Still a key success factor<\/p>\n
By Zatni Arbi<\/p>\n
Unlike the government of Indonesia, businesses around the
\nworld have long chanted a three-word mantra: Efficiency,
\nefficiency, efficiency. It is not a new concept, as you would say.
\nWhat, then, is Enterprise Resource Planning (ERP), which may
\nsound passe to the ear of journalists, analysts and many of us?<\/p>\n
JAKARTA (JP): It is becoming an increasingly crucial aspect of
\ndoing business because, as the world shrinks and businesses
\nbecome global, competition makes it impossible for producers,
\nvendors and service providers to set their own prices.<\/p>\n
Customers are more educated, and they have access to billions
\nof Web pages that contain information on pricing, benchmarking
\nresults and other customers' opinions. In the buyers' market,
\ncustomers can now make better decisions and find the best prices
\nin just a few clicks.<\/p>\n
As the supply side cannot raise prices at will, what they need
\nto do to boost their profit is, naturally, to keep costs --
\nproduction, operational, promotion, R&D, etc. -- to a minimum.<\/p>\n
Another area that is very often neglected but can have a huge
\nimpact on costs is waste. Waste can result from inefficient
\nproduction processes, in which a lot of raw materials may not end
\nup being used in the final products but, instead, thrown away as
\ngarbage. Another more common type of waste is the material that
\nfinds its way to the black market through the hands of workers
\ndue to lack of control.<\/p>\n
This reminds me of the story of a large local company that
\nhandles the installation of central air-conditioning systems.
\nEach of its projects usually requires a lot of materials, from
\nscrews to cables to ducts to plates, etc.<\/p>\n
To give you a good picture of how much material they need, it
\nis not uncommon to ship everything in a container to the site
\nrather than in several smaller trucks.<\/p>\n
When a project is near completion, the owner, who is already
\n70 years old, will go to the site, check whatever material is
\nleft over and order that it all be sent back to the warehouse.<\/p>\n
The company is very lucky that the owner is still willing to
\ngo to the field and do the work that his workers probably wish he
\nwould not do.<\/p>\n
As production of goods requires materials obtained from
\nsuppliers, even the producers benefit from the advent of the
\nInternet.<\/p>\n
All e-marketplaces, particularly vertical e-marketplaces, are
\nthe online places where they can get the best prices for the
\nsupplies that they require.<\/p>\n
Lower prices for raw materials and efficient production
\noperations coupled with reduced overall costs are what companies
\nnow have to strive for, as the winners will be the ones who can
\nachieve the highest level of efficiency.<\/p>\n
Traditional<\/p>\n
As we all know, the use of information technology (IT) in
\nenterprises has undergone many rapid transitions. It started as
\noffice automation back in 1970s and early 1980s.<\/p>\n
As database technologies evolved, IT played the role of
\nelectronic data processing (EDP), with very little strategic
\nvalue beyond automation that was recognized by management.<\/p>\n
Then, in the second half of the 1980s, people started talking
\nabout strategic information system (SIS), a system that was based
\non IT to create competitive advantage and, at the same time,
\nbuild barriers to entry.<\/p>\n
Soon, strategic information systems became so commonplace that
\nit was not considered strategic anymore.<\/p>\n
Soon, the Internet also took off and people began to find ways
\nto use it to maximize their efficiency. We then had e-commerce,
\nfollowed by e-business.<\/p>\n
The world, in the meantime, became smaller in terms of access
\nto information and trade. E-commerce was segregated into B2C and
\nB2B.<\/p>\n
Nevertheless, the need for companies to streamline internal as
\nwell as external operations continued to increase.<\/p>\n
In the past decade, people began talking about a comprehensive
\ninformation system that would link and integrate all the
\nprocesses inside a company or a manufacturer and allow direct
\ncommunication with external systems belonging to its customers,
\nsuppliers and partners.<\/p>\n
And so, the term Enterprise Resource Planning was coined, and
\na new category of software development companies was invented.<\/p>\n
The leader, as everybody would be quick to point out, was SAP
\nfrom Germany.<\/p>\n
Its much-coveted product is called R\/3, and it has become sort
\nof a status symbol that any large enterprise should be using.<\/p>\n
There are others in the top rank, of course, including Oracle,
\nPeopleSoft and JD Edwards.<\/p>\n
And then there are others that targeted second-tier
\nenterprises -- those who could not afford the million-dollars ERP
\nsystems offered by the leaders. These include IFS, Max
\nInternational, Lawson and Baan.<\/p>\n
ERP is now considered a traditional application.<\/p>\n
If we go to the home pages of SAP, Oracle or PeopleSoft, we
\nwill have difficulty finding the three-letter acronym there.<\/p>\n
Yet, a lot of enterprises have been operating or are in the
\nprocess of getting their own ERP.<\/p>\n
The name may sound passe in the ear of journalists and
\nanalysts, but in reality, an ERP system is still needed.<\/p>\n
Why do we say that ERP is still alive and kicking?<\/p>\n
Like artificial-intelligence technology, we no longer talk
\nabout it but it is already embedded in a lot of gadgets and
\nsystems that we rely on in our daily lives.<\/p>\n
Besides, take a look at the recent merger of Navision Software
\nand Damgaard, both from Denmark.<\/p>\n
With their combined strengths, they are now ready to tackle
\nERP midmarket, competing with hundreds of other companies in the
\nsame spot from the U.S., Europe and Asia.<\/p>\n
We can see this as a good indicator of how active the ERP
\nmarket actually is, despite people now talking more about Supply
\nChain Management, Customer Relationship Management, etc., rather
\nthan ERP.<\/p>\n
Another testimony to the importance of ERP is, perhaps, the
\nsurprising turnover of Baan, which used to be the second-largest
\nERP vendor from Europe.<\/p>\n
The company was founded by the two Baan brothers -- Jan and
\nPaul -- and skyrocketed as ERP became so popular in 1990s.<\/p>\n
However, toward the end of the decade, the company began
\nundergoing turmoil.<\/p>\n
The two brothers were expelled, but the company continued to
\nroll downhill. In August 2000 it was acquired by Invensys, a
\ncompany that was not traditionally a known player in the IT
\nindustry. The acquisition looked as if it would be the straw that
\nbroke the camel's back.<\/p>\n
To everybody's surprise, however, Baan has bounced back into
\nthe black. Almost 50 percent of its license-based revenues come
\nfrom the U.S., including Boeing.<\/p>\n
This, needless to say, would have been impossible if demand
\nfor ERP products had not been strong. A similar story comes from
\nManugistics, a U.S.-based ERP vendor that almost folded but is
\nnow on the path to good health.<\/p>\n
Perhaps due to their long history of industrialization, Europe
\nseems to be home to a number of major ERP vendors.<\/p>\n
Another strong player from the continent with increasing
\nprominence is the Sweden-based Industrial & Financial Systems
\n(IFS), which has also been very active here in Indonesia.<\/p>\n
In fact, the R&D team of IFS Indonesia has been contributing
\nsignificantly in the development of its Human Resources (HR)
\nModules, which are currently used worldwide.<\/p>\n
This vendor has also been working on a localized version of HR
\nand Taxation modules, which should follow the changing
\nregulations of local government.<\/p>\n
In this country, IFS has been serving the needs of companies
\nin petrochemical, pharmaceutical and textile industries, while
\ntouting a strong competence in delivering engineering projects.<\/p>\n
One important result from the work of the people at IFS
\nIndonesia is the Currency Reevaluation feature.<\/p>\n
Sad but true, this feature is badly needed by enterprises in
\nIndonesia that use multiple currencies that include our rupiah.<\/p>\n
Modular<\/p>\n
In general, an ERP system consists of modular components that
\ncan be added as new needs arise for more complex functionalities,
\nor, in many cases, as the company can afford additional modules.<\/p>\n
An ERP vendor is typically strong in a few areas, such as HR
\nor Back Office, but is not that strong in others, such as
\ndistribution and store-floor management.<\/p>\n
Therefore, it is not uncommon that a company wishing to have
\nthe best breed of ERP applications will have to mix-and-match
\nbetween products of competing vendors.<\/p>\n
There is a huge risk involved, of course, and the consultants
\nwho help customize the system are guaranteed to have a really
\nhard time completing their job.<\/p>\n
As mentioned above, people now talk more frequently about
\nsupply chain management (SCM) than about ERP.<\/p>\n
While ERP covers all business processes of a company, allowing
\ncustomers to place their orders online and to trigger a chain
\nreaction all the way to the supply sides, the SCM is meant to
\nhandle the dynamics of supply chain.<\/p>\n
In the past, ERP did not include facilities to handle
\nexceptions, for example, which would be required in cases such as
\ndelayed delivery from the suppliers or unexpected changes in base
\nprices.<\/p>\n
An SCM system would be more adept in accommodating these
\nsituations.<\/p>\n
However, over time, ERP vendors keep adding functionalities to
\ntheir products while SCM developers learn from their experience
\nand expand the scope of their products' capability.<\/p>\n
Hence, the two applications are getting very similar.<\/p>\n
Implementing an ERP system has never been an easy task,
\nbecause it may involve business reengineering, identification of
\nbest practices, assessment of new business opportunities, careful
\nbusiness planning and, sometimes, total transformation of the
\nentire organization.<\/p>\n
There have been many cases where incompetent implementation of
\nERP systems have brought crippling disasters to a company,
\ncausing delays in shipping of products to customers, etc.<\/p>\n
However, if done correctly, the results are positive.<\/p>\n
And, just to put it in perspective, would you still open an
\naccount at a bank that did not have a computer?<\/p>",
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"sponsor": "Okusi Associates",
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