In-Depth

Tapping ERP to Extend Value Chain Benefits

• 09/01/1999

Today’s competitive business environment provides many opportunities for success. Unprecedented access to global markets, stronger relationships with trading partners and improved ability to identify and grow key customer relationships, have all created fresh and potentially lucrative revenue opportunities. But, taking advantage of these opportunities, though, has created new and unforeseen challenges.

To take advantage of these expanding market opportunities, organizations must be able to quickly identify and adopt innovative work processes, strengthen their relationships with key trading partners and demonstrate clear worth in the value chain. One key to doing this is the development of a flexible, integrated information technology (IT) infrastructure. This IT infrastructure must be based upon open, scalable networks, with low barriers to user participation, combined with appropriate levels of control and security.

Organizations have turned to two strategic and mutually compatible IT systems to help meet these objectives: process-oriented Web application servers and Enterprise Resource Planning (ERP) systems. ERP systems have transformed the way organizations handle business-critical operations, such as order processing, production scheduling, inventory control and distribution. Today’s ERP systems must reach beyond process production management and human resources areas to support a full range of horizontal and vertical business processes.

The tapping and enterprisewide distribution of the information stockpile housed in an ERP system is a crucial key to the extension of ERP’s value. Traditionally, the bulk of information housed in an ERP system has been landlocked – cut off from the rest of the organization by the technical inability to quickly and conveniently bring it into the front office environment. A rapidly emerging solution to this dilemma is the creation of native links to Web-based application servers that enable ERP data to be shared across and beyond an organization.

Recently, a large electronics manufacturer grappled with the problem of a paper-based expense reporting system that sent reports from one desk to the next before employees could be reimbursed for their travel expenses. Using a 100 percent Web-enabled system, the corporation was able to affect million dollar cost savings using an automated travel reimbursement application. The application is tightly integrated with PeopleSoft HR and SAP ERP systems, and interfaces directly with the bank. These connections provide a central auditing system that is efficient and easily used. Not only are employees now reimbursed 75 percent faster, but greater employee compliance has yielded a significant percentage of savings.

By integrating Web-enabled front-end systems with their back-end ERP business operations, forward-looking organizations are now squeezing more value from their ERP systems. CIOs and ERP vendors alike are recognizing that the best way to leverage ERP data throughout, and even beyond, an enterprise is to tap into it with collaborative, workflow-enabled applications that promote more efficient and profitable business practices. And they are finding that this is a prime area where sizeable returns on ERP investments can be realized.

A good example comes from a global chemical company that realized that if it had a better understanding of its customer’s usage patterns, it could forecast production more accurately and reduce inventory costs. The company offered customers a service to manage inventory and in return, customers committed to using the company as the sole supplier for products managed through the server. Customer information on product consumption replenishment and production schedules were in turn sent to the company’s SAP ERP system.

Those organizations that continue to rely on traditional planning, control, production and communication systems will fail to prosper. Unable to face the challenges posed by globalization, dramatically shortened production cycles and a sharply increased demand for cost-effectiveness, they will struggle to compete – falling behind their more aggressive and innovative competitors. Those organizations that move to create leaner, more streamlined IT and organizational structures, and meet the challenge of reworking and redefining traditional work processes will succeed.

These competitive advantages need, of course, to provide a tangible and realistic return on investment (ROI). Key to achieving this ROI and competitive advantage, is the efficient movement and sharing of enterprise, as well as customer-oriented data across and beyond the enterprise. All departments, producers, suppliers, distributors and even customers have to be integrated into the company’s communication and information flow infrastructure. By providing users, customers and suppliers select business-critical information, via a bi-directional, ERP/Web-based server system.

There is almost no end to the list of advantages this integration provides. For example, new business opportunities can be seized more quickly; decisions can be made based on exhaustive, right-on-time information; process efficiency can be enhanced and quality management can be integrated. At the core of this process stands an information system that provides reliable and consistent access to company data for all user communities. Additionally, the system presents information to all participants in the extended value chain in an efficient, user friendly and bi-directional manner.

For instance, a major manufacturer of high-quality video and audio recording products was seeking to improve overall management of its business processes. In particular, the company wanted to improve the accuracy of, and shorten the processing cycle associated with personnel information and requests. Flexibility was key to the success of the new system. The system needed to streamline processes and improve the accuracy of communication, while simultaneously accommodating a highly complex and decentralized series of personnel procedures. This situation demanded a more efficient coordination between the company headquarters and branch offices all over the world.

The solution was an integrated ERP/GroupWare system. A centrally managed ERP system, integrated with a sophisticated workflow and communication process, was developed. The system allows for selective replication of data groups to decentralized personnel departments, enabling consistent and precise personnel information gathering without the limitations of time and place. Via the communications and workflow infrastructure, this information is available to any authorized user within the network at any given moment. ERP-housed backend data may be introduced into GroupWare-driven documents as embedded charts or attached files. Security features within the communications infrastructure ensure that local databases only permit authorized changes and updates.

The system has helped to significantly improve accuracy. At the same time, the GroupWare-driven communications infrastructure has enabled better integration of the headquarters’ personnel office and decentralized personnel departments – saving time and money.

Seeking to maximize the value of their ERP systems, organizations are making significant investments in the development and construction of integrated ERP/front-end business systems. GroupWare-based front-end systems are providing strategic, complementary value to ERP infrastructures. ERP backends efficiently manage highly structured data in centralized relational databases, allowing organizations to more easily manipulate and derive analytical value from this data. At the same time, sophisticated front-end systems add value to this information – organizing it into user-friendly applications.

Once in this application format, executives and other organization members can manipulate the data to make better informed, more accurate business decisions.

Here are some examples of how these complementary values can be applied:

Enhanced ERP Usability and Access. Mountains of ad hoc data are hidden away in ERP system comment fields (e.g., the reasons for credit overrides, the rationale for a promotional uplift and customers’ comments when returning a product).

With an integrated ERP/GroupWare system, all of this information can be searched, categorized and made available for discussion and decision support. This system, ideally, will also provide users the additional functionality of workflow, personal storage/retrieval and sharing of knowledge with security and access control levels that are granular and flexible.

Accelerating Time-to-Benefit of Business Initiatives. All business initiatives involve process redesign and complex project management, with input needed from many players. The intelligence of the process is most often in people’s heads or on their personal PCs. With major contributions coming from external consultants, and high staff turnover rates, the lack of a common knowledge base can lead to major delays and failure of successful initiatives. Driving this process via an integrated ERP/workflow system helps guarantee a project’s success.

Not only does the system provide a training and communications medium; it also provides a repository of plans and designs, a discussion forum for issues and an approval system all within the same native environment.

Supply Chain Collaboration. It’s no longer enough that companies do well. They must ensure that their suppliers and customers are fully integrated into their overall business processes. By integrating core ERP-housed supply chain data, such as orders, supplier information and requisition data into key supply chain and customer value chain procedures, organizations can integrate so well with their suppliers that they minimize the supplier base and capture new efficiencies. Similarly, organizations can integrate so well with their customers that they "lock out" their competitors.

The merger of ERP and collaborative systems is helping organizations to transfer and automate business processes. Shell Chemical, for instance, initiated a completely new process – Supplier Managed Inventory (SMI) – under which Shell assumes responsibility for selected customers’ inventory levels and consumption. It places orders and tracks these orders through transit. The system creates considerable savings on both sides of the process, improves service and funnels critical forecast and consumption information to Shell. Shell, in turn, uses this information to improve its own production forecast.

As more organizations move to integrate ERP and Web-based collaborative systems, the benefits organizations are realizing from this integration are felt throughout their supply and value chains. To achieve these benefits, companies must create and provide the IT support for new intra-organization processes, and work closely with the members of their own organizations, their partners and customers to create acceptance of these new processes.

About the Author: Wayne Janzen is the Manufacturing/ERP Industry Manager for Lotus in North America.