Enterprise Resource Planning Systems

Introduction

In this report we are going to discuss the evolution of ERPs. We will begin the report by explaining what an ERP is and the different tiers that exist today. We will go on to discuss the data we have collected from primary and secondary sources, through interviewing and online research. We have collected visual examples which we will also include in our report. Our research dates from the 1970’s to present day. We will discuss everything from the beginning of ERP’s to the issues they have caused and the problems they have solved.

ERP Tiers

Tier 1s are the “big players” in the market. SAP systems ensure companies can run separate systems and databases to assist their business processes. Tier 1 companies include; Oracle, Workday & Microsoft Dynamics.

• They manage stock control, purchases, finances, etc.
• They enable better decision making within an organisation.
• Usually these companies are multi-nationals, multi-lingual and sell several products.

Tier 2 ERP vendors include Agresso, Sage and cheaper versions of Oracle and Microsoft.

• Tier 2 has the largest customer base, in terms of potential customers.
• Usually installed and utilised by medium-sized companies with one or more location.
• A lot of Tier 2 companies use a “vertical ERP,” meaning they specialize in one area of a system.
• According to CompuData, “more vertical tiers [are]… more financially vulnerable and [are] likely takeover candidates…” [CompuData, 2013]

Tier 3 companies are less complicated and cheaper to implement. They are used by SMEs. Examples of a Tier 3 system are Sage 50 & Xero.

• Traditionally, smaller companies used these ERPs.
• There was a clear distinction between the market for Tier 1s and Tier 3s, in terms of needs and cost.
• However, Technology Evaluation states that “original conditions determining how tier suppliers fit with company size have all but disappeared… [because] small companies [can now operate] on an international scope.” [Osinstev, 2016]
• The evolution of function-driven to process-driven ERPs is evident here, as SMEs can now operate on a global scale, while also using the services of modern-day Tier 1 companies like Workday.

Data Gathered

Our data gathering approaches included interviewing Dr Fred Creedon and John Lynch. Fred is a lecturer in CIT and has previous experience in developing ERPs and John has been in the ERP industry for almost 25 years.      Business Analytics Organisations didn’t conduct enough business analyses prior to installing an Enterprise Resource Planning system. John Lynch informed us that organisations were “tech-led as opposed to business-led” in the ‘90s and early ‘00s. ERPs were more function-driven, and companies had to change their entire business structure in order to work them. Systems were made from scratch for each business which resulted in many software issues. Businesses didn’t anticipate these issues and thus, the high cost of help desk overheads. In terms of delivery, very often there was little analyses done. As a consequence, a large number of implementations failed and very often required a lot of re-work. According to John, 70% of ERPs failed implementations, where Gartner reports that figure at 75%. [OfficeOfFinance, 2016]      Project Planning Through interviewing John and Fred, we learned that companies didn’t just fail to conduct analyses, but often, little to no project planning was done. Over time this changed significantly. Due to new market competitors and advancements in technology, ERP companies today use best practice implementation methodologies. Companies use a successful template for each phase of the system; analysis, design, build, test and deploy. They regularly have pre-built systems which are then tailored to their clients. Both Fred and John told us that ERPs generally come 70% completed these days, the final 30% is usually customised onsite.      Soft Issues Change management and the human aspect didn’t help with the implementation of ERPs. There was a “fear of missing out” attitude. Companies created the idea that something was wrong with you if you didn’t want their ERP. John informed us that a lot of businesses installed a brand-new system for that reason alone.      Discoveries In the 1990’s Oracle and SAP were the large vendors in the ERP business. Companies required management systems and Oracle and SAP could offer these systems to companies. At this time, companies were so desperate for ERPs that it was almost a rush to get the system implemented so it could be used. “If your company did not want these systems then something was wrong with you,” because everyone wanted and needed ERPs at the time. The rapid pace at which ERPs were implemented caused huge issues for the companies buying and installing the systems. Companies like Oracle and SAP did very little business analyses while selling and implementing their products, they paid very little attention to the way the business was currently running and focused more on how the ERP worked. As a result, “over 70% of ERP implementations failed”.  DELL/EMC is a prime example, they spent millions on an Oracle ERP but decided to go with SAP instead. This error was largely due to the delivery consultants being very “technical and system focused” and ignoring the way that the company was run. Implementations could take months and even years to complete. The implementations that were successful were often full of bugs and required patch work and internal customisation in order to correctly fit the needs of the business. It is important to note that both ERP companies and the companies that were buying the ERP systems were both at fault in these cases. Companies were technology- driven and not process- driven which meant they paid little attention to what the ERP was supposed to do. Instead they just decided that they needed an ERP because their competitors were using one, therefore, they rushed the implementation in an effort to ‘keep up with the times’. We had an interview with Gordon Hardy, President of Bunge Food Ingredients. Bunge is a global agricultural and food ingredients company with plants and offices in 22 countries across the globe. Gordon informed us that Bunge has used SAP since 1995. He said in Bunge’s case the ERP they are using is “over-customised and requires constant technical work and improvements.” So much so, that the company created a team in 2002 to internally upkeep the SAP ERP. The team has now grown to over 70 people. Their job is to solely upkeep, repair and manage the SAP system that company is using. We asked Gordon about the company’s movement to a cloud-based ERP. He said the move would be far too complex and although he does not intend to leave the company soon, he does not think the change will be made in his time with Bunge.

Evolution of ERPs

How did ERP systems begin?

In the 1960’s, many large enterprises implemented a “centralised computing system”. This system was primarily used for their inventory management. In the 1970’s, these centralised systems evolved into MRPs or “Material Requirements Planning” systems. These systems were developed to improve parts requirements planning during the production process. The original MRP evolved into the “Manufacturing Resources Planning” system or MRP II in the 1980’s. MRP II put more of an emphasis on streamlining processes and optimising manufacturing processes. This system now included HR, Finance, Distribution Management & Project Management. In the 1990’s the first ERP system was introduced. The first ERP system had company-wide, inter-functional integration. This ERP integratedthe following business processes: Manufacturing, Distribution, Accounting, Finance, HR, Project Management, Inventory Management and Transportation & Service. [Slideshare, 2015] Since the introduction of ERP systems in the 1990’s there has been three significant shifts in the way that ERP’s operate. Firstly, there was the pre-1997 or “Best of Breed” package. In 1998, the “Modern” ERP system dislodged the original ERP package and is still in place to this day. Nowadays, businesses are adapting to a “Post Modern” approach to ERP systems, which puts more of an emphasis on connectivity through cloud technologies in today’s ever-connected world. In this section of the report, we will outline which functionality each category provides to its user, how it worked and also what changes were made between each category, as ERP systems modernized with technology and became more innovative.

Category 1: Pre-1997 – “Best of Breed”

Pre-1997, the approach that most organisations took toward ERP systems was to adopt a “Best of Breed” strategy. What this meant was that businesses would purchase the “best” ERP solutions for each business function, with no co-ordination between each system. Each function of the ERP system had a different set of features, that would work for that function only. Businesses combined the modules that they found to be most suitable for each business-function from various ERP vendors. This approach to ERP systems was “function- oriented” (Hardcastle, 2014). When businesses adopted this approach to their ERP systems, there were some advantages; Each ERP module that they decided to choose for a specific function would have had strong and in-depth functionality and would have covered all of the required needs for that function. For the most part, businesses operating with a “Best of Breed” approach would have encountered problems. According to Ultra-Consultants, the main downsides of this approach were “the issues associated with multiple systems, databases and vendors”.  Maintaining multiple systems provided little cross connectivity, which created maintenance and integration challenges. [Ultra-Consultants, 2018] Businesses original plans for each best of breed solution didn’t consider the total business solution, thus leading to unnecessary complexity and costs. Such complexities included point-to-point system integration and sometimes manual interventions. This was a waste of the business’ time and resources, trying to integrate these systems became very complex. [Hardcastle, 2014] There was no link between different function’s ERP system, this greatly slowed down the communication channels between the different departments in the business and offered no real-time updates.

Category 2: 1996-Today: Modern ERP / ERP “Suite”

Modern ERP/ERP Suite incorporates a single system for all aspects of the ERP system, giving you total visibility, so you can make decisions based on data. [Workday, 2015] The main difference between the original “Best of Breed” approach versus the “ERP Suite” that is widely used today is:

• Vendors such as Oracle and SAP were able to create a “suite” of functions and incorporate these functions into a single core ERP system.
• This meant organisations were able to source all the ERP functionality that they required from a single vendor, rather than outsourcing to various vendors for each specific function.

This meant that the approach to ERP systems became more “data-oriented,” [Hardcastle, 2014] rather than the way it was previously; “function-oriented”. This is still the most common approach to ERP systems, although the emergence of cloud technologies and a “Postmodern” approach to ERP systems has been emerging in recent years. As the diagram below outlines, the modern ERP “suite” has a centralised location for information. This ensures easy access to real time data and live updates across different departments. This is in stark contrast to the “Best of Breed” approach, where the lack of connectivity between functions slowed down communication channels greatly. The only potential downside to the modern ERP approach is the lack of specialised functionality for specific business functions when using a “suite”. A business may use 50% of their ERP suite fully, however the other 50% may need to be adjusted to fit a specific business functions needs. This adjustment may be costly if an organisation decides to bring in their ERP vendor to make such adjustments. Otherwise, the organisation may attempt to adjust the system themselves, which would also prove costly in terms of the labour hours required to complete such a task.

Category 3: Post-Modern – “Cloud-Based ERP”

This is a technology strategy that links administrative and operational capabilities of a business. This strategy contains an appropriate level of integration within departments such as finance, HR, purchasing, manufacturing and distribution. This integration creates a balance between vendor-delivered integration against the flexibility and agility of the business. We can separate postmodern ERP into two categories; administrative and operational.

Administrative ERP

For service-centric industries (companies that don’t manufacture products). These companies focus mostly on financials, human capital management and indirect procurement (the sourcing of all the goods and services that a company use.) Due to these companies not manufacturing or producing any products, they focus on administrative functions that are augmented by industry-specific functionality. (Gartner, 2018)

Operational ERP

For companies that manufacture, produce and supply goods to the public. (product-centric companies) The focus of the company is “extended beyond an administrative ERP strategy,” to apply their strategy to operational areas such as; order management, manufacturing and supply chain. The benefits linking administrative and operational ERP strategies are clear to see. For example, operational transactions that have a financial impact on the company are easily compiled and analysed. (Gartner, 2018) The goal of a postmodern ERP strategy is to “use the best applications possible in each particular area, while ensuring they adequately integrate with each other when necessary.” In other words; According to Software Advice, “a traditional ERP system is like the new car you buy every 10 years. A postmodern ERP system is like owning the same car indefinitely, but with various components that can easily be changed out as needed.” Midsize manufacturing firms growing to large firms and large manufacturing firms with multiple locations throughout the world, will benefit more from a postmodern ERP system. Smaller companies generally do not demand the same level of agility to compete in this market, as MNCs do. If, for example, something critical happens within a company, perhaps a merger or acquisition of another firm or there is a rapid growth within a company, a postmodern ERP strategy is the best way to go. Having an agile system that allows the company to integrate systems while maintaining functionality and keeping a core system in place, will allow a company to have a much more successful transition to an improved state. – (Software Advice, 2018)

References

1. CompuData. 2018. The Difference Between ERP Tier I, Tier II, and Tier III | CompuData, Inc. [ONLINE] Available at: http://www.compudata.com/difference-between-erp-tier-1-erp-tier-2-erp-tier-3/. [Accessed 15 October 2018].
2. Technology Evaluation Centers. 2018. Tier 1 vs. Tier 2 vs. Tier 3 ERP Systems: What’s the Difference, Anyway? | TEC . [ONLINE] Available at: https://www3.technologyevaluation.com/research/article/tier-1-vs-tier-2-vs-tier-3-erp-whats-the-difference-anyway.html. [Accessed 20 October 2018].
3. Office of Finance. 2018. Gartner: 75% of all ERP projects fail – But why? | Office of Finance. [ONLINE] Available at: http://officeoffinance.com/gartner-75-of-all-erp-projects-fail-but-why/. [Accessed 25 October 2018].
4. SlideShare. 2015. The history of ERP Software Systems. [ONLINE] Available at:  https://www.slideshare.net/NamtekConsultingServices/the-history-of-erp-software-systems. [Accessed 12 November 2018].
5. Hardcastle, C. (2014). Postmodern ERP Is Fundamentally Different From a Best - of - Breed Approach. 1st ed. Gartner.
6.  Ultra Consultants. 2018. Best of Breed vs. Best in Class ERP. [ONLINE] Available at: https://ultraconsultants.com/best-of-breed-vs-best-in-class-erp/. [Accessed 12 November 2018].
7. Hardcastle, C. (2014). Postmodern ERP Is Fundamentally Different From a Best - of - Breed Approach. 1st ed. Gartner.
8. Why Workday - Why Choose Workday HR & Payroll Software. 2018.[ONLINE] Available at: https://www.workday.com/en-us/applications/why-workday.html. [Accessed 12 November 2018].
9. Hardcastle, C. (2014). Postmodern ERP Is Fundamentally Different From a Best - of - Breed Approach. 1st ed. Gartner.
10. Acumatica Cloud ERP. (2018). How to Plan for and Execute a Postmodern Cloud ERP Strategy | Acumatica Cloud ERP. [online] Available at: https://www.acumatica.com/blog/how-to-plan-and-execute-postmodern-cloud-erp-strategy/ [Accessed 21 Oct. 2018].
11. Gartner IT Glossary. (2018). Postmodern ERP - Enterprise Resource Planning - Gartner. [online] Available at: https://www.gartner.com/it-glossary/postmodern-erp [Accessed 1 Nov. 2018].
12. Software Advice. (2018). Postmodern ERP: What It is and Why It's Important. [online] Available at: https://www.softwareadvice.com/resources/postmodern-erp-defined/ [Accessed 4 Nov. 2018].