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October 19, 1998

ERP's Future Linked To E-Supply Chain

Businesses will manage entire customer relationship from a single system

By Tom Stein

hanks to enterprise resource planning software, businesses have improved their manufacturing operations, better organized their human resources departments, and enhanced their accounting and financial practices. But what's next?

ERP has had little impact on the people who are becoming ever-more crucial to the bottom line--customers, suppliers, and business partners. The future of ERP is all about improving the supply chain and fostering greater collaboration across multiple enterprises.

The core of ERP today--namely, an integrated set of applications that link together such back-office operations as manufacturing, financials, and distribution--will become a subclass of a much bigger and broader enterprise business system. "ERP will extend into transportation, warehousing, sales-force automation, and even beyond that into engineering with computer-aided design and product data management systems," says Byron Miller, an analyst with Giga Information Group.

This has started to happen. Market leader SAP is developing its own supply-chain, sales-force automation, and data-repository links to its manufacturing, financial, and human resources applications. Oracle is piecing together these kinds of features through technology integration deals with best-of-breed vendors such i2 Technologies Inc. for supply-chain management and Industri-Matematik International Corp. for order entry. Baan, for its part, has bought supply-chain-management vendor Berclain and sales-force-automation vendor Aurum.

The key is interoperability. Mike Schmitt, senior VP of open systems solutions at ERP vendor J.D. Edwards & Co., envisions a world in which companies use a single integrated system to manage the entire customer life cycle. This means tying together in one neat package many disparate applications, including ERP for order entry and manufacturing, supply-chain management for transportation and warehousing, and sales-force automation for customer service.

Manufacturers should be able to configure an order, assemble it, ship it to the customer, and service that customer all on one integrated ERP system, says Schmitt.Today, there are too many bottlenecks and hand-offs that slow down the process and introduce errors. The essential ingredient to make this happen smoothly and simply "is the ability to see into the entire process every step of the way," adds Schmitt.

CellStar Ltd., a $1.8 billion wholesaler and retailer of cellular products in Carrollton, Texas, says visibility into its systems must also be extended to its suppliers and business partners. "This is important because cellular products come onto the market quickly, drop in price, and then get replaced by newer products," says CellStar CIO Richard White. "We want to minimize the inventory we have on hand before it becomes obsolete, and the best way to do that is through collaboration."

CellStar, which uses J.D. Edwards products, has extended certain applications onto the Internet, allowing its suppliers to see in real time such things as inventory levels. "With ERP, we are building better relationships where we can share with key partners such information as what is selling and what isn't selling," says White.

To achieve real-time collaboration and demand forecasting, future ERP systems must seamlessly pass information among business partners' disparate systems.

Supply-chain vendors Logility Inc. and Manugistics Inc. have introduced products that let companies collaborate via the Internet. Using software from Manugistics, consumer packaged goods giant Nabisco Brands Co. has set up Internet pilots with large retailers, including Wal-Mart Stores Inc. and Wegmans Food Markets Inc., to reduce cycle times, cut inventory costs, and ensure that customers never leave empty-handed.

"To improve our forecasts, we have agreed to share our business plans with our trading partners," explains Joe Andraski, VP of customer development at Nabisco. "We exchange information like what advertising we plan to do, what our new products are, and whether we have new packaging."

Wegmans shares with Nabisco such proprietary data as whether it's opening a new store or closing an existing one, or what local promotions it's planning. This information is updated and revised in real time over the Internet. "Then we use Manugistics to put all the data together to come up with a collaborative forecast," Andraski says.

To kick off the pilot, Nabisco will work with selected items from its Planters product line. Andraski is confident that forecasting accuracy will skyrocket. "Not only will we see increased sales, but by being more efficient, we can take weeks of inventory out of the system," he says.

As the technology evolves, the notion that a given company competes in a single, linear supply chain will be outdated. Instead, companies will take a 3-D view of a supply-chain that includes not only a company's business partners, but the partners' partners. A manufacturer would be able to see, for instance, that its key supplier is having trouble securing raw material from its source. The manufacturer would then be able to shift that order to another supplier.

What Lies Ahead
The next frontier on the ERP landscape allows users to go online to browse product catalogs, check availability, and order supplies. Pacific Gas and Electric, a San Francisco utility, has saved a significant amount of money since earlier this year, when it began using SAP R/3's Business-to-Business Procurement application to purchase office supplies over the Internet.

In the past, employees often paid full price for supplies. By linking SAP with an online catalog application from Commerce One, an E-commerce software provider, PG&E was able to reap some financial benefits. "It's much easier for us to direct purchases to the appropriate vendor and negotiate discounts," says Teresa Tang, PG&E's director of systems architecture.

In the future, users will tie their ERP systems into extranets, turning their computers into virtual trading floors. These networks willlet suppliers from around the world view a manufacturer's contracts and place their bids. The result: procurement times slashed in half and raw materials bought at lower prices.

Bassett Furniture Industries Inc., a maker of wood furnishings in Bassett, Va., has created a supply web for its raw lumber providers. Suppliers can visit the site and tap into Bassett's J.D. Edwards software to check inventory levels. "Suppliers can see what we need and make a bid when our inventory is depleted," says David Bilyeu, VP of IS. "This saves us from having to go out and look for them ourselves." The system provides a huge advantage to Bassett in terms of securing the best material at the cheapest price and in the quickest manner. And that, after all, should be the goal of every ERP system.