Does Technology Matter when choosing an ERP System?
Introduction
When choosing a new system, IT vendors speak about XML this and .NET that.
Does technology really matter? Why should anyone worry just as long as your IT
supplier can provide the functionality you’re looking for and has the necessary
support infrastructure to help you implement it?
The reality is that it does matter, and for good reasons too. It’s often said that the
only thing constant in today’s business environment is change. It’s important
therefore that any organisation investing in new technology fully understands the
benefits the technology brings to its business, and the benefits from the changes
that this will bring. Cynics might say that it’s the IT industry trying to generate a
reason for change, thus forcing users to upgrade to the latest version without
really gaining the benefit of the change.
But there have been a number of significant developments in the evolution of
Enterprise Wide business applications. These systems having evolved from the
late ‘80s can be considered to fall in to three generations of system.
The evolution of ERP applications – a short history lesson
Generation One systems for the mid-market were based on a centralised IT
infrastructure with “dumb” terminals connected directly to the server. The
Generation One system had the benefit of having a simple and relatively low cost
device, either green-screen or colour, connected directly to the server. All the
processing was completed on the server itself and never on the “Client” – the
terminal at the user end. The operating systems employed were either
proprietary, such as Digitals VME or IBM’s OS/400 or some derivative of UNIX.
Because there was no processing happening at the client end, it was relatively
simple to connect remote sites across dedicated phone lines, called leased lines.
Generation Two really came about with the advent of Microsoft moving in to the
business market, first by replacing the “dumb” terminals with windows based
PC’s and more latterly replacing the server with their own operating system
Microsoft NT. Software vendors wanted to take advantage of the “Rich” windows
client so that users felt more comfortable with the windows environment and they
could also take advantage of products like Microsoft Office. Generation Two of
business applications used technology referred to as “Client-Server” where there
would be processing carried out at both ends i.e. on the Server and on the User’s
PC. This then required more processing power to be added to the desktop. It
also made it more difficult for remote users to use the same connections due to
the volumes of data being passed down the line. (This is where the introduction
of products like Citrix and Microsoft Terminal Services came in to affect)
Where we are today is at the third generation of business application.
Generation Three of business application, is a combination of both Generation
One and Two architectures. It takes the principle of having centralised
processing, with minimal processing on the client, but finds a way of still
providing that “Rich” user interface. Generation Three systems are based on
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Browser technology, where an Internet Browser, such as Microsoft’s Internet
Explorer or Netscape, is used instead of having client software installed. Like
Generation One, it can be deployed easily to remote users, this time not by
having dedicated links, but by using the World Wide Web as the means of
communication.
This is all very interesting, you may ask, but what has this to do with my
business? A great deal, because Generation Three computing is really Internet
Computing.
Internet Computing
Internet computing is a modern concept where a user can access the business
application using a web browser. The key benefit is that the business application
can be implemented globally. It does not matter where the users is, providing
they have access to the Internet. This concept addresses organisations that
operate from multiple sites, have employees working from home as well as
having operations, agents and distributors abroad. In contrast, deploying a
traditional client-server application requires client side software to be installed on
each PC which needs to be connected to the host application. Implementing the
client side software is a time consuming process and is also costly to maintain
when upgrades are required.
Remote users of client-server software require a substantial high-bandwidth
communications link to the office or having to face implementing a “thin client”
third-party product such as Citrix or Microsoft Terminal Services. This requires
additional hardware at the host application end, as well as purchasing the
software in the first place. This understandably puts a large premium on the cost
of a project.
With Internet computing, e-mailing a link (an Internet URL) with login and
password details to the user is all that is required to deploy the software. This
considerably reduces the initial deployment costs and on-going maintenance.
Self Service
The concept of user Self-Service is now introduced with Internet Computing.
Users are now more readily used to placing an order with Amazon Books or
using the Internet as a source of information. Users have accessed these
services without the need for training. Using the features of an Internet browser
greatly reduces application training and deployment cost. Training thus tends to
concentrate on the explaining the business processes mapped out by the
system.
Taking advantage of this new self service concept also reduces cost and
complexity in an organisation. New price lists, technical literature, delivery
schedules, cost breakdowns etc. can be the responsibility of different individuals
who maintain them periodically. These documents can be published and held in
the ERP system and made available to those who need them. The “go and find it
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yourself” concept reduces costs as someone is not required to service the
request. It is also available 24x7, which means that it is on-demand as required.
This self service concept can be deployed in a controlled way to users outside
the organisation to agents, distributors or even customers. This greatly improves
the quality of service given to the individual, whilst at the same time, reducing the
administrative overheads by providing the service. Information is held in one
place, greatly reducing the number of different information silos in the business.
Self Service in operation – a case study
Let me illustrate what this means in practice. We’ll take an example from one of
our recent customers, but we’ll have to call them Company A.
Company background
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Company A is a manufacturer and distributor of power tools sold to
directly in the UK and via agents and distributors world wide
Orders received from distributors via fax and e-mail overnight
Sales staff have to re-key data in to the system
Data is misinterpreted due to language difficulties and transposition
errors
The Solution
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With a browser based integrated system the distributors can view the
correct product technical details
Look for complementary products & services
Enter their own sales orders
Have online credit checking
View stock balances and availability
Hang on a minute. You might say that this is just “e-commerce” there’s nothing
new here. And with e-commerce you have to create a new facility, worry about
security and maintain a separate database of products and prices and so on.
Sure, if you are selling to consumers its necessary. But if you are selling to
businesses who already have a credit account, they why go to the trouble?
Similarly what about your own employees working from home or out of another
facility?
The Benefits
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Near 100% order accuracy
Reduction in rectification shipments
Shorter lead times
Opportunity to “Up Sell” complementary products and services
Accurate pricing
Free Sales to concentrate on key UK accounts
Better sales analysis thus leading to
Better targeted marketing
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Best of breed vs. an integrated approach
This discussion has been on going since the advent of integrated systems. The
definition of integrated varies widely. Today with IT vendors looking to
differentiate themselves in the market, they are developing wider functionality as
part of their integrated offering. This leaves the "Best of Breed" solutions
retreating into more specialist areas. Clearly there are significant advantages in
having a single source of information throughout an organisation.
Data is held once and used many times. Having duplicate records clearly
requires greater levels of administration and inherent inefficiencies. Ask yourself,
how many duplicate customer records do you have in your organisation? If third
party solutions are used and data has to be shared, then interfaces have to be
built and maintained. Often there is considerable investment in these interfaces
which can get broken when either system is upgraded.
So the case for an integrated system is clear? Not quite. But surely an
integrated solution cannot have the same levels of functionality as a Best of
Breed solution? This is often the case and a clear example of where the 80/20
rule comes in. Even so, it is still often more cost effective to have 80% of the
functionality than go down the route of linking in a Best of Breed solution. But
that's where the technology comes in. It may not be the case that the system's
toolset will plug the missing 20%, but it might go towards filling in another 5-10%.
But care is needed to understand whether the modifications made to an
integrated solution count as bespoke developments. This is another area which
needs to be avoided, as all the advantages of avoiding having to build interfaces
to a Best of Breed solution will have been lost.
It’s important to identify systems than can be modified within the standard
framework and hence can be upgraded when new maintenance releases are
available.
Software Customisation
An increasing number of IT vendors are allowing their customers the ability to
modify their systems. Traditionally software packages are parameter driven, that
is a number of pre-defined software switches can be chosen to allow the software
to behave in different ways. Beyond these switches, the customer cannot alter
the basic features without resulting in bespoke software and all the inherent costs
associated with developing, maintaining and upgrading their systems.
Some suppliers now offer the facility to have “associated” software which can be
developed and modified to allow for different behaviour of the system. As its
associated software, the main system remains untouched and therefore can take
advantage of upgrades.
EFACS for example, has had this associated programming language, allowing
users to modify its behaviour, for over 10 years. The latest version relies on a
piece of technology called “Variable Component Architecture”. Object orientated
systems consist of many thousands of components, the building blocks of the
system. These components are written once and used many times, thus
preventing programmers having to repeat code, for example a stock allocation
routine, being written in each application every times its needed. Many of these
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components can be selected or modified to meet the business needs of the
company without adversely affecting the integrity of the standard ERP system.
These systems ship with alternative versions of many of these components.
During the implementation phase, choices can be made between the available
versions of a component, to ensure best business fit to the company’s needs.
This allows customers the ability to customise their system.
Customer facing applications that are tailored to your exact needs can provide
additional competitive advantage. In areas, for example such as Estimating,
Quotations, Product Configuration or Sales Order Entry, the relevant components
can be selected from the options available – or if you want something that is
unique to you then you can develop your own version or have it developed for
you by the vendor.
Below are some common examples where organisations are able to customise
standard software to improve control and reduce cost and complexity;
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Special sales order entry logic such as margin checks, alternative part
selection on stock out, product restriction to specified supply channels…
Additional data entry during purchase order receipt such as specific test
results, certificate of conformity checks, recommended stock locations
based on usage rates…
Purchasing logic to prevent order line values exceeding buyer limits,
ensure unit costs are within a defined tolerance of standard…
Product configuration advance logic to automatically calculate lengths,
weights or areas during configuration, automatic route creation with
machine and run time selection based on options chosen, constraint
checking to ensure mutually exclusive options are not illegally picked …
What about other technology factors?
There are a number of other factors which are important when choosing a
system. Vendors talk about XML, XSLT, HTML, .NET and so on. You will also
see a few applications with technologies like Workflow.
What follows is a break down for each area and an explanation of where the
benefits can be realised.
Workflow
Some of the modern ERP systems now have a Workflow engine which sits
behind the scenes and automates business procedures and improves operational
efficiency. Workflow is more sophisticated than simple Triggers or Event driven
activities as these tend to be a “single shot” process. Workflow can chain events
together depending on the outcome of earlier stages. This is valuable in many
different circumstances, for example when the volume of administrative work is
high, or where internal organisational procedures require multiple sign-offs, such
as approvals in the purchasing process.
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The integration of the ERP system, through Workflow linked with e-mail and task
management, features of standard office automation products, results in a control
mechanism that helps to ensure that the right work is done at the correct time, by
the right people and in proper sequence.
Typically, Workflow systems may be configured to send information to users
triggered by events within the ERP system. For example, the receipt of a
purchase order might cause an e-mail to be sent to the accounts department with
the details of the order. A staff member within that department will then be able
to accept or reject the order by selecting an option from a form in the message.
Multiple messages may be sent to a number of recipients, showing the full
information or selected details as appropriate.
Powerful time monitoring and alerting procedures are built into each workflow
process. If actions are not carried out in a timely manner, then escalation
messages can be automatically generated and sent to relevant staff. These
features will help to ensure that customers are not let down, through key people
being on holiday, being busy or through poor internal procedures.
The business processes can be defined using a graphical workflow defining
model which controls the stages of events. As businesses change their
procedures, the Workflow engine can be modified to accommodate those
changes. When coupled with Document Management, the combined technology
provides a powerful document review system. Documents can be passed from
one user to the next, with each user making changes if necessary before passing
on to the next user.
XML
Although the concept is simple, XML is probably the single most important
advance in Information Technology in recent years.
XML stands for eXtensible Markup Language, and was designed by the W3C
(World Wide Web Consortium) to make it easier to interchange structured
documents over the Internet.
A “document” is not a piece of paper containing typed or handwritten information
in the traditional sense. In modern IT parlance, a document is a data entity,
defining and containing a volume of data. Structured documents contain content,
including words and pictures, together with explanations as to what role each
piece of content plays. XML is the industry standard language that defines the
content of a structured document, and that document is normally referred to as
an “XML document”.
As an example, if a sales order may be defined as an XML document, each piece
of information in the sales order, customer, value, due date, etc is separately
defined in the document with an appropriate label.
Making two systems talk to each other is not a simple task, but use of XML
simplifies the problem. A company can send a structured electronic purchase
order using XML to describe the part number, price, quantity etc, and the
receiving company’s system will then be able to translate the XML document and
know the price, quantity and part number that has been ordered.
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In order for two systems to communicate using XML they need to be aware of
what information is being exchanged. XML describes this information, and rich
toolsets are available to locate and process the relevant parts of the XML
document. This makes XML ideal for describing business information, in all its
many forms.
The automatic exchange of business information by electronic means has in the
recent past been achieved through relatively complex Electronic Data
Interchange (EDI) systems where data content was defined by a number of
competing and complex standards, some of them proprietary. Now, some of the
problems of strict structure, competing standards and expensive Value Added
Networks encountered with EDI are resolved by the flexibility of XML and the use
of the Internet as the transport mechanism.
There is some debate about the speed at which business-to-business
ecommerce, or B2B, will develop. But one factor agreed by most is that, because
XML eases online data exchange between disparate systems, it will help to
encourage the growth of online commerce and trading. The major effect of XML
for the average company is that the web will become a more useful and powerful
business tool whether the company is an online buyer or a seller.
Web Services
Web Services are third-party data processing facilities which are extensions of
your system. A simple example of a Web Service is services like Streetmap or
Multi Map. By entering a post code in to either service will return a map of the
location. This facility can be linked to a modern ERP system, using XML. So for
example, clicking on a customer’s address record can automatically lift their post
code from your ERP system and return a location map without pressing another
key. This is a Web Service in action.
There are other Web Services, free or on subscription, such as address
validation or credit checking.
EFACS E/8 has an Export Documentation Portal which is available as a Web
Service. Shipments can be packaged as a consignment and posted to an Export
Documentation Portal, using XML, for generating the correct shipping
documents. Because the service is web based, the consignment can be posted
on to the Chamber of Commerce to get a Certificate of Origin certificate. It can
also be posted electronically on to the Customs and Excise to get customers
clearance. This web service reduces the need to have your own software and
greatly reduces the transaction cost and lead time.
There are many more Web Services that are beginning to appear on the market
which greatly extend the customer’s computing power.
Conclusion
Most ERP systems today are mature products. There are few green field sites
anymore. The way systems manage the sales process from order receipt to
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fulfilment is pretty much the same. But business changes all the time. If you are
coming off an old legacy system or consolidating disparate systems, then just
integrating your front office with your back office is simply not good enough if you
really want to use technology to assist your business.
There reaches a point where you cannot do much more with your system
because the technology simply won’t enable it to do so. There are many systems
out there which are sold as modern based systems, use all the latest buzz words,
but are fundamentally on old platforms, many on Generation Two technology and
some even going back to Generation One technology. If you are looking at
changing your systems, take a closer look at the infrastructure underneath.
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