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Manufacturers are under constant pressure from customers, shareholders, and suppliers to continuously improve, to make better products faster and more efficiently. To compete in a dynamic environment, requires tremendous agility. Successful companies must be able to respond quickly and cost-effectively to change. This is true whether change involves shifting customer demands and supply chain partners, modifications to a business model or business process, business expansion and the need for new initiatives such as outsourcing, or evolving regulatory pressures imposed by financial markets, industry groups, and government bodies.

Manufacturers need to convert their factories into responsive, demand-driven, profit-making enterprises. With the Internet, the speed of doing business has forever changed, and the old rules and traditions no longer apply. Forecast-based planning alone can no longer meet the needs of Internet-powered customer demand. In order to compete, companies must optimize their manufacturing operations. Their competitive advantage and ultimate survival depends on the use of information systems and technology.

Need of ERP Systems
Intense global competition and mass customization has realized the need for having better systems that can provide quick and reliable information across the complete value stream. 

ERP (Enterprise resource planning) systems have become synonymous with competitive advantage, particularly throughout the 1990's. ERP systems replace isolated information with a single, packaged software solution that integrates all traditional enterprise management functions such as financials, human resources, and manufacturing and logistics. Started with an IT application to handle the inventory problems of enterprise in 1960, the ERP systems brought a common information database which helped business functions of the organization to shift their thinking to an organization or enterprise focus rather than a departmental focus.

Many companies have implemented ERP applications; either developed in-house or off the shelf products from ERP vendors, with a hope to become more responsive to the customer needs and enhances their business.

Justifying the Investment?
Even though ERP systems resolved the internal issues within an enterprise, the industry did not really perceive the complete benefits of implementing such a system, as these systems were blind towards understanding the parameters outside the four walls of the enterprise. There arises real necessity to have application over the ERP systems, to increase the value of the core ERP systems. Vendors started building strategic applications around ERP, and called them extended ERP or ERPII, which brought a dynamic new way of doing business, by having real time collaboration with partners, suppliers and customers. This enabled enterprises to react quickly to changes in the market place and become more agile. Applications such as supply chain management (SCM), supplier relationship management (SRM), customer relationship management (CRM), Product life cycle management (PLM) helped in collaborative planning, scheduling, forecasting, and product development etc. The complete value chain from 'supplier-manufacturer-customers' has become more dynamic and responsive to the needs of their end customers.

Most of the ERP vendors have geared up to the needs of the customers by increasing their product breadth and providing a complete end-to-end solution, to meet the customer demands.

Challenges for Future
The challenge for many IT managers is to justify the cost of huge IT investment and to show the real ROI from implementing these applications.

The demands on ERP vendors serving the market hence continue to rise. So there are challenges and market trends in the ERP space.

Embracing the New Demand Drivers
Even though packaged ERP systems provide off-the-shelf best practice solutions of the industry, they may not fully support all the features required for all the vertical industries. Also, there would be some regulatory requirements that need to be addressed in the applications as and when they are introduced by the regional or global bodies such as new VAT regulations for Indian industries, the SOX compliance etc. In addition, the customers will have some specific practices which they deserve to retain, and hence would customize the packaged ERP applications to their needs.

ERP vendors are hence constantly demanded by their customers to handle these requirements-generic, specific and regulatory, in their next releases. One of the key challenges for most of the ERP vendors is to provide the value addition to their active customers by providing these enhancements to the product, both functional and usability features in their upcoming releases.

Thriving on a comman information base

Most of the big ERP vendors have also addressed the specific business needs of different vertical industries.  ERP vendors focus continues to improve the product fit to targeted industries, which help in reducing the customizations and lowering the total cost of ownership to the customer.

Most of the customers presently have disparate applications on different technology platforms, built with different tools, and purchased from different vendors, and not working seamlessly. One of the key challenges of the IT managers is to make these applications integrated well and work in tandem.

A study from AMR indicates that a 'demand-driven enterprise' can further drive revenues and profitability; as it is based on aligning processes to sense and shape demand, and respond portably to a demand signal. By improving the critical business processes that increase responsiveness, speed, and agility, demand driven supply network (DDSN) can directly impact the key drivers of financial performance: faster growth, higher profitability, and improved capitalization.

Enterprises have to at every stage not only re-look into the process capabilities but also their technology infrastructure that helps them to get real time information across their supply network. Software vendors have to look into the solutions to embrace the concept of DDSN and enable the enterprises to become more demand centric. Analysts indicate that half of all the companies do not have a clear visibility across their supply network, in spite of having IT systems, such as ERP, SCM, PLM, CRM, and SRM. This is because they lack proper integrations of all of them and in the next three years 30% of the companies will move towards making their technologies towards working in collaboration with all their business partners.

The major challenge to the ERP vendors is hence to provide seamless integrations between all their extended ERP applications, which can help the enterprises in being a demand driven organization. The next generation of enterprise applications will need to embrace better architectural capabilities to make the integrations more plug and play, rather than tight point- to-point integrations.

One of the key market trends is the technology transformation to a service-oriented architecture (SOA), which will have the largest effect on redefining the ERP market. As indicated by analysts, service-oriented architecture will transform software from an inhibitor to an enabler of business change, through 2015. SOA will shift revenue from packaged software to subscription services and from monolithic suites to composite applications.

SOA is an approach to designing, implementing, and deploying information systems such that the system is created from components implementing discrete business functions. These components called “services” can be distributed across geography, across enterprise, and can be reconfigured into new business process as needed. The services are “loosely coupled” allowing for much more flexibility than older technologies with respect to re-using and re-combining the services to create new business functions both within and across organization.

The business component architecture forms the foundation of its specialized versions: service-oriented and event-driven architectures. A service-oriented architecture with reduces complexity, eliminates point-to-point integrations and introduces flexibility through process-driven applications.  This provides agility to meet the ever-changing needs of the plant, business unit, and enterprise and out into the supply chain.  It provides a more controlled and more secure environment to meet the requirements of regulatory issues.

Most of the vendors are in the process of transforming their technology architecture into service-oriented architecture.

Other important market trend that is seen in the late 2000 is the vendor consolidation. This consolidation among mid-market vendors will continue as per Forrester Research. Providing a strategic product direction will become important to the vendors to give the comfort level to their existing customers and new accounts. Some challenges to the vendors is to invest in merging the overlapping products and ensure a smooth migration path to their existing customers.

The future goal of most of the ERP vendors is to provide an enhanced value of the installed systems, by bringing in the real value proposition to the existing customers as well as to the new customer, by enhancing the product with additional features, both functional, technical and usability. The technology transformation to service oriented architecture will bring more flexibility to the users in bringing more agility to their ever-changing needs. Lowering the total cost of ownership of ERP applications and reducing the complexity of IT infrastructure will become the primary focus, both to vendors and customers.

Ranga Pothula, director–Development, SSA Global Technologies
maildqindia@cybermedia.co.in

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