April 2000 | Commentary | IT Matters

Buying an ERP System in the Internet Age

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The standard business model on which an enterprise resource planning (ERP) system is based is inherently inward-looking. An ERP system, typically with client-server architecture and a Windows interface, works on the assumption that a fairly small number of company employees within a specific department will need to access an application.

The advent of the Internet has resulted in a far different business model—an outward-looking, web-based model in which company information is open and available to anyone with authority to access it. In the outward-looking model, web technologies replace electronic data interchange (EDI), the benefits of which never materialized for mid-sized companies because of its high cost.

Business-to-business sales via the Internet are expected to total $1.3 trillion by 2003. To participate in this new channel, mid-sized companies looking to invest in an ERP system need to closely examine the packages they are considering to determine how compatible they are with the Internet business model's open approach.

Companies move through three basic stages in the evolution toward an e-business model. Most ERP systems on the market are in one of these stages:

1. Web Enablement. In this stage, a company moves information and applications from its client/server setup to web servers. Users can retrieve information remotely on any equipment from a home PC to a Palm Pilot, regardless of location.

2. The Extended Enterprise. Once a company's information is on an intranet, it's easy to extend access through an extranet to suppliers, vendors, partners, customers or other businesses. This allows:

  • Suppliers, dealers or distributors to access the ERP system's supply chain management, electronic procurement, stock management, integrated forecasting and quality systems management functions to keep up with the company's changing requirements.
  • Customers to place and track orders and interact with customer service representatives.
  • Employees, salespeople or technicians working in the field to upload reports and access company documents such as purchase orders, forecasts and shipping notices.

3. The Optimized System. In this stage, an ERP system meets the e-business need for responsiveness, flexibility and speed. Communication is almost instantaneously interactive and information is continuously updated.

A mid-sized company considering integrating its business processes on an ERP system should examine how far the company has evolved in terms of e-business and what its specific needs are.

For mid-sized companies, especially, an ERP system must be:

Easy to install. Installing and integrating an ERP system is a major investment in time and money, and represents a significant risk for a $10- to $250-million company. It can dramatically change the corporate culture and can put a strain on company finances for a long time.

Easy to operate. The more people who access the ERP system, the easier to operate it has to be and the more it should rely on standard graphical user interface conventions.

Modular. It must provide the full complement of finance, manufacturing, and distribution functions the company needs and be scalable to change with the company.

Well parameterized. Companies need to alter their business processes to accommodate specific customers and transactions. To do this, they have to be able to set a wide range of parameters within the ERP system. Proper use of parameters can give a company the flexibility it needs to maintain its competitive advantage.

To find the ERP application that accommodates your e-business goals takes considerable up-front evaluation of company needs. It also requires you work with an ERP vendor with a flexible system and experience implementing ERP systems for e-business applications. Finally, your company should make sure the ERP system will evolve with your needs, not force you to change the business processes that differentiate your company from its competition. The goal should be to move as quickly as is reasonable to the third stage of e-business evolution to enjoy the cost efficiencies and enhanced performance that it embodies.

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