Analyst Coverage: Simon Holloway
ERP is an amalgamation of a company’s information systems designed to bind more closely a variety of company functions including operations, human resources, inventories and financials while simultaneously linking the company to customers and suppliers. ERP typically has modular hardware and software units and services that communicate on a local area network. The modular design allows a business to add or reconfigure modules (perhaps from different vendors) while preserving data integrity in one shared database that may be centralised or distributed.
ERP software packages are based around a single premise of their ability to manage all the information and functions of a company from shared data stores in a seamless manner.
An ERP package therefore consists of a number of silo support components on top of a common infrastructure. The key is that the software vendor has incorporated best practice into the processes supported in the package. On top of this, the vendor provides the ability to customise and extend the package to fit the special requirements of the purchaser. The current modular structure in the majority of current ERP packages is still based on functional silos.
The first thing to say about evaluating ERPs is that it isn’t just about the support for business functionality, it is also now about the platform on which the business functionality is delivered because this is where the required agility and flexibility will come from. In addition it is important to know about the support and services that surround the applications. Here we are looking at not only the maintenance services available, but also the implementation support through both a vendor’s own consultancy services amd also through system integrators and, lastly, the training and education made available.
When it comes to business functionality, there are certain packages which are better suited for different types of verticals, particualrly for the manufacuting sector such as process, project, make to order, repetitive or repair. So make sure that the packages you consider understand the sort of business you are in. The common modules are as follows:
- Finance – covering accounts receivable, accounts payable and general ledger as a minimum, but also providing support for Asset Accounting, Financial Consolidation and Financial Control
- Customer – covering customer maintenance, order processing, pricing and, in some cases, marketing
- Supplier – the opposite side of the business to customer
- Operations – covering all the activities on the shop floor and/or back office of an organisation as well the ability to plan the use of resources to meet demands
- Product/Service – covering the description of what services or products an organisation makes and/or sells
- Human resources – covering all the processes related to the management of an organisation’s personnel.
There are other modules available covering activities such as Plant Maintenance, Laboratory Information Management and Quality Management.
In addition to these function-based modules, ERP software provides reporting, query and business inteliigence capbility on the information collected and stored.
The following people should care about ERP:
- Executive managers responsible for Finance, Customer Service, Production, Logistics and Human Resources.
- IT Management and business analysts responsible for the supply of IT systems to areas of the business.
With money being tight, companies are looking closely at the investments that they have made and ERP is one of these areas. For some, the question of the worth of ERP is still not answered!
The business issues that ERP probably has to cover, and which companies evaluating ERP are increasingly focusing on, include:
- Agility and flexibility
- Real-time information
- Mobile workforce support
- Risk management.
The one major benefit of having a single modular ERP system (and ERP customers should be checking that they’re actually achieving this) should be that it can unite and link together multiple processes and parts of the business, making the business run more efficiently.
An ERP package now has to be process and event driven rather than transaction driven. It has to have fewer moving parts and allow configuration to be minimised as well as being much easier to perform – not forgetting faster! ERP packages should be modularised so that not only can the buyer choose only the ones they are interested in, but also be able to integrate, based on standards, to other packages with no issues.
Future users are much more computer literate than the current generation, but they are used to instant gratification from wherever they are. So our future ERP has to have new user interfaces such as queries in texting language, carousels and other iPhone-like capabilities. Lastly, but by no means least, software licensing has to be much more flexible – not only in terms of costs for maintenance, but in recognition that manufacturing has different capex life cycles than software.
Starting in the late 1990s, the ERP software market has experienced a dramatic consolidation. ERP software companies selectively acquired other ERP system vendors, which were, in turn, acquired by bigger ERP software companies. In 1998 there were more than 200 independent ERP software companies in the market. Those 200 suppliers mostly ended up as part of only a handful of remaining suppliers by 2006. However this has not stopped new entrants into the market, particularly in the SME end of the market. A large free and open source ERP software market is beginnning to emerge.
A categorisation system has been developed by a number of consultancies. All of them break down into the same process of 3 categories based on the target size of their customers (and hence the complexity supported), support for globalisation and generalised/vertical specialisation.
Tier I ERP Products
Tier II ERP Products
Tier III ERP Products
Highest cost of ownership
Medium cost of ownership
Lowest cost of ownership
Can be used in many industries
Vertical industry focus
Vertical industry focus
Largest ERP companies
Medium size companies
Examples of Tier 1 are SAP and Oracle.
Examples of Tier 2 include: Access Group, Cincom, Epicor, IFS, Infor, Microsoft Dynamics, QAD, Sage ERP/X3, TGI.
Examples of Tier 3 include: Exact, NetSuite, Sage (50 and 100), Syspro.
Vertical ERP vendors sell ERP products that are specific to a industry or niche. They are typically smaller than their Tier I, II, and III counterparts, but offer a great detail of specific functionality for the industries they support. Examples include: Deltek, IQMS
Further resources to broaden your knowledge:
TEC release report on Cloud ERP for manufacturing sector
Technology Evaluation Centres (TEC) have just released a buyer's guide to Cloud ERP
Product Information Management (PIM)
I often get emails from vendors talking about a whitepaper or other sales document. Sometimes these are very useful simple guides to a subject.
Analysing ERP solutions today
This is a follow up to the earlier article - ERP: What does it mean to us today?