Erp & E-Commerce Essay
E-commdrce and ERP 1 Introduction: Traditional companies must embrace the Internet to survive, but, at the same time, pure Internet companies benefit from the assets and infrastructure of their “bricksand-mortar” counterparts. The blending of Internet technologies and traditional business concerns is impacting all industries and is really the latest phase in the ongoing evolution of business. Today, the Internet is driving the current industry goals of a five-day OTD cycle, global reach and personalization.
However, without connecting order delivery, manufacturing, financial, human resources, and other back office systems to the Internet, even companies with long track records of innovation are not likely to succeed. The most successful companies will be those that leverage their investment in Web based technologies by implementing e-business solutions supported by sound existing infrastructures based on well-functioning ERP systems. Today companies need to forge tighter links up and down the supply chain, from raw materials to customers. Of late, companies have increasingly turned to the Internet and Web-based technologies to accomplish this.
But what they have found is that without Enterprise Resource Planning (ERP) software, sharing accurate information with their trading partners is impossible. Web-based technology puts life and breadth into ERP technology that is large, technologically cumbersome, and does not easily reveal its value. At the same time, ERP allows e-business to come into full flower, putting real substance behind that flashy web page. While ERP organizes information within the enterprise, e-business disseminates information far and wide. In short, ERP and e-business technologies supercharge each other.
In light of the above, the objective of this paper is to: • Present a framework for understanding e-business opportunities within the context of a traditional enterprise and its infrastructure. • Examine the evolving relationship between E-Business and ERP, and to understand how companies are moving ahead to gain competitive advantage by using ERP to leverage and take advantage of the business opportunities opened up by the Internet and e-business. • To examine and discuss the role of ERP today and in the context of new business models that are enabled by e-business and associated technologies 2 nd that represent the next step in organizational evolution – a step with potentially revolutionary impact. • To understand the latest developments in this area – especially analyzing the new developments and product offerings of the major ERP software vendors and understand what the present ERP vendors should do to provide true value to users from their software offerings. • To discuss recent developments in the area of e-Supply Chain and Supply Chain integration and other technological developments. • Understand the issues and challenges faced by organizations in moving to an ebusiness environment.
This paper is broadly divided into the following sections: • • • • • • • • • • • • The evolving relationship between E-Business and ERP: Key developments Complementary Technologies of ERP and E-Business Software Provider Challenges Dominant Architecture in the ERP/E-Business Marriage Web Enabling ERP ERP and E-Commerce Portals Internet Procurement Advanced Planning and Scheduling (APS) E-Supply Chain and Supply Chain Integration Integrating the Supply Chain to reap the rewards: SCOR Model Moving to an e-business environment: Technology, Processes and People Other Technological Developments It is important to clearly define what we mean by ERP and what we mean by ebusiness. A formal definition for the same is provided here: ERP: ERP is a structured approach to optimizing a company’s internal value chain.
The software, if fully installed across an entire enterprise, connects the components of the • 3 enterprise through a logical transmission and sharing of common data with an integrated ERP1. ERP software, suites, or packages – provide companies with a set of integrated applications that manage the main business functions of an enterprise. The applications are linked via a common database that allows the various divisions of the company to share data. For example, customer information entered into an ERP system’s order entry application becomes instantly available to all business departments and applications connected to the system. Dozens of ERP software vendors compete for market share, the main among them being J. D.
Edwards, Baan, Oracle, PeopleSoft, and SAP – a group of companies known as JBOPS. E-Business: Electronic business encompasses three stages: e-commerce, e-business, and e-partnering. The early stages of a company’s e-business activity are almost always focused on reaching the customer, the later stages on streamlining value-chain activities to deliver more value to the customer. E-commerce either leverages an Internet-based sales channel to enhance marketing and sell products or services, or leverages the Internet to make purchasing more efficient. E-commerce allows these purchases and sales transactions to occur with minimal disruption to organizational culture and business processes.
Electronic Data Interchange (EDI) is one technology that has enabled B2B e-commerce for many years; however due to the technological developments and improvements like XML, today’s Web-based technologies can do away with the necessity for EDI. E-business improves business performance by using electronic information technologies and open standards to connect suppliers and customers at all steps along the value chain. E-partnering is an intense relationship between businesses that utilize ebusiness capabilities to create an environment for shared business improvements, mutual benefits, and joint rewards. E-partnering is a strategic, customer focused relationship in which companies work together to optimize an overall value chain.
The evolving relationship between E-Business and ERP: Key developments: ERP is the latest in a number of manufacturing and financial information systems that have been devised since the late 1940s to streamline the information flow that Grant Norris, James R. Hurley, Kenneth M. Hartely, John R. Dunleavy and John D. Balls, “E-Business and ERP: Transforming the Enterprise”, John Wiley and Sons, Inc. 2000 1 4 parallels the physical flow of goods, from raw materials to finished products. The first steps in systematizing information flow around the manufacturing process were taken as early as the 1960s when material requirement planning software (MRP) became available. Later efforts were made to make these applications more robust and better able to generate information based on a more realistic set of assumptions. These efforts resulted in manufacturing resource planning (MRP II) software.
Finally, in the 1990s, software developers created ERP software, a fuller “suite” of applications capable of linking all internal transactions. In the past couple of years, e-business has exploded on the scene, and today the Internet is positioned as the engine that will drive the future of business. While traditional production-management information systems (MRP, MRPII and ERP) have focused on the movement of information within an enterprise, Webbased technology facilitates the movement of information from business to business and from business to consumer, as well as from consumer to business and also from business to employees and from business to shareholders/partners. Figure 1 gives the principle connections required to conduct e-business.
Business to consumer/ business Business to business Customers E-company Employees Suppliers Stakeholders Business to employee Business to shareholder/partner Figure 1: Principle Connections Required to Conduct E-business2 However, it is necessary to have an internal enterprise transaction engine, independent of the supplier-and customer-facing front ends, for any company large enough to be considered an enterprise. To date, the best of these internal transaction engines are driven by ERP software. The issue, then, is far more complex than the e2 Source: Ernst & Young 5 business evangelists make it out to be. E-Business simply does not work without clean internal processes and data.
Hence it is necessary for organizations to devote resources to both technologies that facilitate transaction processing and the communication capabilities of e-nabling technologies. Interactive relationships with Value-Chain Partners: Companies derive much competitive advantage today from their ability to relay information quickly through the value chain. The ability of each participant to retrieve information from a tightly integrated value chain and then to act on it results in greater value for customers. A company that combines ERP technology with Web-based technology looks something like Figure 2. E-Buy ERP E-Sell Figure 2: ERP and Web-based Technology Together Extend the Enterprise3
With the e-buy/ERP/e-sell enterprises extended across the value chain, companies can create tightly linked extended enterprises. Because information is more easily available using Web-based technology to connect both suppliers and customers, the opportunity exists for an enterprise to create new business strategies based on transforming a value chain into an integrated value network. ERP boosts E-Business Potential: Communicating with partners in the supply chain and with customers in the demand chain is not enough. In today’s business world, coordination is key. Business is working toward frictionless information flows, with information flowing to more places more easily.
Web-based technology affords the enterprise the ability to get more information to more places more easily. ERP technology affords an enterprise, its business partners in the supply chain, and its Grant Norris, James R. Hurley, Kenneth M. Hartely, John R. Dunleavy and John D. Balls, “E-Business and ERP: Transforming the Enterprise”, John Wiley and Sons, Inc. 2000 3 6 customers in the demand chain the ability to coordinate the information they have and to determine how they present it to others. Complementary Technologies of ERP and E-Business: ERP and Internet technologies are rapidly coming together. ERP is the internal technological hub of a single enterprise.
Web-based technology extends each enterprise’s internal information infrastructure into the external environment. While ERP technology supports current business strategy, e-business opens the door to new strategic opportunities. Today’s ERP systems, when fully installed as integrated suites, can be thought of as central repositories of internal corporate information. ERP software helps organizations to effectively and efficiently manage all their internal information resources to meet overall goals. On the other hand, Web-based technology provides connections via the Internet to a host of external parties. Figure 3 depicts how ERP and Internet/ Web-based technologies can come together and complement each other.
Shareholders Customers Researchers & Developers Financials Logistics ERP Suppliers Sales & Mktg. Knowledge Management Manufacturing Outsourcing Service Providers Human Resources Advisors Internet Business Partners Distributors Figure 3: Complementary Technologies of ERP and E-Business 7 It should be noted that knowledge management is not associated with any one technology. Rather, it is depicted as a process that requires an organization to tap the data in all information channels and consolidate that information so that it is meaningful to the business. Software Provider Challenges4: ERP software providers face a number of challenges when reinventing themselves for e-business.
Because ERP applications manage internal business transactions, they generate these assumptions about how business processes are managed: • • • They are controlled by one organization Transactional information should be combined into large totals. Only certain people participate in specific processes. The fundamental design of traditional ERP systems thus inherently conflicts with the outwardly focused, interactive, event-driven model of e-business. E-business operates under these assumptions: • Control of business processes can be shared or dispersed among many organizations • • People need access to small quantities of some transactional data in real time. Many people participate in a variety of processes.
ERP software providers must overcome this core conflict in one of three ways: 1) They must redesign the interfaces, processes, and underlying architecture of their systems to operate in a three-tier, thin-client environment tailored for a variety of users who require flexibility. 2) ERP software suppliers must learn to use a new set of Web-based technologies and incorporate Web-based features into their software offerings. 3) They must make their transactional systems more compatible with front-office applications – a difficult task because core ERP software operates differently from ERP extensions. ERP systems providers must reconcile and integrate their 4 Erin Callaway, “ERP – The Next Generation”, Computer Technology Research Corp. 8 isparate data models and execution engines, which may require separating the ERP extensions from the central ERP database. Appendix 1 provides a summary and evaluation of the various offerings of the major ERP vendors. Dominant Architecture in the ERP/E-Business Marriage: As ERP and e-business technologies compete for dominance in the future, companies constructing their systems architectures can choose between two main options: a more fully integrated ERP system that adds robust customer relationship management (CRM) and supply-chain management (SCM) modules, as well as Web-based interfaces with outside entities; or a best-in-breed portfolio-assembly model.
A multi-vendor system gives a company the opportunity to purchase the best in class of each functional module. However, implementing this solution may mean increased costs and a need for greater resources. A single-vendor, packaged solution may ease the implementation but may also sacrifice functionally and features available in any particular area. Many vendors of ERP and e-business solutions are using Internet portals to combine both options. Through a single portal, a user can enter a universe of integrated solutions to myriad problems. The concept of portals is discussed in detail, in the section on portals – appearing later in this report.
Web Enabling ERP: ERP software providers often begin Web enabling their products by making them accessible via a Web browser. Web enabling an application is significantly different from reengineering it to leverage Internet technology. However. ERP software vendors must go beyond Web enabling their products. This is discussed in detail further. Modern ERP systems were constructed to operate in a Client-Server computing environment, where the application is distributed between a server that 9 manages the application, business, and database and a fat client, which is the client PC that performs the application processing to interact with data in the database.
The advent of Web browser enabled users to access the ERP system remotely without requiring the fat client-side application. ERP software providers supply this remote access through their own technologies or through multi-user application server software such as Citrix WinFrame, which allows users to run Windows applications from any client with any type of connectivity – a modem, Internet, intranet, or wide area network (WAN) connection, for example – on any hardware platform. Such an arrangement of the Client-Sever Architecture of Web-enabled ERP software is shown in Figure 4. Data Flow Database Business logic Application logic Web client Extraction tool removes interface from ERP system Server
Figure 4: Client-Sever Architecture of Web-enabled ERP software To compete with next-generation, Web-based software, ERP providers must add more than a Web browser interface to their packages. They must rebuild the extended products that the Internet makes possible. They need to provide: • • Quick, simple reconfiguration of business processes Intuitive interfaces that require no training 10 • • Real-time or near real-time data access Interactive and collaborative features such as real-time chat and white boarding, which is the ability to electronically sketch out ideas or pictures for real-time interaction • • Real-time analysis Open access to any internal or external user
N-tier Architecture: Adding a browser interface to an ERP system does not enable any extended functions because the Client-Sever architecture of the product is not changed. Vendors must rebuild their software to provide next-generation e-business capabilities. Using a multi-tiered architecture – often referred to as an n-tier architecture – distributes the applications across a thin front end, a Web server, an application server, and a database. Such an arrangement is shown in Figure 5. Client accesses middle layer Database Thin client Web server Figure 5: N-tier Architecture Application Server SAP’s Business Framework Architecture exemplifies such an n-tier extended ERP system. 11
Following are some of the main benefits of an n-tiered architecture: • The application can be designed to access only certain pieces of data from the ERP system, enabling safe operation by a range of external users. • The application’s performance, availability, and response time improve because users do not directly access the ERP system. • Developers can redesign the application interface to present data and functions in a simple, more logical manner. • The application is more scalable and reliable because of techniques that can be used in the Web application server, such as process clustering, load balancing, and high-availability failover. Some of the user benefits include: faster implementation, faster response to process and organizational change, flexible software use, improved system maintenance, simpler integration with other software, tighter integration with supply chain partners, faster introduction of new applications, improved scalability and less exposure to technological change. N-tiered based ERP systems are suited for best e-business, allowing companies that have already purchased ERP systems to leverage their investment. In the following sections of this report, we now go on to look at the recent developments in this field of ERP systems, as they apply to e-business. ERP and E-commerce: Software vendors including ERP vendors are trying to position themselves as ebusiness companies by providing e-commerce software. These software providers and 12
ERP vendors are moving to capitalize on the growing e-commerce frenzy by facilitating their customers’ needs to buy and sell online. E-commerce software and back-end systems, including ERP software, must be integrated for companies to manage the fulfillment process seamlessly. Back-end integration helps companies track the transactions they conduct on the Web. Companies can then coordinate the data they collect from online transactions with information they gather from other channels, such as telephone, traditional retail stores, and in-person interactions. Integrating e-commerce sites with back-office systems allows companies to present an organized, professional image to their trading partners and customers.
Tight integration enables the company to recognize online customers because their histories, including data gathered from other channels, reside in one location – thus enabling the company to provide superior and improved customer service. Providing this continuity is critical for e-business success. Without it, customers loose their sense of security and trust when conducting business on a Web site; they cannot be sure the company is effectively managing its information. ERP Software Vendor offerings: As of today, there are a number of ERP systems vendors who are providing e-commerce applications too. The e-commerce application demand is too high and the core ERP application market is too slow for ERP suppliers not to integrate e-commerce applications into their packages. E-commerce products vary between ERP vendors.
Some vendors are developing their own applications, while others are partnering with third party ecommerce software providers. Most ERP software providers currently focus on six types of e-commerce applications: B2B selling, B2C storefronts, Commerce engines, Selfservice applications, Internet based procurement and Portals. ERP applications for B2B selling allow business partners to check order status, pay bills, and initiate orders to replenish inventory. B2C storefront applications enable 13 companies to create retail-like Web sites with features such as catalogs and shopping carts. Commerce engines (also known as e-commerce servers) separate ctivity that occurs on a Web site from the back-end systems. This critical process protects internal systems from security breaches and usage spikes that can interrupt important transactions. Self-service applications allow users to access information or transactions that would typically require additional assistance – like obtaining purchase orders, checking inventory levels, checking order status, etc. Out of these, Internet based procurement and Portals are by far the most important and promising and hence are discussed in detail in the later sections of this report. Appendix 2 provides a detailed list about the e-commerce product offerings from leading ERP software vendors.
ERP software vendors need to overcome a number of obstacles, before they can prove to be experts in this field. Some of these obstacles include: • ERP systems take a specific approach to business planning that does not necessarily apply to e-commerce. • ERP systems are fundamentally transaction-oriented systems designed to process numbers and automate internal business processes. E-commerce is an externally driven model. • Implemented ERP systems are typically rigid and difficult to change. Ecommerce requires total flexibility. • ERP software was designed in the Client-Server era. E-commerce must be Internet based. • ERP software providers are burdened with market perceptions that they are and will remain back-office vendors. 14 •
ERP system providers are latecomers to the e-commerce arena. Many new, next-generation competitors already have far more e-commerce expertise. The functionality and sophistication of e-commerce products currently being released by ERP software providers are often two or more versions behind existing products. Some ERP software providers will succeed with their e-commerce initiatives. Some ERP players will fail at the challenging transition from back to front-office software supplier. The strategies and products itself being offered by these ERP vendors will change rapidly during the coming few years. Hence buyers need to carefully examine their options before selecting an e-commerce software provider.
Portals: A portal is a Web site that houses a collection of information related to a specific theme or topic and provides visitors with access to related services and information sources. Portals also typically include the ability to conduct transactions5. Figure 6 describes how Portals provide web access to collections of information. Vertical hub Web portal Internet Legacy applications Marketplaces Business partner applications ERP Figure 6: Portals Provide Web access to collections of information 5 Erin Callaway, “ERP – The Next Generation”, Computer Technology Research Corp. 15 Portals and Business: Today many business portals are being designed and launched for business applications. Today, ERP software providers are designing their portals primarily for business users.
Many companies are becoming interested in businessoriented portals because of their potential benefits, which range from simplifying information access to streamlining business processes to sharing information across otherwise functionally and geographically disparate parts of the company. 6 Marketplace Portals: Many ERP providers have created portals where their customers can access extensive lists of goods and service suppliers. The ERP software supplier aggregates – either directly or through partners – a large collection of companies that sell products and services and enables their customers to buy from them. Large ERP vendors, including SAP and Oracle, are strong proponents of this approach. They believe that their extensive customer bases will attract a significant number of sellers to the market. mySAP. com is the SAP marketplace portal. The mySAP. om marketplace which supports online catalogs, auctions, and spot-buying, is divided into 22 interest communities – including Automotive, Banking, Business Technology, Chemicals, Complex Manufacturing, Engineering and Construction, Forest Products, Health Care, High Technology, Human Resources, Insurance, Metals, Oil and Gas, Pharmaceuticals, Public Sector, Retail, Service Providers, Telecommunications, Training and Utilities. mySAP. com also enables companies to participate in collaborative transactions with their trading partners. The corresponding Oracle Marketplace Portal is Oracle Exchange. The Corporate/ Desktop Portal: Portals can also be used to give employees easy access to the typically disparate and disconnected business systems they need to complete their jobs.
Via desktop or enterprise portals, which are also referred to as David Essex, “Get into Web Portals”, Computerworld (15th March 1999) [Online]. Available: http://www. informationweek. com 6 16 corporate portals, employees can access both internal and external software and systems. Desktop portals are Web-based interfaces that give users access to all the disparate applications through one screen on their PC. Many ERP providers are designing enterprise portals. For example, mySAP. com includes a desktop portal component called mySAP. com Workplaces. This desktop portal provides SAP R/3 users with a single Web-based point of entry to job-related software and information, including mySAP. om Marketplace, applications in SAP R/3, and applications on other systems. The Vertical Hub: Vertical hub portals target specific groups of companies in the same industry. Unlike marketplace portals, which offer more generic commerce services, vertical hubs such as PlasticsNet. com, ChemNet, and VerticalNet. com provide services, transactions, and other content tailored to the needs of a specific industry. Few ERP providers currently provide industry-specific portals, but some like SAP have announced intentions to do so. Portals and ERP: Why are ERP software providers developing portals? It is mainly because “They want to control the desktop. If customers can be convinced to use ERP systems as the main entry point into all other applications and information sources, ERP vendors will achieve that goal. The Business Case for Portals: Enterprise portals facilitate accessing a variety of internal and external applications and information sources. In a traditional client-server environment, users must sign onto the system many times to access different applications. An entire application may need to be loaded onto their computers, even though they may use only a small portion of that software. Employees are limited to applications that run in a client-server or windows computing environment and in addition to that, they can use only applications and databases that exist within he physical location of their company.
Maintaining desktop environments is also expensive and cumbersome because individual applications must be installed on each machine. 17 Enterprise portals, on the other hand, allow users to access both internal and external applications and information sources simultaneously via a single, customized, browser-based interface to meet their specific needs. Enterprise portals are easier to maintain because they deliver applications to multiple users via a centrally located server, accessing only those specific components of particular applications related to their jobs. Linking Portals to ERP Systems: Companies require an Enterprise Application Integration (EAI) tool or framework to connect the disparate systems they want to access via their portals.
EAI tools are necessary as long as companies create portals that access both ERP software and external systems, even if they use portals offered by their ERP software provider. Figure 7 illustrates this. Also data integration capabilities will be required to gather data from structured and unstructured data sources. Legacy Systems ERP External Systems Enterprise Application Integration (EAI) layer Web portal Figure 7: Using Integration Software (EAI) to link Portals to ERP. 18 Internet Procurement: In addition to e-commerce and portals, ERP software providers are expanding into the areas of Internet-based procurement. Traditional ERP software includes purchasing functions that allow users to create P. O. s and requisitions, receive invoices, and log spending, for example.
Because of their design, however, traditional ERP systems made a single administrator or set of administrators responsible for the entire purchasing function, requiring every employee with purchasing requests to funnel through that channel. Next-generation ERP systems manage purchasing differently. By using Internet technology and leveraging the component-based architectures of newer software, many ERP package vendors are opening the purchasing function, making it easier for employees to participate in the purchasing process. This is illustrated in figure 8. Employee searches online catalog Employee submits online requisition The Web Employee Requisition is automatically routed and approved Goods are sent directly to buyer
Purchase order is sent automatically Figure 8: Internet and Component Technology Opens the Purchasing process 19 Internet-based procurement enables companies to reduce spending by efficiently managing their purchasing habits, leveraging their total spending power, and lowering the number of suppliers in the chain. Potential savings are tremendous – often in tens of thousands of dollars. Internet-based procurement systems give the purchaser control over the shopping by providing access to online catalogs, which may be buyer managed, seller managed or third party managed. ERP software providers may use one or a combination of these catalog management tools.
In an Internet-based procurement system, once a requisition is approved, Internet procurement systems automatically generates the P. O. and the P. O. is sent to the supplier, whose address and account information reside in the ERP system. Sophisticated systems also enable the buyer to receive goods at his/her desk rather than at a general receiving bay, allowing the buyer to record the delivery in the procurement system. The entire process occurs without involving an administrator. Some Internet procurement systems, such as Oracle Strategic Procurement, combine data and analysis about supplier performance, including their history of quality and ontime delivery, in the routing and approval process to facilitate informed decisions.
ERP software suppliers that offer or plan to offer Internet procurement appli