ERP and Internet Applications - Solutions and Applications - Research Paper Example

ERP and Internet Applications - Solutions and Applications Table of Contents ERP and Internet Applications - Solutions and Applications 1 1. Introduction 1 2. Marketing Overview of ERP Solutions 7 3. Conclusion 22 References 23 1. Introduction Enterprise Resource Planning – ERP applications are large enterprise wide software applications that would integrate diverse legacy applications that a large organization has developed over the years. ERP solutions typically cover functions like stores and inventory management, procurement, manufacturing, supply chain management, logistics, marketing and sales and others. ERP applications are the workhorses of large organizations with global operations and they help to control the production, inventory and ensure that various processes and operations run to meet the organization goals. The utility of ERP in building applications was never an issue. ERP with decades of implementations in global applications has served its role very well, but the systems and applications are very expensive, complex and take months if not a couple of years to implement. However, what proves difficult is to move the complex LAN based ERP solutions to the Internet and make the system web enabled. Among the issues that emerge are integrating various complex modules of ERP to the Internet, splitting the applications and codes to make them lightweight so that they can be accessed through the web and most important, ensuring that the deployed systems are secure. However, with organisations assuming operations globally, it is imperative that the ERP vendors find ways and means in which the applications can be used by personnel from other locations who would use the Internet as the medium. Till the past few years, deploying full scale ERP applications across he web was not very popular. However, with the introduction of Service Oriented Architecture - SOA the integration of ERP and the Internet is easy, cost effective and technically feasible. SOA with its web services has become the architecture of choice for deploying smaller systems and applications for organizations. SOA is more economical to implement and low cost integrators from China and India can very well take up the development and implementation work (Brehm, 2006). Internet solutions and technologies are an extension to enterprises that provides tremendous business opportunities. The Internet brings a new level of connectivity to processes that reach inside as well as outside of organisations. SAP provides Internet applications to help lower business costs and increase customer satisfaction using the Electronic Commerce Internet application. This paper would examine in detail how the ERP can be integrated to the Internet using SOA. 1.1. Gartner Hype Cycle for ERP The Gartner Hype Cycle is used to evaluate and predict the maturity levels of different technologies. In the hype cycle chart, the technologies are placed at different points of the curve to denote the expectations versus time. The bell shaped curve has different areas in which various technologies are placed. The slope of the rising curve is represented as the technology trigger and this reaches the Peak of Inflated Expectations where the expectations that the technology would deliver are the highest. The slope of the curve now starts falling and reaches the lowest point at the Trough of Disillusionment. The slope now starts rising gradually and this is the slope of enlightenment and the curve now reaches a small plateau of productivity when the technology is stable and is in common use in the industry. Products and technologies that are at this plateau are supposed to have been diffused into the mainstream industry and are being increasingly used. (CIO, 2010). Please refer to the following figure that shows the hype cycle curve. Figure 1.1. Gartner Hype Cycle (CIP, 2010) As seen in the figure, ERP is currently at this point of the curve and this indicates that ERP is being commonly used in the industry and it is being on the rising plateau of productivity. 1.2. Problems with ERP Experts in the ERP implementation in various industries have often vilified ERP solutions as a ‘massive government organization that very few understand and very few can control’. While such reports are exaggerated, they reveal the frustration that these application create during development. Part of the problem is that many of the modules for HR, finance, manufacturing, inventory, supply chain management, sales, logistics and others require a certain set of business rules. These business rules are to be clearly defined and well adhered to by the organization and this rarely happens. Organizations have to operate in the open market where the ground realities are different and they may keep changing now and then. When a sales forecast is made, it factors in indicators such as the GDP, cost of living index, purchase parity, inflation, historic market demand and others and uses complex algorithms to make the forecasts. The whole cycle of procurement from vendors, inventory management, billing, recruitment, manufacturing and marketing would be based on these forecasts. If the forecast has some errors, then there will be a bull whip effect in both the upstream and downstream flows and the result is either a bloated inventory of raw materials and unsold goods or a stock out situation. Both these effects can ruin businesses. However, ERP solutions are able to factor in some elements of corrections manually and massive losses are usually averted. In addition, the fact remains that in many organizations with a number of legacy applications, integrating the databases of these applications with the central ERP solution becomes very difficult. Ensuring that the applications are able to speak with each other becomes a bigger problem as data integrity has to be retained, data tables have to be updated and there are many other problems that ERP implementers face. In many cases, the legacy applications are not very well defined and structured and usually the local expert would carry out regular tweaking and trouble shooting to ensure that the legacy applications are running. These problems cannot be handled by the ERP application and hence the bad name (Rettig, 2007). 1.3. SaaS and ERP Software as a Service - SaaS has emerged as a strong player in the application services area. In this model, a software vendor gives licenses for an application to customers who use the applications as a service on demand. Software vendors either host the application on their internal servers or provide time bound or transaction based access to the customer. Additionally, they may even provide download facility to the internal network server of the customer and disable it after the set license period expires. Advantages of this model is that the cost of licensing is very marginal when compared with the cost of acquisition. Customers who may not have sufficient development expertise can demand new applications to be delivered at reduced costs. This concept is an extension of the application service provider that existed a few years back (Bennett, 2000). It is estimated that by 2015, SaaS would increase its business by 500%. Many applications have been offered through SaaS and they include CRM, HRM, financial and accounts management, web content management, eMail services, IT security, IT service management and so on. Many leading firms such as Oracle have started offering SaaS. One small company called Salesforce.com that offers SaaS and ERP solutions on SOA has reported a turnover of 1 billion USD for 2009 year end. There is thus a growing interest in SaaS as a means to reduce software procurement, development and maintenance costs. An important success factor for SaaS is that it would work only when economies of scale are in place and when a majority of customers are ready to buy off the shelf and commodities products. If each customer would require some element of customization, then the concept would be in trouble since the service provider would not have the means to provide customization for everyone. The concept would also not work if highly customized and niche products are required (Carey, March 2010). SOA forms an important driver for SaaS and creating each software service as a service provider, it is possible to make the different services speak to each other. The functionality of the applications can be offered to customers using public brokers and adding functionality and data. SAP has introduced the ‘SAP Business By Design’ product that is a fully integrated ERP offering for SMBs. The product is a good instance of combining SOA, ERP on the SaaS model. The application would reside in the company hosted servers and access is provided to customers PCs and hand held devices. In this model additional concepts such as Cloud computing and infrastructure as a service - IaaS and also platform as a service - PaaS have been used. However, the business model has certain risks like if the service provider goes out of business overnight, then the customers would suddenly be cut off from the organizations database. Reliable service providers such as Oracle and SAP have better prospects than unknown and small companies that may vanish overnight (Fu, 2008). 2. Marketing Overview of ERP Solutions This chapter provides an overview of the marketing aspects of ERP applications. 2.1. How ERP - SOA Solutions work ERP solutions tend to be huge applications and it has been recommended that they should be integrated to the web using the Service Oriented Architecture – SOA. SOA can be visualized as having a number of layers and stacks with a number of components. Following figure shows the functional layers in the SOA architecture. Figure 2.1. SOA and ERP Architecture Functional Layers (Portier, 2007) The generic SOA would have a number of functional layers that are illustrated in the above figure. The bottommost layer is the operational systems and it includes the IT components and assets that would be the focus for SOA. The whole architecture is designed to use the entities in this layer and it includes packaged applications, custom applications and the OO applications. Next layer is the service component layer and this layer connects to the applications in the below layer. Consumers would not be accessing the applications directly but only through the services components. These components can be reused where required in the SOA. Next layer is the service atomic and composite and they represent the set of services that are available in the system environment. Business processes are the artefacts at the operational level and used for implementation of the business processes that are orchestrated as services. The topmost layer is the consumer layers and the represent the individuals or channels that would be using the services, business process and applications. There are also some non-functional layers shown on the sides. Integration layer gives the capacity to route, mediate and provide transport service requests raised by the consumer to the specific provider. QoS sets the requirements for availability and reliability of service. The information architecture has the capacity to support metadata, business intelligence and other data. Governance is used to give the capacity to extend support for aspects of lifecycle management of the SOA (Portier, 2007). 2.2. ERP Solutions in the Market Hamerman (2010) estimates that the ERP market is worth 21 billion USD out of which the license revenues is worth 6.2 billion USD. There are a number of large and small players with larger players such as Oracle, PeopleSoft, SAP, leading the market with implementations in large organizations. However, the lower end of the market is fragmented with a large number of smaller companies offering niche products. In addition, there is the emergence of freeware and low cost web based solutions that are very competitive in terms of price and that offer good functionalities. Following figure gives the functional footprints of ERP. Figure 2.1. Functional Footprints of ERP Systems (Hamerman, 2010) In the above illustration, it can be seen that the core tasks of a firm are run by ERP systems. Some tasks are inventory and order management, production, procurement, finance, human resources, accounting and others. In some cases however, the implementation are split and made for each department. In some cases, different legacy applications have also been used leading to further confusion and with different levels of success. Modules for HRM and finance are relatively successful in meeting the business needs of various departments. ERP vendors have expanded their product range to meet the market requirements and to meet requirements in other areas such as supply chain management, customer relation management, and supplier relation management. Many firms invest large sums in ERP systems and there is an increasing requirement to meet the regulatory requirements such as BASEL II, Sarbanes-Oxley Act and others. While there is increase in efforts to meet the requirements of regulatory agencies, organisations have also realised that there should be consolidation and integration to reduce costs. Following figure shows the market share in ‘000 USD of major ERP vendors. SAP has obtained a share and it is the largest vendor in terms of value of implementations and licenses sold. There was uncertainty in Oracle's fortunes as it entered into prolonged negotiations with PeopleSoft. SAP’s particularly strong growth in the US market where it has 38% license revenue growth on a constant currency basis and its license growth was also boosted by its program to convert customers over to the expanded mySAP ERP and mySAP Business Suite licensing program (Maurizio, 2010). Figure 2.2. Major ERP vendors and their market share (million USD) (Maurizio, 2010) PeopleSoft’s acquisition of J.D. Edwards and Oracle’s acquisition of PeopleSoft has brought in new market dynamics to the ERP vendor landscape. While SAP is leading the market, other companies such as Oracle and Microsoft Business Solutions are far behind, with new competitors emerging through the consolidation. smaller players look to mergers and acquisitions to gain economies of scale. These mid market vendors have taken varied approaches to differentiate. The net result is a new breed of sizable competitors in the mid market. Lawson announced a merger with Intentia to broaden geographic and vertical presence and while both focus on the upper end of the mid market, Lawson has concentrated on services verticals in North America and Intentia on manufacturing verticals in Europe. With similar technology strategies around IBM WebSphere and J2EE, the merged company can potentially achieve product and market synergies within the next two to three years. SSA Global is among the top 5 ERP vendors with 661.7 million USD sales in 2004. It has acquired Max International, interBiz Product Group (from Computer Associates), Infinium Software, Ironside Technologies, Elevon, Baan, EXE Technologies, Inc., Arzoon, Inc., and Marcam. The ERP midmarket shows intense activity as different types of vendors converge on this less-mature segment. SAP and Oracle are refining packaging of existing products to enable rapid implementation and stronger vertical alignment, as well as expanding indirect sales channels. Microsoft Business Solutions, meanwhile, is leveraging its already extensive indirect model in an attempt to establish leadership in this segment. Competitive pressure is also coming from the lower end of the segment, with Sage Group, Epicor, and NetSuite adding scalability to appeal to larger accounts. Though traditional midsize ERP vendors are positioned to deliver, vendors that not only grow through acquisitions but also deliver integrated, process-centric solutions will survive. Newcomers will build strong partner networks. A highly leveraged, indirect channel is needed to reach the tens of thousands of midsize companies. Microsoft Business Solutions has built a vast indirect partner channel that has proven successful in this market. SAP and Oracle have a long way to go to build similar channel leverage, although SAP has made some good progress to date in channel development and has recently developed a more structured approach with an initiative called PartnerEdge. Incumbents will respond with various growth strategies. Incumbent midmarket ERP vendors have built barriers of entry through the investment in deep verticals and are approaching the market in three growth strategies. Organics are continuing to build capabilities internally. Aggregators are buying customer bases, re-branding, and focusing on maintenance revenue streams. Assimilators are acquiring competitors to develop breadth and depth and are focused on fully integrating product offerings (Pasley, 2010). There are also many open source ERP products such as SugarCRM, Apache OFBiz, Compiere, Tiny ERP, Plexus that can be configured as per user requirements and implemented for lower complexities of applications. These have been integrated by web services of SOA for different organizations and in fact, CRM modules that do not handle huge volumes of critical data have been fully converted into SOA web services enabled. However, full fledged ERP suites such as SAP, Oracle, PeopleSoft and other are massive in size and if they are to be converted to web enabled SOA offerings with web services, then it is estimated that about 30000 individual web services will be required. This is simply not possible, as making all these web services talk to each other would be almost impossible. However, with full-fledged ERP suites costing a few hundred million USD, major ERP vendors have realized that getting new customers is becoming more and more difficult and a majority of their sales comes from upgrades to existing customers. The market is not very eager to accept expensive ERP solutions for which organizations have to change their business processes and not the other way around. Oracle, SAP and PeopleSoft have taken up projects that involve using the SOA and web services for some of their common modules such as HR, Finance, CRM and even supply chain management (OpenERP, 2009). With SAP and Oracle dominating in the ERP market. this has led to deeper specialization by smaller competitors in areas where the Big 2’s functional depth is not as extensive. Incumbent midmarket ERP vendors have built a loyal installed base through the investment in deep industry expertise that goes beyond broad industry classifications, such as manufacturing into microverticals like food, medical products, and consumer electronics manufacturing. Though Oracle and SAP continue to seek deeper domain expertise, Oracle will continue to consider a strategy of acquisitions while SAP will be more inclined to develop in-house expertise. Manufacturing-focused vendors deliver deep domain expertise with micro-verticals and some vendors like Intentia have gone deep into areas with solutions for high fashion and footwear while building on their MRO strengths. QAD and Glovia International continue to expand their presence in automotive with OEM and tier N suppliers. While IFS has a strong solution in discrete and process manufacturing, it has been focused more on aerospace and defence, utilities, and enterprise asset management. Recent partner strategies announced by Microsoft (Brazel, 2010) Business Solutions and SAP highlight their commitment to developing micro-verticals through their partners. Service-based industries represent a large opportunity and while a majority of ERP vendors built on their manufacturing roots, other vendors diversified and focused on service-based industries. Consolidations and acquisitions have allowed smaller firms to upgrade their activities and presence. When Oracle acquired PeopleSoft, firms such as Epicor and Lawson increased their services to fill the gap. Epocor has advanced its services in the applications for hospitality services and distribution. There has been an increased activity even in the HRM applications and with the increase in vendors, PeopleSoft is not the largest vendor anymore even in federal, higher education and government services areas. Retek was acquired by Oracle to cater to retail and service industries. The healthcare market does not have many vendors and small ERP vendors are active here. It can be expected that in a couple of years, big ERP firms would acquire some of the smaller firms. Lawson is active in the field of healthcare and it provides modules for procurement, HR and finance but the firm does not offer solutions for the care of patients. Given below is an illustration of how the market is arranged. Figure 2.3. Market share of ERP segments (million USD) (Hamerman, 2010) It can be seen from above that there is increased revenue for all segments. The segment of maintenance has obtained the largest volumes for growth since the older systems that were implemented earlier would need maintenance. There is also increased activity around technologies such as .NET, IBM Websphere. Oracle Fusion, SAP NetWeaver and others. The preferred vendor for mid market requirements is IBM Websphere. 2.3. Integrating ERP and Internet for e-businesses - Competitive Advantages According to Ash (2003), adopting ERP gives firms a competitive advantage. The author has reported findings of a research done on how ERP systems were used for e-Business applications in 11 organisations. The results show that firms that use the applications fist try to decrease the administrative inefficiency and reduce costs. They use practices of e-procurement for increasing the buying efficiency. Other experienced users concentrate on the strategic benefits that would be obtained by the ERP applications. With the availability of web enabled ERP applications, there is a wider use of ERP systems. ERP systems that are Internet allow firms to build better business relations with other firms. This advantage is obtained by improving the efficiency and increasing the reach of the firms and by reducing costs. Firms that do not make use of this opportunity lose their reach and efficiency since other firms would enter the market and establish themselves. Firms such as Statoil managed to save 30% on their purchase budget of 2 billion USD while another firms called British Biotech managed to cut the turn around time for order filling to two days. With increased use and experience, organisations can obtain better services. Shown in the below illustration is about how eBusiness would interact with B2B models. The system has a B2BS suppler and an B2BC customer. The term B2BS is a part of the B2B network and the staff would be able to access the system of the supplier to view the product catalogue and pages, verify their prices, terms and conditions and so on. It has to be seen that B2E is regarded as a method to provide Intranet access to ERP led information. By using a web link, the connectivity is around the clock on a 24x7 basis. Access is given to policy manuals, process documents for different departments (Shields,2001). Figure 2.4. B2B model of a ERP-enabled firm (Shields,2001) To increase ERP advantages and benefits, end users need to give their comments and commendations. Implementation of ERP systems needs intense efforts of the staff and the management. There can also be an effort to build a learning system from the Intranet. It must also be mentioned that IT personnel and managers need to learn and understand better and new business models. To reduce the implementation hurdles, design of the system must consider the least trained employee or the one with the least experience. In addition, the interface must help users to be more efficient in their applications and work efforts. Continuous improvement is required in the design of the interface quality and usability and it must be done from the end users perspective. There must be a formal agreement where the employees have a common IT system for initiating the work. There should also be a standard method to procure and purchase the agreements with suppliers. The business strategy must be revealed to the staff. Following figure shows, a model used to build relations. Figure 2.5. Relationships building cycle model (Grabot, 2008) As seen in the above figure, changes that occur in the market and ERP developments are focussed on applications and models such as B2BS, B2C and others. Obviously, changes in customer demand helps to increase the development and relation between technologies and improvement in business forms. The arrows that link employees, customers and vendors show that the business interactions are built through empowerment, self-service, and there is an intensive relation between the various entities (Grabot, 2008). 2.4. Current and Future Market Trends in ERP Systems Djuric (2008) has researched the latest ERP trends and directions and the trend is towards adopting lean systems where the burden of costs are substantially reduced and the size and time for implementation also is reduced. There is an increasing demand and outcry to rationalize the costs of implementation, both in terms of software costs and the cost of employees. Large organizations that have already implemented ERP systems from SAP and Oracle are forced to use their existing systems, though they incur high maintenance and upgrade costs. Such organizations simply cannot afford to shut down their systems and move to a new architecture. The author argues that in some cases, the ERP systems that were initially implemented in the early 1900's have themselves become legacy systems; massive, cumbersome that takes ages to retrieve information. The centralized architecture they used when high speed computing and network connectivity was not available means that data is stored on a central server and then information is relayed around to different nodes. There is actually very little they can do about such systems as the replacement costs would be impossible to handle. This is not to say that these systems are obsolete but just that the method or archival and retrieval seems very long and unwieldy. McLaughlin (2007) notes that there is an increasing move by new companies to adopt open ERP systems that are light on costs, give only modules that are required and that can be implemented without too much changes in the organization structure. According to the author, many new open source ERP product suites such as OpenBravo, Compiere, Thingamy and others. The author notes that some advantages that open source enjoys is the vast amount of learning available from legacy ERP systems such as SAP and Oracle. These companies have an established set of best practices that can be easily adopted by small ERP vendors to build customized solutions at a fraction of the cost. Small to medium sized companies that may required ERP systems for automation, sales handling, invoicing, billing, HR solutions and even CRM finds these products appealing. The level of customization and further coding required is also very low and in effect, ERP solutions can be procured and consumed as a ready to use product with the least amount of extra efforts required. Following figure illustrates the trend of current ERP systems. The focus is on controlling spending and rationalization of costs. There is a move to consolidate large and monolithic enterprise systems and to build flexible solutions architecture. This trend is evident in hardware products, databases, middleware, web based applications and other elements of enterprise systems. The trend is to build as the needs arise and with scalable architecture, this is feasible. To start with, an organization would have smaller enterprise systems and as the organization becomes bigger or as more departments need to be brought in, other modules are integrated. While this concept was practiced in legacy ERP systems even earlier, the whole system had hidden coding and in effect, the whole redundant system was bought by a customer. While framing the requirement analysis, the possibility that future modules would be required was always understood and part of the coding was devoted to large access routings of non-existent modules. Figure 2.6. Current trends in Open Source ERP (McLaughlin (2007) Large global enterprises that have global enterprise systems would have some localization. It would be observed that for example, the HRM solution would have widely varying local requirements for salary and wages, benefits and leave. A major issue that legacy ERP systems have is that the earlier systems were designed for the business practices that were prevalent in the bygone days and the systems do not manage the current systems of business process management. Some examples are HCM, performance management, e Learning, agile systems, reengineering, work flow management and so on. Older systems were basically designed for back end users who would be entering values, updates and records into the systems while some managers would use commands and menus to make projections and plan the activities. In the current business scenario, this is not the case and users want hands on windows GUI type of interface that allows manipulation of data. To provide extra functionality for users in different locations, management implemented local copies of their “enterprise” system. Since there was a lack of focus on new talent-management functionality, they integrated the best solutions of the ever expanding user population and attempted to use enterprise portals, integration to third party business intelligence. As a result, there were multiple occurrence of highly monolithic applications with bolt-on integration. As a result, this has forced IT managers to raise questions of minimizing costs and complexity of the environment and how to move to an environment that would allow and not inhibit continuous business optimization (McLaughlin (2007). Next generation of products that appear would be able to offer flexible data models for the main business objects that are maintained by that application; role based security for access to application data transactions and reports; configurable workflow. It must be noted that core functionality can also be formed from low level services over the data model and then combined with generic services from a BPM platform. However, this process is very complicated. The latest trend is to create applications that are focused, globally relevant and built for integration. The focus will be more on conducting a through job of modelling the key business objects and not a casual modelling of the entire business. Instead of one data model for the full business and one set of fixed business process definitions, the next generation cores would give importance on the relevance for the customers products and services (McLaughlin (2007). 3. Conclusion The paper has examined ERP from the marketing point of view to integrate the application with the Internet. ERP applications such as SAP, Baan and others are typically very expensive, and the functionality is also very complex. Converting these complex application to the web would be difficult and very complex. The best alternative method is to use the SOA framework where SOA acts as the gateway to the Internet and allows users access to the complex applications. At the same time, there are also available a number of other light weight ERP applications and also Software as Service offerings where some commonly used ERP applications are available for hire at a fraction of the cost of owning full fledged applications. The future of ERP is projected to be strong and a positive growth is expected. It has also been seen that the ERP market is seeing a lot of consolidation with mergers and acquisitions. ERP vendors are offering light weight offerings on the SaaS platform to reduce the acquisition costs for users. In this way, there would be reduction in costs, rapid deployment and quick turnaround. References Ash, C., July 2003. Assessing the benefits from e-business transformation through effective enterprise management. European Journal of Information Systems, 12, pp. 297-308 Bennett, K., December 2000. Service-based software: the future for flexible software: in Seventh Asia-Pacific Software Engineering Conference, 2000. APSEC 2000.. 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A Research on the Architecture of ERP for Small & Medium-Sized Enterprise Based on Agent and SOA. IFIP International Federation for Information Processing, 254, pp. 599-608 Grabot, B., 2008. ERP systems and organisational change: a socio-technical insight. Springer Verlag Lt., UK Hamerman, P., June 2005. ERP Applications-The Technology And Industry Battle Heats Up. Forrester Research, Inc. USA Maurizio, A., 2010. EAI and SOA: factors and methods influencing the integration of multiple ERP systems. Journal of Enterprise Information Management, 20(1), pp. 14-31 McLaughlin, L., 30 October 2007. Open Source ERP: Today's Hottest Emerging Technology? Retrieved 25 October 2010 from http://www.cio.com/article/150050/Open_Source_ERP_Today_s_Hottest_Emerging_Technology_ Open ERP, 2009. Features of Open ERP solutions. Retrieved 26 October 2010 from http://openerp.com/discover/features.html Pasley, J., June 2010. How BPEL and SOA Are Changing Web Services Development. 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