InformationWeek

October 12, 1998

ERP: The Corporate Ecosystem

Enterprise application suites are becoming a focal point of business and technology planning

By Jeff Sweat

Illustration by Matsu

nterprise resource planning packages are evolving into corporate ecosystems, affecting business and technology decisions that transcend the software. ERP systems are not only a key factor in process reengineering, but they're also influencing supply-chain partnering, management restructuring, and other strategic initiatives. A company's ERP software choice is also having a ripple effect on application development, network infrastructure, database, decision support, and other key technology decisions.

These conclusions, drawn from interviews with customers, vendors, and industry analysts, are supported by an InformationWeek Research survey of 150 IT managers responsible for managing or administering their organizations' ERP software. In fact, two-thirds of the survey respondents view their ERP systems as their organizations' most strategic computing platform.

piechart

The findings are consistent with the spread of ERP software from its stronghold in manufacturing and finance to all facets of the corporation, including human resources, sales, marketing, and customer service. "ERP is touching all parts of our business, and we ultimately want to run our entire company on one application," says Dennis Doll, VP and controller for Elizabethtown Water Co., a Westfield, N.J., utility that has adopted SAP's R/3 software and requires companies it acquires to do the same. Adds Stan Lanning, IS manager at MetaWave, a maker of network equipment for cellular carriers: "Just about everything you're going to do from an applications standpoint is going to interact with your ERP systems."

Moreover, enterprise application packages are changing the way IT organizations and business units look at themselves. Twelve years ago, IT people identified their organizations as IBM or Digital shops, says Bruce Richardson, VP of research at AMR Research Inc. They're now more likely to be SAP or PeopleSoft shops. More important, ERP systems are helping companies reinvent themselves by becoming innovators in their fields. The company that pioneers an extended supply chain in its market, for instance, is in a strong position to control the channel between buyers and sellers.

The sheer scope of ERP packages lets them touch every aspect of a business. ERP systems help companies react quicker to competitive pressures and market opportunities, provide more flexible product configurations, reduce inventory, and tighten supply-chain links. The Sacramento (Calif.) Municipal Utility District turned to R/3 to help it deal with industry deregulation. "We were falling behind in business responsiveness," says John Pooler, Sacramento Municipal's director of ERP. "We had to adopt ERP to stay competitive."

The utility has installed all of R/3's core modules, including financials, customer care, human resources, and supply chain. The software will connect to utility-specific third-party applications, such as a service-delivery system, an outage-management system, and an electrical-operations system, which will help the utility tie such functions to its core business. Sacramento Municipal realized that even if it significantly boosted its spending on personnel, its

inefficient systems wouldn't have let it respond to customers as quickly as they demanded, Pooler says. Because not all of its competitors are moving to ERP, at least not right away, the company hopes it can outperform them--and also develop new business opportunities that extend to other utilities. The first incarnations of such systems will use SAP's capabilities to offer call-center, billing, and utility services to smaller utilities. Utilities, not just end users, become Sacramento Municipal's customers.

The Earthgrains Co., a wholesale baker in St. Louis, pinned its hopes back in 1995 for a corporate turnaround on its R/3 implementation. Earthgrains turned to R/3 to deliver better customer service and to help integrate different business functions, such as accounting, reporting, order management, and distribution. Other goals of the re- engineering project included reducing administrative costs and delivering more timely information to management.

Before the R/3 implementation, Earthgrains' ordering and distribution processes were separate and inefficient, leading to dissatisfaction among large grocery chain customers. Order-taking was centralized, but order-fulfillment was decentralized. Each unit had drastically different ways of doing things. In addition, each unit had completely different methods for placing products in the warehouse and retrieving them for shipment. With R/3, each unit has to use the same SAP-dictated methods for order fulfillment.

barchart

The ERP project has been critical to Earthgrains' turnaround, helping boost operating margins from 2.4% to 3.9% and pushing its on-time product delivery rate to 99% in fiscal 1997, says Steven Brazile, VP of business systems. R/3 has provided better information to managers to help them set pricing, cut inventory, rationalize products, manage SKUs, and determine which customers are the most promising. And it's helped Earthgrains sweeten relations with its customers by ensuring that products are delivered on time, in appropriate quantities, and with accurate invoices. One customer named Earthgrains its 1997 supplier of the year, an award Brazile attributes in part to the company's ERP-driven improvements.