Waterstone Consulting News & Events

ERP Integration: A Holistic Approach

By Joe Bley and Matthew Jones
Simply possessing an internally focused ERP system is no longer enough to guarantee success in today's competitive marketplace. To formidably compete, everyone-including your competitors-is utilizing ERP. Once viewed as the "secret weapon" of only the very rich and profitable, ERP systems have now found their way to the mainstream, as today's Fortune 1000 market is virtually saturated-and the mid-market is nearing similar proportions.

Today's challenge lies in elevating your costly ERP investment to the next level...but how? The answer may require a fundamental shift in the way you view doing business.

Surpassing your competitors begins with extending your ERP system beyond the four walls of your enterprise-and, from the earliest planning stages, maintaining a "holistic" approach to installing it. Linking your ERP system with those of your customers' and suppliers' is a great way to get ahead. Linking these systems through electronic commerce applications, however, is the true key to success.

What is a "holistic" Approach?

What do electronic commerce and ERP systems have in common? Plenty if your company is seeking the next sure-fire formula to successfully surpass the competition.

Take the example of a growing company that manufactures and distributes diversified novelty products, and processes orders from over 36,000 field representatives each month. This company invested significant dollars in developing a state-of-the-art Web site over which field representatives could place product orders. However, because it did not initially integrate this order-entry system with its internal ERP system, the company was not able to take full advantage of this Web-based investment. Specifically, orders received over the Internet by the manufacturer were then manually re-keyed into its SAP R/3 system an error-prone, expensive and timely process.

Looking to better leverage its front-end order entry process, the company commissioned a consulting company for ERP and supply chain expertise to seamlessly link its Web site directly with its SAP R/3 system. Once fully integrated, the company realized immediate benefit is through a streamlined order entry process: reduced order costs, increased customer satisfaction, shortened lead times and more accurate orders. The resulting savings due to the streamlining of operations was immediately apparent, and quickly translated into hundreds of thousands of dollars.

Before further exploring how your company might reap the benefits of extending your ERP system beyond the four walls of your enterprise, it is important to first understand the scope of ERP, and how these systems can radically transform the simplest of business processes, both internally and externally.

The State of ERP

The usage statistics are staggering: Cambridge, Mass.-based AMR Research estimates that in 1990, total ERP sales amounted to no more than $1 billion. Today, the ERP market, including third party hardware, database and network providers, has blossomed to over $42 billion. While ERP systems originated in the manufacturing market, usage has now spread to nearly every type of enterprise including retail, utilities, healthcare organizations and the public sector.

As users from these markets become more savvy, their needs become more complex. As a response to these needs, many leading ERP vendors have begun to recognize the importance of offering a complete suite of ERP services to their customers. Over the past year alone, several ERP software providers have acquired front- and back-office solution providers, or have developed their own solutions.

This trend is illustrated through PeopleSoft's acquisition of Siebel and Vantive (both developers of software which streamlines corporate sales force operations); Baan's acquisition of CAPS Logistics (a leading developer of transportation planning and scheduling software), and SAP's development of Marketing, Sales and Service modules. Now the pressure is on for these vendors to deliver a solution that goes beyond an organization's four walls.

It is widely understood that internally, ERP systems allow for a seamless link between a company's back-office department (HR, finance, and merchandising/marketing) and front office departments (POS systems, customer service). Linking these systems internally is vital to ensuring adequate, accurate and timely information transfer among all departments.

However, to reap maximum benefits from an ERP investment, the system must be expanded beyond your enterprise to tighten your customer and supplier relationships. This is best accomplished through implementing an electronic commerce solution that seamlessly integrates with your existing ERP solution.

Looking to the Outside

The commerce tide is changing, especially in the manufacturing industry. Rather than pitting suppliers against each other, the trend now is for manufacturers and suppliers to work together to exchange information and meet customer needs. Holistically expanding your ERP system, via an electronic commerce application, to include customers and suppliers, may require a fundamental mindset change. However, the benefits of this arrangement will truly outweigh the fears:

Linking with Customers and Suppliers via Internet-based Applications

Once the decision is made to holistically integrate your ERP system with your external partners-companies will need to evaluate the Internet-based solutions. The "grandfather" of the modern-day Internet, Electronic Data Interchange (EDI) is still a fundamental method by which manufacturers, suppliers and customers exchange information, and has been the de facto means of doing so for many years. Although EDI systems are more exclusive (requiring expensive software) and inflexible in much of the data they can transfer, this may soon change.

Gartner Group analysts predict that of companies utilizing EDI today, 80 percent will implement extranets within the next five years. Why? Allowing EDI transactions to run over an Internet-type network will allow companies to keep their current EDI systems in place, while enjoying the Net's lower costs. By 2003, more than 30 percent of EDI data is expected to traverse the Net. In addition, extranets allow for a more collaborative approach to doing business, and allow businesses to cheaply exchange more data - including sales contracts, product brochures and engineering drawings.

Conclusion

By holistically integrating an internally-focused ERP system with externally-focused Web-based applications, companies can create true competitive advantage, enabling better vendor/customer communication and maximizing the return on their costly ERP investment.

Whether you communicate to external audiences via traditional EDI platforms, or Web-based extranets, the company that survives in the 21st century will be that who understands the shift from today's "pushing" of products and services to a more customer-oriented "pull" model. Focussing your ERP system externally through the use of Internet-based elements is a key strategy that will enable your enterprise to surpass the competition and ensure your viability in a technologically competitive marketplace. The economy of the future will become increasingly demand-driven, with the customer dictating the rules of trade. Companies that are quick to try, quick to learn and quick to adapt will win. However, companies whose internal processes don't run on Internet time, will be left behind.

Ensuring Secure Data Transactions

As ERP systems contain all the key information about a business and how it runs-one major concern many companies have in expanding this system to include vendors, customers and suppliers, is communicating via the Internet. Rest assured, there are many security mechanisms that can be integrated within an ERP system to ensure complete privacy of your company's data.

Encryption & public/private keys-Public and private key encryption technologies are utilized to encode a wide variety of information. The most common example of key technology is found in the software product PGP, now owned by Network Associates. Used in everything from e-mail messages to credit card order information, public/private key encryption makes sure that data is transferred securely, and confirms the identity of both the sender and receiver of the information.

SET (Secure Electronic Transactions)-SET is a protocol that, like public/private key encryption, uses digital certificates to make sure that both parties involved in a financial transaction are who they say they are. Order and purchase information sent using SET is encrypted, and is only readable by the certificate holders. The main difference between SET and public/private keys is that the digital certificates used in SET are issued by a third party that confirms the user's identity. SET is supported by Visa, MasterCard, and many of the leading software and financial institutions, and is poised to become the standard for secure, authenticated transactions.

Network security via firewalls-Firewalls are a popular method of monitoring and controlling access to local networks and information servers from the Internet, and also monitoring local users' Internet behavior. Firewalls are designed to deny access to network devices, but can also be configured to allow certain users limited access to resources behind the firewall.

Ongoing monitoring programs-As with physical security, maintaining data security is an important function. IT staff members should be constantly mindful of any unusual events or anomalies.

With these security practices and mechanisms in place, your company can comfortably open your ERP system to reveal only the most pertinent information to vendors, customers and suppliers-while also ensuring the privacy of other important data.

A Case Study

Allegiance Healthcare Corporation, a $4 billion manufacturer and distributor of healthcare products located near Chicago, is currently implementing a web-based-EDI system which, when complete, will seamlessly link the company with its suppliers.

Negotiating pricing contracts with its suppliers has always been a challenging process for Allegiance. Even more challenging, is keeping contract information current, and extending the correctly negotiated prices to given customers, as thousands of transactions are processed by the system each day - and contract terms change often.

Currently, suppliers must transmit finalized pricing contracts to Allegiance via EDI over a value-added network (VAN). While extremely secure, this system is more costly and less flexible than a Web-based system. Once received, contract information is then manually re-entered into the company's SAP R/3 system.

With an Internet-based EDI system in place, contracts from suppliers and distributors will be automatically fed into the company's SAP system. In fact, the company will be able to leverage its current EDI investment, thanks to EDI translator software being implemented into the new application. The benefits of utilizing Web-based EDI as opposed to VAN-based EDI to exchange contract information will include:

Cost savings - a staff is no longer needed to re-key contracts
Reduction in errors - since no re-keying occurs, fewer mistakes are made
Faster contract processing - once contract information arrives, it is fed automatically into SAP R/3-thus enabling faster pricing changes

Once in place, this Internet-based system will link Allegiance more closely with its suppliers, enabling faster contract processing and more accurate product pricing-a capability that will have significant impact on the company's bottom line.

About the Authors

Matthew Jones is a Manager at Waterstone Consulting where he heads the Electronic Commerce Solutions Group, specializing in Internet, intranet, and extranet technologies.. Mr. Jones works with Fortune 500 customers to identify the most appropriate technology solutions for their applications and provides executive level consulting for product development organizations.

Joseph Bley is a Manager at Waterstone Consulting, where he heads the Electronic Commerce Solutions group, specializing in Internet, intranet, and extranet technologies. Mr. Bley has extensive EC systems strategy and implementation experience. He holds a BS degree in Computer Information Systems from Indiana University.