Mark M. Davydov
When it comes to the enterprise resource planning (ERP) marketplace, the consensus is that ERP
software is in flux. The ERP market’s evolution has been apparent for some time, fueled by growth in
Web-enabling technologies. As a result, the main ERP players (such as Baan, J.D. Edwards, Oracle,
PeopleSoft, and SAP) are under considerable pressure to provide across-the-board e-business capabilities.
But when will vendors meet our demands as consumers of this technology, and what form will the technology
take?
This customer mandate for broader ERP reach involves extending and expanding the core functionality of
vendor products beyond ERP (that is, beyond automating companies’ internal processes) into so-called
“post-ERP” applications that offer comprehensive state-of-the-art solutions in two main areas:
• Customer relationship management (CRM) — automating cross-functional aspects of
identifying, attracting, servicing, and retaining customers • Supply-chain management (SCM) —
governing the flow of product- or services-producing processes to and from partner organizations.
Announcements of specific product strategies to transform the ERP architecture have been plentiful. All
the major players have made one. Start-ups and systems integrators have chimed in with yet additional
contributions. Although many of these announcements suggest different implementation scenarios (such as
integrated vs. best-of-breed, cross-functional solutions vs. backbone and add-on product combinations),
almost all of them have one common functional scheme: SCM is the focus. In taking this approach, ERP
vendors intend to provide IT organizations with the real big step forward toward effective CRM solutions.
Why? First, very simply, there are plenty of compelling reasons to focus on SCM. As former Baan CEO
Mary Coleman said recently, “Supply chains must ultimately serve the customer…. Because
today’s customers want their products and services faster, cheaper, and better than their last
purchase, companies must continually re-architect their supply chain to increase customer intimacy and
satisfy ever-changing demand.” Second, although ERP vendors may have identified CRM as highly
important to their customers, they still lack the “domain expertise” to succeed, primarily
because industries have yet to clearly define information flows and business-process cohesiveness between
CRM and ERP. Mostly, the work that has been done covers only two of the most prominent CRM applications:
sales force automation (SFA) and call center management (CCM). To succeed with this new
“post-ERP” model, however, IT organizations will have to understand the most distinguishing
characteristics of the ERP transformation strategy.
Convergence between ERP and specialized SCM software. First, one of the key developments that
should be noted is the rapid convergence between ERP and specialized SCM software. Although the ERP
vendors are rushing to add sophisticated SCM functionality to their ERP products, they also are rushing
to build close partnerships with the leading SCM vendors. For example, SAP and i2 Technologies Inc. are
working together to integrate i2’s Rhythm supply-chain optimization suite with R/3 so you can
optimize planning activities across the supply chain simultaneously with internal planning. Leading
companies in many industries already are taking advantage of such developments. For example, several
satellite-type enterprises of Ford Motor Co. that make various automotive systems for Ford and other
original equipment manufactures (OEMs) are using the coordinated i2 and SAP software as the planning and
scheduling system for the global roll-out of their ERP solutions.
“Front ending” of back-end system processes with customer-facing Web sites. Second,
most combinations of ERP and SCM products are being put together with the Internet in mind. What’s
most important, some include front ending of back-end functionality with customer-facing Web sites. Using
this form of Web-enabling, many manufacturing companies will be able to transition the entire supply
chain from one based on forecasts and building products for inventory to one based on a realtime,
build-to-order operational model. The most prominent example of such developments is the recent formation
of a supply-chain alliance between Ford and Oracle, called WebXchange. It will not only allow suppliers
to optimize SCM, but will also connect them with Ford’s dealers and customers via Ford’s
consumer-facing Web site, which will dramatically reduce Ford’s and its suppliers’ costs.
Broad-based focus on object-oriented>views of process-oriented structures. Third, although
ERP system architectures already extensively use object orientation (OO) — SAP Business Framework or
the Baan Object Interface, for example — from the ERP implementation perspective, IT organizations
still have considerable difficulty taking advantage of OO concepts embedded in ERP products, outside of
the traditional application integration issues. The main reason for these difficulties is products’
largely function-oriented structures, which require a special implementation approach to realize
process-based business benefits. This statement is especially true if complete processes must be improved
across several organizations, that is, in SCM or CRM arenas.
To address this issue, ERP vendors are working to extend their OO frameworks by incorporating the concept
of multilevel distributed process modeling (MDPM) adapted specifically to inter-enterprise requirements.
Using MDPM, ERP end-users will be able to define multistep, interdependent processes involving multiple
partners, logical separation between interenterprise commitments and internal enterprise implementations,
and distributed execution rules. When current ERP-OO frameworks are “merged” with MDPM,
business objects become “information containers” that are shared between participants and also
used internally. Consistency between object-class representations is very important here. This is one of
the important reasons why the support for 100-percent pure Java and Java Object Framework is at the top
of the agenda for ERP vendors. End users require a standard high-level business modeling language (a
language in which they can define MDPM constructs that get interpreted or compiled into low-level Java
code).
Component-based product architecture. Fourth, to realize the maximum benefits of integrated
processes across the extended enterprise, post-ERP systems must be based on a component-based product
architecture that provides the necessary smooth and seamless integration capabilities between various
internal product modules as well as with adds-on modules from different products. Although constructing a
large-scale component-based ERP system with “plug-and-play” capabilities is a very difficult
task, componentization of ERP systems based on common business object definitions is critical for
managing version releases of different products, reducing long-term cost of ownership of ERP systems,
and, in certain cases, solving performance challenges. Several ERP vendors (such as SAP and Baan) have
announced their strong commitment to componentization.
Combined decision support with transaction logic at the core of the product.Finally, it is
necessary to pinpoint the trend toward combining decision-making capabilities with realtime operational
processing in order to monitor all the elements of the extended enterprise based on up-to-the-second
data. Just as traditional ERP systems integrate data within internal business processes, post-ERP
solutions must integrate inter-enterprise decisions. Almost all ERP products provide data warehousing and
other business intelligence tools “outside” the core transaction system as an add-on, which
significantly reduces capabilities for realtime decision support. Moreover, in SCM, the need for realtime
decision support is complicated by many factors. For example, extremely vast amounts of detailed data
that must be filtered and converted into valuable information within the extended enterprise make the
task almost impossible to tackle. Several ERP vendors have announced business intelligence features or
plans for analytic applications that are core to the product and based on optimized realtime data on
materials availability, transportation, labor, machinery, and so on. The main goal here is to enable
extended optimization capabilities to solve inter-enterprise demand-and-constraint problems and provide
“what-if” analysis in real time. What-if functionality will be driven by key performance
indicators (KPIs) that include traditional financial measures as well as metrics from the Supply-Chain
Council’s Supply Chain Operations Reference (SCOR) model, in particular, inventory turns, order fill
rates, delivery performance, and many other performance indicators. This subject brings to light the
issue of data models. Data models are essential “behind-the-scenes” architectural components
that make online supply-chain tracking and e-commerce possible. Today’s ERP products are based on
proprietary data models, although SAP is trying to promote the R/3 data model as a universal one by
providing an API to its Business Framework (BAPI). Considering the wide scope of the extended enterprise,
what’s needed for the post-ERP arena is a truly universal interenterprise data model. Efforts are
underway to create a common vocabulary for data and processes and involve major ERP and SCM vendors, as
well as open systems proponents — Hewlett-Packard, Sun Microsystems, and others. The SCOR Model and
the potential use of XML technologies are at the center of standardization efforts. In essence,
e-business applications’ functionality evolution path goes from ERP to CRM via SCM. All well and
good, but make no mistake: ERP vendors still have ample challenges to tackle both during the transition
and beyond. The real trick for them is to figure out how to exploit IT’s capabilities for all kinds
of interactions between business partners and customers over the Internet (such as electronic data
interchange [EDI], business- to-business communications, and portals) to integrate an understanding of
the external environment (including customers, competitors, and suppliers) with functional processes and
information infrastructure inside the enterprise.
Mark M. Davydov, Ph.D, (mark.davydov@den.galileo.com) specializes in advanced
systems architecture and data management solutions. He has planned and implemented enterprisewide
systems-architecture initiatives for more than 30 Fortune 500 companies.
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