Consulting Journal: Trends - Second-generation ERPs

Trends: Second-generation ERPs

by David Blakey

First-generation ERPs focused on integration. Now all that will change.

[Monday 6 December 2004]

Several writers have defined ERP II. ERP, or ERP I, which I prefer to call first-generation ERP, is an abbreviation for Enterprise Resource Planning, although the major vendors, led by SAP and Oracle, have extended ERP to become a single platform for applications and data within an enterprise. It would be more accurate to describe them simply as enterprise-wide transaction handlers.

The basic methods of working of the various ERPs are very different. Oracle is still mainly a database management system that can be used by many end-user applications. SAP is still mainly a set of integrated end-user applications. As an ERP, Oracle uses common components within end-user applications to present information in standard formats. SAP uses tailored base components to achieve the same result.

Although it was never a prescription for ERP, it is true that most ERPs use enterprise-wide data and applications that are contained within the enterprise. ERP II recognizes that much data and many applications do not have to be within the enterprise. The main drivers for this thinking have been Web services.

We might expect that more applications will be run by other suppliers, using the Internet as the medium and providing information in standard formats. Some first-generation ERPs were not designed to deal comfortably with data encoded in XML nor with data delivered through RSS. Those ERPs - such as SAP - do not provide easy, simple ways to interconnect with Web services.

One of the advantages of the first-generation ERP applications is their uniformity. They use true integration of data instead of the variety of different databases that developers attempted to work with before ERPs arrived. ERPS avoid the problems created by accessing databases on non-unique keys.

Now, and increasingly in the future, ERPs will have to handle disintegration.

Disintegration is an interesting word. We all know that it describes the act of breaking up. It implies that there was previously a whole item that has been broken into its components. First-generation ERPs strove to integrate, to bring everything together into a single entity. Second-generation ERPs will have to deal with a number of sources that cannot be integrated. In some cases. these sources will replace the integrated sources. They will have been disintegrated.

The survivors in the new disintegrated world will be those who can develop new products to handle various sources of data and to present information that is integrated from a number of these disintegrated sources.

Let us look again at the original meaning of ERP. We will be able to achieve true enterprise resource planning by having information from our suppliers and our customers integrated in real time into our own production systems. Web services make this possible. We can now take new information from our suppliers and from our customers and use it to manage our businesses.

Our previous efforts have been reactive: there has been a delay between an external source producing data and us receiving it. Today, that delay can be reduced to milliseconds. Today, we can respond to that new information within milliseconds. We can begin to build true co-operative real-time systems between businesses.

To a large extent, the technology is of little importance. We can work on whatever platforms we want, using whatever development environments we want and whatever operating systems we want. If you choose to work in Java, and I do not, then we really only need a standard for our data interconnection to to work. We are beginning to work towards those interconnection standards.

The down-side to all this is that an enormous investment is required to move from first-generation, monolithic ERPs to second-generation, disintegrated ERPs. Your clients will have to examine the costs and the benefits very carefully. There is no doubt that some businesses that do not adopt second-generation ERP will survive. So businesses that are contemplating a move towards it will have to weigh the benefits very carefully against the costs.

This is an area in which consultants can help. The consultants do need to understand the technologies that support second-generation ERPs. They need to be able to prepare a justification for those technologies.

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