A second wind for ERP

Implementing enterprise resource-planning systems can be intensely painful, and once you have them up and running they may seem to interfere with the speed and nimbleness required for electronic business. Are they a waste? No, but the real benefits aren't always obvious. Throughout the 1990s, most large industrial companies installed enterprise resource-planning (ERP) systems--that is, massive computer applications allowing a business to manage all of its operations (finance, requirements planning, human resources, and order fulfillment) on the basis of a single, integrated set of corporate data. ERP promised huge improvements in efficiency--for example, shorter intervals between orders and payments, lower back-office staff requirements, reduced inventory, and improved customer service. Encouraged by these possibilities, businesses around the world invested some $300 billion in ERP during the decade. What most attracted many a chief information officer was the opportunity to replace a tangle of complex, disparate, and obsolescent applications with a single Y2K-compliant system from a reputable and stable vendor; one major oil company, for example, managed to switch off 350 old systems when ERP went live. By entering customer and sales data in an ERP system, a manufacturer can generate the next cycle's demand forecast, which in turn generates orders for raw materials, production schedules, timetables for shifts, and financial projections while keeping close track of inventory. For many businesses, installing ERP was traumatic. Following long, painful, and expensive implementations, some companies had difficulty identifying any measurable benefits. Those companies that were able to point to them thought they could have been achieved without the help of the computer system. One chief information officer concluded that "80 percent of the benefit that we get from our ERP system comes from changes, such as inventory optimization, which we could have achieved without making the IT investment." Today, as the information technology spotlight shifts to electronic business, where "nimbleness" and "Web speed" are the buzzwords, monolithic ERP systems look more and more like cumbersome relics of an older IT world. Yet companies shouldn't bemoan the cost of their investment: the hard-won skills and capabilities they acquired during the ERP installation process will permit them to improve their ERP applications incrementally, and these improvements collectively add considerable value. ERP can also accommodate technologies that facilitate promising developments, such as electronic commerce and continuous-relationship marketing (CRM), that didn't exist when ERP systems were first installed. Back-door gains "What we bought was sustainability," said one ERP director. "Many of the benefits that we are able to achieve today could not have been predicted at the time that we started work on ERP." In fact, in hindsight it appears that much of the value of these large systems lay in the infrastructure foundation they created for future growth based on information technology. The first element of this foundation is common data. To make an ERP system work in an enterprise or business unit, everyone must agree to enter information using the same vocabulary and format. This discipline renders the data both transparent and easy to compare, exposing anomalies--for instance, the use of different exchange rates to calculate the financial results of different plants--that must be resolved. Standardized business processes are the second part of the foundation. ERP demands standardization to reduce the number of process variants that must be supported. Painful changes in even the best local traditions may be needed so that orders can be fulfilled consistently throughout a business. When customers demand consistent global quality, globally consistent processes become essential. At least the new processes resulting from ERP are a consequence of design rather than evolution. …