Defining Enterprise Resource Planning


ERP stands for enterprise resource planning. But what does it mean? 

There are as many answers to that question as there are ERP software vendors. Of course, there is plenty of overlap between the different vendor and consultant definitions, but there is substantially less agreement between vendors (singly and as a whole), and the manufacturing professionals who pay for the systems. Those end-users -- who cross their fingers and forego sleep during implementation -- often scratch their heads when their bottom-line results don't match their expectations. Usually it's because of differing definitions of specific functionalities promised by sales people or sales materials. 

At the request of APICS -- The Performance Advantage, a group of five professionals met to discuss issues relevant to ERP during the APICS '96 conference in New Orleans. Providing the ERP vendors perspective were Larry Ferrere of J.D. Edwards and Randy Naylor and Robert Vernon of Interactive. Terry Lunn, CFPIM, Lunn Enterprises, offered up a consultant's viewpoint. Manufacturers and ERP users were represented by Blair Williams from AT&T's Clark Works facility. 


So how can ERP be defined? The panel began by suggesting it is a turbocharged version of manufacturing resource planning (MRP II), modified and strengthened to help manufacturers face the competitive challenges of the 1990s. But there are major differences. ERP takes a step away from material-, labor- and production-centric manufacturing systems and puts the customer in the driver's seat. "ERP properly implemented, really does allow the customer to drive demand," said Vernon, "rather than the manufacturing department working to meet some forecast dreamt up by sales." 

ERP also supports companies operating multiple sites around the world, global sourcing for parts and services, international distribution and different metrics for measuring performance around the globe. For instance, a company's U.S. sales office may be responsible for marketing, selling and servicing a product assembled in the U.K. using parts manufactured in Germany and Singapore. ERP enables the company to understand and manage the demand placed on the plant in Germany. It allows the company to determine which metrics are best suited to measuring efficiency in a global economy with localized distribution, production and service operations. 

"Those multiple sites include a company's own plants and can include a customers' multiple plants as well,"said Lunn. "And ERP may also incorporate transactions with the enterprise's suppliers. It's very close to the virtual enterprise we've all been reading about. 

"I'm a little surprised," he added, "that there isn't a more grandiose acronym for what ERP is." 

But that idea of ERP differs from its real-world application. "We users are always searching for a magic bullet, some magical system to solve our problems and provide us with the ability to make our products better, faster and cheaper." said Williams. This desire for a neat and tidy solution leads practitioners to allow themselves to be misguided by buzzwords and promises. "Vendors need to begin defining their systems in terms of functionality, rather than relying on acronyms," Williams added. "An exhibit like this (APICS '96) is like a Tower of Babel." 

"ERP is certainly much more than just marketing," said Ferrere. "There are plenty of cases, in true ERP implementations, where companies have realized actual business improvements. The frustration for users arises from the fact that ERP isn't a [single] system. It's multiple systems. Managing the requirements of the real-world ERP models demands multiple systems." 


But what does it do for me? 
"This whole thing comes down to competitiveness," said Williams. "I see our systems giving us lots of bells and whistles, lots of GUIs. And I understand why. Bells and whistles sell systems and functionality does not." 

One of the points that can be taken away from this is that ERP software is often too sophisticated for its users ... that manufacturing professionals lack the technology wherewithal to put these systems to work in any logical or comprehensive way. Further, those who make the purchase decision often lack sufficient knowledge of their own manufacturing enterprises (and of manufacturing in general) to make informed decisions, so they base their decisions on tangible benefits (bells and whistles) rather than on intangible benefits (business improvement). 

It's a mistake to blame software vendors or analysts for the maelstrom of questionable "features" that users face when selecting a system. Vernon agreed that there may not be enough "functionality" in many sales efforts, and to counter that practitioners will have to look inward to answer a handful of fundamental questions before shopping for a system. "Because if you don't know the answers to those questions," he said, "you make yourself vulnerable to the bells-and-whistles approach. 

"We meet manufacturing companies every day," he continued, "and a big part of our job, even during the sales cycle, is education ... helping to set proper expectations. If we do that, it increases our opportunity to win the business, and that's a decision that's not based on bells or whistles." 

Naylor and Ferrere dismissed out-of-hand the idea that reputable vendors are selling smoke and mirrors rather than functionality. "There's not one definition of what a manufacturer is, so the definition of ERP depends on what your enterprise is," said Naylor. "If it's a single shop in Pennsylvania trying to tie into the accounting department and tying into distribution, that's ERP. But that application is going to differ substantially from ERP in a global, multi-plant enterprise. As a software developer, we can use the term ERP, but we still need to approach each manufacturer and ask them: 'What is your enterprise? How big is it? What are your issues today?' 

"It's not a matter of vendors and practitioners working against each other," he continued. "But not all vendors take the time to listen and understand the problems their customers are trying to solve." 

Vendors don't invent acronyms or buzzwords, consultants do, he said. Vendors work to solve customer problems. 


The body of knowledge 
According to vendors, Williams' definition of the magic bullet all practitioners seek is incomplete. Fully described, that magic bullet would not only solve an enterprise's problems, it would also save users from having to learn the fundamental aspects of manufacturing. 

Of course, despite whether a company is a job shop or a pharmaceuticals operation, whether it operates one plant or many, whether it utilizes a client/server or distributed server computing architecture, inventory accuracy is still key. 

Many companies unwilling to face such matters turn the selection of an ERP system over to the information technology department in the enterprise with a mandate to "find us an ERP system that will solve all our problems." And the practitioners are removed from the process, or their influence is diminished, at least. "It's a shared responsibility," said Vernon. "We can't say this is a difficult industry because of the analysts or the vendors or the practitioners. Most software companies are trying to find a way to make their customers more productive," said Vernon. 

"A lot of companies approach us not knowing where they want to go," said Naylor. "Manufacturing enterprises run a great risk if they jump on the next bandwagon without looking inside themselves to determine exactly what it is that they need to make them more competitive in the future. If they come to us understanding that, we can help them get to that goal a lot quicker."