ERP and BPR
Hammer and Champy in their book ‘Reengineering theCorporation’ state: ‘A company that cannot change the way it thinks about ITcannot reengineer. A company that equates technology with automation cannot reengineer. Acompany that looks for problems first and then seeks technology solutions for them cannotreengineer.’
Information technology is therefore not only seen as anessential enabler of the reengineering process, but actually ‘permits’ companiesto reengineer.
The real power of technology is not that it can make oldprocesses work better, which we have already seen with the MRP II systems, but that itenables organizations to break old rules and create new ways of working.
Organizations undergoing transformation whether followingBusiness Process Re-engineering or another philosophy must not be limited in theirthinking in any way. The whole basis of such organizational development is that peoplemove out of the limitations of the old problem-solving paradigm into an inductive thinkingapproach where they have the ability to recognise a powerful solution and then seek theproblems that it might solve, problems a company probably doesn’t even know that ithas. Managers therefore need to consider what else they can do with the information andtechnology at their disposal, constantly exploiting the latest capabilities of technologyto achieve entirely new goals.
Jean Baptiste Say, the early nineteenth century Frencheconomist observed that in many situations, supply creates its own demand. A case in pointis the success of the Sony Walkman which transformed, rather than responded to,people’s ideas about where and how they could listen to music.
We now have a situation where managers are really beginningto use information systems to drive their businesses rather than, as in the past, lettingthe systems be the constraining and controlling factor. ERP in its true sense, that is thetechnology combined with business transformation processes, is already providingsignificant benefits.
General Motors for instance, have moved away from one ofthe oldest unwritten rules in the book: treat vendors as adversaries, to a situation whereGM and their suppliers operate as one company to eliminate overheads and reduce time tomarket. Suppliers have direct access to GM’s production schedule and up to the minuteproduction information, delivering the appropriate parts to the assembly plant asrequired. There is no purchase order and no invoice, instead electronic messages inform GMof what parts have been sent. Integrated systems check parts actually received initiatingautomatic payment to the vendor.
Many global organizations are taking advantage ofintegrated databases to speed up new product development. Members of development teams maybe located anywhere in the world, but all have access to the same information and will usesuch technologies as teleconferencing and the Internet to constantly communicate,eliminating the old sequential nature of the development process whilst taking advantageof people’s expertise wherever they are located. Here ERP is really enabling thebreaking down of boundaries – departmental and geographical, whilst underpinning theteamwork paradigm so vital in BPR.
ERP is therefore a strategic enabling tool for majorbusiness improvements accomplished through BPR. Hammer and Champy consider that moderninformation technology has an importance to the reengineering process that is difficult tooverstate. But we all know that although massive step improvements can be gained fromreengineering, the competitive organization must continually reinvent itself and must stayon top of new technology, learning how to recognise and incorporate it into theorganization to stay ahead.
ERP and Technology
Throughout this guide we have referred to the newtechnologies which have enabled the new breed of ERP systems. Are these technologiesavailable today and what are the realisable benefits both now and in the future?
Legacy systems have been based around the traditionaltask-oriented transactional business culture. From the users’ viewpoint this meansthat he is presented with a series of menus, each one containing a list of tasks relatedto an individual department in a traditional organisation. This matched the old way ofworking when each person performed one or more tasks specific to his department and thenpassed on the work to another department for the next step in the process.
With companies moving towards process oriented cultures,and the breaking down of departmental boundaries, a person may now be responsible forseveral tasks in a process crossing those traditional boundaries. In order to complete theprocess, if legacy systems are in place, he will have to use several different menus, andwithin each menu option he might have to navigate several screens, often only using a verysmall part of each screen for a particular task.
Legacy systems do not support new ways of working withinorganizations, adding extra time and cost to the process and being extremely frustratingto use.
Once the transactional part of the process is complete, anymanagement information might be difficult to obtain. At best, the IT department will haveprogrammed a report or enquiry – a task that in itself will take several weeks and useexpensive and scarce IT resource – or the IT department may have programmed the system todownload data from several sources into a spreadsheet where it can be added to andmanipulated as required.
All this takes considerable time (and cost) on the part ofthe person performing the transaction, the manager requiring the information and the ITdepartment trying to keep up with demand. By the time the information is obtained it isalready out of date and its integrity is questionable. It is also questionable how muchvalue each part of the process is adding to the business. At best we are automatingpreviously manual tasks and obtaining high level financial and management information.Global, multi-site and multi-national organizations have had even more difficulties andhave often had to be content to look at accounts at a consolidated level with almost nouseful production information and no holistic view of the enterprise.
ERP systems in use today, designed using new database andclient-server technology, have made the first steps towards mirroring the new ways ofdoing business. Now the business process workflow may be modelled for each process andeach person using the system. Individualized menus and screens for transaction processingcan guide the user through the steps he must take to complete the process, eliminatingextraneous steps, screens and data. The data is entered once only, as near to the point oforigin as possible which with technologies such as barcoding, and the linking of shopfloor and process control systems might mean little or no human intervention is required.Not only can the business process be modelled, but the modelling can be done by anon-technical person, and the lower level and enterprise models may be changed when thebusiness model changes. The new systems are now more user friendly especially if they makeuse of GUI (graphical user interface) technology which make business systems take on thelook and feel of PC applications.
- Today’s ERP Systems have already moved from the traditional departmental structure to being able to model the actual business processes of an organisation. New technologies currently under development are enabling vendors to break down monolithic legacy programs into small components enabling users to customize each process so it contains the minimum of extraneous activity and can even incorporate components from external sources.
New software development tools have enabled systems to bedeveloped which are platform independent, enabling companies in an enterprise to use thesame application software on whatever hardware platform suits them best. Integrated,relational databases and data warehousing enable data that is entered to be shared and,most importantly, business intelligence tools to be used over that data to provideaccurate, real-time and useful business information. Not only can the data be accessed,but the format and form in which the information is provided – screen enquiries, printedreports, reports sent directly by Fax, or over the inter- or intranet incorporating graphsor imported diagrams and materials from other sources such as CAD or document storagesystems – can be defined and changed at will by the user.
These new ERP systems are inherently more flexible than MRPII or evolved ERP systems, but already the next generation of technology is beingdeveloped. What then are the drivers for all this change?
We can divide the drivers into two areas – business driversand technology drivers.
We have already discussed some of the business drivers forchange:
- the drive towards the truly agile organization and the systems to support it, requiring systems which are low cost to install, simple to configure, easier and cheaper to modify and easier to maintain and support.
The technology drivers for the next generation are:
inter – and intranet processing
the use of object oriented technologies
the ability to re-use and migrate from legacy systems
true multi-platform support
the development of global technology standards enabling true integration of disparate third party or specialist systems
Today ERP vendors are decomposing their systems, breakingdown monolithic programs into ever smaller components until an optimum level ofgranularity is achieved. These re-usable components are stored in a repository. Businessmodelling tools then model the business processes, and from these models the appropriatecomponents can be pulled together to create individually customized systems. Once industrystandards are agreed, components from external sources will be able to be incorporatedinto a process as easily as native components giving true systems agility to support theenterprise.
Today, senior managers probably use little, if any, part ofa standard ERP system because traditional systems have been too far removed from the realbusiness processes. With the new generation of ERP systems modelling process workflowrequirements, and the ability to tailor screen displays and information outputs toindividual requirements, ERP systems are at last moving towards addressing the businessand operational requirements of the enterprise. We have seen with GM, and indeedthroughout the automotive and electronics industries, how the extended enterprise isbecoming a reality. The problem is that addressing the requirements of the extendedenterprise with systems designed with the traditional procedural, monolithic architecturesonly leads to a greater level of complexity and longer implementation timescales.
Not all organizations will be part of an extendedenterprise in such a formal manner, but many will become part of one or more virtualorganizations, or value networks, each of which will cover the entire set of supply anddemand processes driving the delivery of a particular set of goods and services. The focusof the virtual organization is on upgrading its capabilities, and therefore improving thedelivery of goods and services, through leveraging the synergies obtained by combining thebest of the participating organizations in the value chain. These relationships may bemore transitory than those in the extended enterprise, perhaps being created for aspecific project or product and then disbanded once the need has passed. To support thesenew business paradigms, systems must be flexible, fast toimplement and reconfigure,robust, and like everything else, add real value to the process.
The only way to achieve such objectives is to developloosely coupled, message-based architectures, such as NBO or Network Business Objects, aconcept termed by consulting analysts AMR to describe the loose network of componentsproduced by the decomposition of the existing systems. Such architectures produce systemsspecifically designed for interoperability. Along with these ERP engines, vendors aredeveloping tools to further exploit the Web and specific Web targeted applications.
Such ERP networks will inherently support the new virtualorganisations.
So far we have discussed the benefits that ERP can achievethrough visibility, the ability to see physical operations, and coordinate activities moreeffectively through information mirroring the physical value chain.
We are planning, executing and evaluating the results withgreater precision and speed which gives us a whole new insight into managing the valuechain as a whole rather than a collection of parts. However, it is also possible to usethis information itself to create value.
Once ERP has constructed an information underlay of thebusiness, companies can begin to perform value-adding activities more efficiently andeffectively through and with this information. We are able to create a syntheticenvironment which mirrors or models the real environment and use simulations for processessuch as new product development. These simulations allow users to test endlesspossibilities, much more than would be possible in a physical environment. Using suchtechniques, automotive, aerospace, engineering and electronics companies are not onlyreducing time to market, but are also creating radically new designs.
The information from such systems paves the way toestablishing new customer relationships and delivering value to customers in new ways. Forexample, design information may form the basis of a product catalogue accessible over theinternet, or flight simulations from an aerospace project become computer games. Eachextract from this virtual value chain could therefore constitute a new product or service.Potential customers can easily be involved in new product development, identifyingcustomer desires and creating both new relationships and new markets.
Transaction costs at this virtual value chain level aresignificantly lower than those of the physical value chain and are set to decline sharplyas the processing capacity per unit of cost for microprocessors doubles every 18 months.Unlike economies of scale, traditionally available only to larger organizations, companiesof all sizes can exploit the potential of information through economies of scope, wherethe value occurs across many different and disparate markets.
Another advantage of such digital assets is that unlikephysical ones, they are not used up by consumption, giving the potential of limitlesstransactions.
Through ERP and its extended use into the virtual valuechain we are supporting the shift from supply-side to demand-side thinking, givingcompanies the opportunity to sense and respond to customers desires rather than simply tomake and sell products and services.
ERP systems are therefore moving from a focus on theinternal organization to an external focus, providing enterprises with greatersynchronicity of their value network. In some cases this might mean a move towardscentralized applications managed either by the enterprise at the hub of the network or bya service provider. These applications will be used on an as-required basis by those inthe extended enterprise. Another possible scenario, once truly interoperable components orNBOs are a reality, is that each organization will have its own set of NBOs which it willreconfigure at will to create systemic networks with its various partners. ERP, along withthe new business paradigm is enabling enterprises to become organic entities, or coherentstructures, made up of a number of disparate elements. One interesting aspect of thisanalogy with nature is that rarely does nature contain an element that does not add valuesomewhere in its network.
Philosophies such as BPR have helped people to realize thatthey can create reality out of visions developed without constraints. Today’s ERPsystems are developing because of the demand of the business community. In a demand drivenworld, with technology no longer a barrier, the future of ERP is therefore limited only bythe visions of those people who require systems to deliver true competitive and strategicadvantage.