is corporate, not departmental, artificial barriers are removed
- Practical experiences shows that a good implementation can produce significant savings in administrative support, allowing cost reductions, performance improvements, or both
- The problems of integrating information from different applications is avoided
- As well developed business applications in their own right, ERP systems will usually incorporate the latest developments in software and business processes
SAP versus Oracle
The particular benefits of one vendor's system over are beyond the scope of this article. However, it is generally considered that the SAP product provides a strong, rigid framework where full benefits are gained from using the whole suite, while Oracle is more modular and less likely to compel you to undergo business process re-engineering.
The re-engineering aspect is often where these products cause serious problems. Management really have to embrace this concept with enthusiasm, otherwise resistance to the process will become entrenched. This can result a huge gap between the business model implicit in the IT system and the actual structure of the organisation. All the anticipated benefits of the system are then lost. There is some evidence that this is more likely in the rapid implementation strategies, now being promoted.
Alternatives
For anyone installing a large scale information system, the only real alternative to ERP is to use the 'best of breed' approach. This involves looking at each functional area of the organisation and find a software package that most closely fits the needs in that area, and then integrate this with other packages in the rest of the system. While this appears at first to resemble an older approach to data processing, modern software based on open database standards make this a more realistic proposition than ever before. This can be coupled with 'middleware', programs that interactively bridge the gap between different applications. The result can give a higher performance in some areas than the more generic effect of ERP. Implementation can also be modular, although the result of this may be a constantly changing suite of programs.
As always, you pays your money, and takes your choice!
Neil Eglintine
