How has it changed, and what is the best way to implement a new ERP system avoiding common pitfalls and software dilemmas?
The value of the software market in enterprise resource planning (ERP) saw annual growth of 10% in 2018 to reach $35bn. According to research company Gartner, this was driven by firms moving towards digital models and the maturing of software-as-a-service applications. But what is the best approach to take when implementing an ERP system?
The term ‘post-modern ERP’ was coined by Gartner to describe a world of multiple vendors, according to Mike Guay, the research company’s senior director analyst. It reflects a stage of evolution in ERP where a single vendor solution is preferable if your business requirements are straightforward. But it also allows for the addition of specialist applications to take care of particularly complex parts of your business.
“Getting everything from one vendor can be a good solution,” Guay says. “Don’t fragment your application landscape if you don’t need to. If you have complex needs in a certain area, get a piece of software from a specialist vendor and plug that in.”
The origins of ERP stretch back to the 1960s and the pioneering work of Joseph Orlicky, an IBM researcher, says Simon Carpenter, head of SAP UK Centres of Expertise. Orlicky came up with the idea of material requirements planning (MRP) at about the same time as the first computers were emerging. MRP initially concerned itself with planning inventory requirements by calculating and netting quantities of inventory via a bill of materials.
In the 1980s MRP2 (manufacturing resource planning) was developed by Oliver Wight, allowing organisations to consider manufacturing capacity. This expanded to take in financials, purchasing, inventory, manufacturing costs and planning. In 1990 Gartner came up with the name ‘enterprise resource planning’, which extended MRP2 into human capital and customer management.
The Y2K scare
In the 1980s different business functions would hire programmers to develop applications suited to their needs, says Guay. But none of these systems spoke to each other, and the role of IT in those days was to “shove piles of data between these applications and try to make sure everything stayed in sync”.
In the 1990s, ERP was boosted by the trend towards business process engineering, in which firms realised integrated systems were needed. This was accelerated by Y2K fears in the run-up to 2000, when firms with “poorly documented legacy systems saw ERP as the way to de-risk the business”, says Carpenter.
One-vendor and cloud computing
In the early 2000s, as part of the trend away from siloed systems, every vendor in the market had to sell a suite of applications. “The problem was many of these vendors had grown up by developing capabilities that did not encompass the entire suite,” says Guay. Some vendors were strong in manufacturing and demand planning, but weak in, say, HR and financials.
Businesses bought suites but found they did not have the functionality they needed, so they started customising the software. But the more you customise, the harder it becomes to upgrade the system, which in turn requires further customisation. “It’s a vicious circle and ERP gets a bad reputation because you buy it, it’s really expensive and it doesn’t do everything you want,” says Guay.
Carpenter says it is better to develop applications focused on specific business domains as cloud-based services, which means they are updated regularly. “But raises the spectre of complexity, integration and redundancy.”
Guay says it is easy to get embroiled in a bad situation. “The trick is to minimise investment and make something that should just work,” he concludes.
Top five ERP vendors by market share in 2018
SAP – $7.7bn – 22%
Oracle – $3.9bn – 11%
Workday – $2.3bn – 7%
Sage – $2bn – 6%
Infor – $1.7bn – 5%