ERP and e-commerce - Out-paced by their own users.

According to Forrester’s recent ERP survey, ERP users doubt the ERP vendors will be able to meet their Internet commerce needs in the foreseeable future. The research company spoke to IT executives from 50 large companies that have Internet commerce sites and that have implemented one of the top five ERP packages (Baan, JD Edwards, Oracle, Peoplesoft or SAP), and found that although most of the users have a long-term desire to integrate their Internet sites with their ERP systems, more than three-quarters of respondents do not expect to use sell-side e-commerce software from their ERP vendors until 2001. Forrester also found that 96 percent of its interviewees do not currently use any sell-side e-commerce software from their ERP vendor (see figure 1, page 16). Most cite missing e-commerce features or the need to upgrade their ERP solution to use the vendor’s e-commerce software as their reason for this. A forest products company commented: “SAP is not providing anything for us in Internet commerce. We had to write the linking code and develop the commerce capabilities ourselves. In 2001, we’ll still be ahead of SAP, so why should we use them?” Its sentiments were echoed by an electronics company, which said: “There was nothing that Oracle offered; they didn’t have a commerce product that was workable for us. Because we had some customisation – which Oracle promotes – we couldn’t use their off-the-shelf front-ends.” Eager to build an online presence, users are linking e-commerce initiatives to essential ERP data and transactions in many ways. For 76 percent of interviewees, this means writing custom code to integrate their commerce sites with their ERP backbones. By 2001, 20 percent of interviewees plan on using ERP vendor-provided extensions, but 40 percent still intend to use home-grown code. A pharmaceutical company offers strong words of advice to its vendor: “The main thing for SAP is maintaining an open architecture with BAPIs, having a way in and out of there. There’s nothing extra they need to do unless they want to buy one of these commerce vendors and make it part of SAP – they’re not going to develop strong products otherwise.” Many users feel their current integration level is adequate for their low-volume Internet initiatives, even though 24 percent currently manually enter online transaction data into their ERP systems. But by 2001, 70 percent of companies anticipate real-time integration between their ERP apps and e-commerce sites (see figure 2). “When we get an order online, we get an email alert, print out the order, and type it into Oracle. Since we’re only getting a few orders a day right now, we can do that, but this will have to change really fast,” says one interviewee. Another respondent is more critical of the flexibility that ERP currently offers: “The Internet business processes are always changing too fast for the ERP vendors to incorporate into their apps, but their competitors specialise in cheap and fast solutions. The web is new and nimble – that’s not ERP.” The research offers stiff advice to ERP vendors hoping to adapt to challenges set by the ever-evolving e-commerce market. Forrester believes that ERP vendors are on the wrong track. Although they see gold in Internet commerce, their sights are wrongly set on sell-side applications. They need to recognise that the way to add value for their customers is with improved integration capabilities with leading e-commerce solutions. Internet commerce is big and getting bigger. Forrester predicts that US e-commerce revenue will grow from $149bn this year to $1.63 trillion in 2003. Despite this tidal wave of adoption, ERP vendors have been slow to bring even incomplete e-commerce offerings to market. For example, the offerings from most of the big five are hardly past version one. Forrester also points out that ERP success does not always translate into e-commerce success. Internet commerce demands a different perspective from the inward focus of ERP systems, which manage mature internal business processes and offer limited value to external customers and partners. ERP apps are masters of data integrity, but complex data models impede integration with other software – especially in fast-changing e-commerce. The 50 companies interviewed have already built their own e-commerce solutions, even though, in many cases, this has involved little or no integration with their ERP system. And, despite hopes that they might be proven wrong, these users are very pessimistic that ERP vendors can deliver high-value e-commerce capabilities in a reasonable time-frame. Some might think it would be easy to dismiss the need for ERP capabilities when implementing an e-commerce strategy, but this would be dangerous. Despite the gap between users’ needs and the current ERP offerings, these systems must be part of a winning e-commerce strategy for a number of reasons: – Mission-critical reference information – ERP systems contain commercial critical data elements such as order history, customer-specific pricing rules, hierarchies of customer organisations, and detailed product specifications. Without near real-time access to this data, e-commerce systems will frustrate customers with out-of-date information, poor self-service capabilities and incorrect or delayed shipments. – Well-defined business processes – ERP systems are designed to ensure that orders or purchase requests are valid and actionable. These processes have evolved to represent best-practice work-flow for order fulfilment, manufacturing and finance. These rules need to be part of e-commerce applications, or customers will be exposed to low-IQ business practices. – High-value analytical data – Jewels of information, such as customer buying history and profitability, product sales performance and inventory utilisation, remain locked away inside transaction systems or data warehouses. If this data was made available to e-commerce systems, and refreshed regularly, customers could be offered tailored high-margin promotions. FORRESTER’S ACTION POINTS Prudent users should outsource their e-commerce site and data cache. To get the performance they will need as site traffic builds, users should look to outsource operation of their e-commerce sites and the closely-coupled e-commerce data cache. The variable demands of bandwidth and server capacity present too many unknowns for all but the largest e-commerce operations to manage, whether they opt for solutions that are home-grown or provided by ERP vendors. Commerce vendors must seize the chance to wag the ERP dog. Vendors such as Broadvision, Vignette and Open Market are in the front-line of managing high-volume e-commerce sites. They should step up partnerships with ERP vendors to provide full-featured e-commerce solutions and package their own ERP-specific adapters. Users must select an integrator as the prime strategic partner. The balance of power will continue to shift away from software publishers to service providers. This will particularly weaken ERP vendors that are slow to e-commerce enable their apps, and on the flip-side will provide compelling advantages to Internet commerce integrators. Companies must rebuild customer service from the outside in. As companies review their software investments, they should look to swap out the problematic applications that are closest to their customers, replacing the biggest barriers to delivering a coordinated response to customer enquiries.