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Lessons learned in creating hybrid ERP systems |
The sellers of enterprise resource planning software can hawk their unified, seamless, one-stop mega-products all they want; General Motors Corp. isn’t buying.
From its Detroit headquarters, the world’s largest automaker is assembling a hybrid ERP infrastructure by mixing and matching modules purchased from different suppliers.
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Instead of buying compatibility out of the box, GM is creating its own compatibility, installing its own software-integration links at the points where separate systems need to exchange information.
“GM’s strategy is a best-of-breed strategy,” says Al Stolpe, director of enterprise applications for GM’s information systems and services operation. “We want to align ourselves with the software providers that we feel have the best capabilities for the automotive industry.” That means sticking with software that GM knows will work for the automaker.
A minority approach
Companies that are willing to buck the single-system approach remain a minority (see stories, “Sonoco does the ERP packaging itself” and sidebar “Smaller firms take the one-vendor ERP route“). Roger Walters, vice president and CIO of Booz Allen & Hamilton, a management-consulting firm based in McLean, Va., says more organizations buy ERP software from a single vendor than go best-of-breed. That’s because the bottom-line allure of integrated packages is pretty powerful. Buy all of your business software in a multiple-module suite from a single vendor, the pitch goes, and your previously self-sufficient business functions will be able to communicate with one another and use one another’s information, with no special software connections required. You’ll be able to save money on warehousing, for example, because an order for raw materials can be placed as soon as the inventory system becomes aware that manufacturing will require it.
Many companies opt to go with a single ERP vendor primarily to avoid the well-known issues associated with integrating disparate software systems: the cost and complexity of the integrations themselves, the cost and complexity of maintaining and updating the integrations as applications change, and hassles like building IT expertise to cover multiple systems.
“Even if an ERP solution delivers less than 80% of what you want (functionally), it’s still better to go with one vendor,” Walters maintains. “You have cheaper maintenance, a lower learning curve, and all those related benefits.”
But the mavericks have good reasons for taking the integrate-it-yourself, hybrid approach. The most prominent reasons are:
Building around SAP modules
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As part of an update of its business-management systems, a project begun in November 1997, GM is building its ERP foundation around the financial-management module that is offered as a component of the R/3 ERP system from SAP AG headquartered in Waldorf, Germany. It’s also using R/3 for managing the purchase of work gloves, ballpoint pens, and other such “indirect” material.
“We went with SAP in finance and indirect material because of the commitment it has made to the automotive industry in those two areas,” Stolpe says, referring to functionality that is tailored to carmakers’ needs. When fully operational at the end of 1999, the R/3 software is expected to support about 10,000 users.
At the same time, starting at four of its international business centers, the carmaker is installing human-resources and employee-administration portions of the ERP package from PeopleSoft Inc., the Pleasanton, Calif., software vendor. By GM’s reckoning, PeopleSoft sold it the best administration and payroll functions for countries including Canada, Japan, and Thailand, where GM needed to automate its human-resources operations most urgently.
“It gave us the flexibility to implement in the sequence that we wanted to implement in,” Stolpe says. “If we hadn’t taken this approach, we would not be able to roll out the human-resources functionality at the sites we needed to roll it out at.”
Naturally, GM requires communication between the SAP and PeopleSoft systems. Certain workflow rules governing procurement, such as job descriptions designating the people who can authorize purchases, reside in the PeopleSoft HR system, for instance. When the SAP procurement system needs to look up those rules, it enters the PeopleSoft module via a middleware link built by GM using Mercator integration software from TSI International Software Ltd. of Wilton, Conn.
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Stolpe’s primary concern about that connection is performance. “This other piece of software managing the interface between these two major enterprise systems impacts the response time and the speed of the process,” he says. So far, it hasn’t slowed the process enough to have a serious effect on operations, but GM has yet to test the connection at high transaction volumes. “It’s still a work in progress,” Stolpe says.
GM also is evaluating ERP-level packages for supply-chain management and advanced production planning, including planning systems from i2 Technologies Inc. in Irving, Texas, and Manugistics Inc. of Rockville, Md., and the Scope module from SAP. Stolpe says GM may add a PeopleSoft payroll module to replace a legacy paycheck system outsourced to Electronic Data Systems (EDS), a one-time GM holding.
Making room for acquired systems
ERP systems inherited during acquisitions may force a company to pursue a hybrid approach. Pittsburgh tubing manufacturer Copper Weld Industries Corp. operates the payroll system for its Miami division, just north of Dayton, Ohio, on ERP software from Denver-based J.D. Edwards World Source Co., running on an IBM AS/400 midrange computer. But the SmartEnterprise Solutions ERP system from Atlanta-based Geac Smart Enterprise Solutions Inc. provides modules for the division’s financial and human-resources systems. Copper Weld switched those parts from J.D. Edwards to Geac in phases after it acquired the Ohio operation in 1993.
Accounts receivable was the first function converted to Geac, to assure compatibility between the division and the parent corporation. “Strategically, we wanted to be able to collect the cash, so we brought them over to our accounts-receivable system right away,” says Pete Orsini, CIO of Copper Weld Industries.
But the company won’t give up the J.D. Edwards payroll system until it becomes too costly to maintain. “As long as it’s paying well, there’s no reason to move it off of J.D. Edwards,” Orsini says. “It’s not strategic. It won’t change the bottom line of the business.”
The opposite tack is taken by Solectron Corp., the Milpitas, Calif.-based electronics manufacturer. Even though it has been growing aggressively through acquisitions, Solectron takes a single-system approach. Since 1991, the company has transformed itself from a single site with under $300 million in annual revenue into an international player with about two dozen manufacturing sites taking in nearly $4 billion yearly. “We’re now using a wide variety of ERP systems because of acquisitions, but we’re standardizing on Baan, and now we’re deploying it throughout the company,” says Ken Ouchi, Solectron’s CIO. His main reason: A single system eliminates the need to create and maintain interfaces between systems. Beyond their initial expense, interfaces add up to an ongoing burden, because they have to be reworked each time an attached application gets upgraded or improved, Ouchi says.
Reaching beyond core functions
Many companies that might have preferred to stick with one integrated suite from one vendor find they have to adopt a best-of-breed approach when it comes to new applications that fall outside the core functionality of traditional ERP–financials, inventory control, purchasing, order management, manufacturing, HR, and payroll. These come-lately capabilities include supply-chain planning, product configuration, and salesforce automation.
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Kyle Pond, research analyst for GartnerGroup Inc., the technology consulting group based in Stamford, Conn., fits these bolt-on functions under the term “eERP”–extended ERP. Extended ERP encompasses a changing ecosystem of applications, he points out, with new functions constantly emerging, and established ones getting subsumed in main-line ERP packages.
Although in the core ERP market “there is more of a trend to go with a single vendor because of short-term execution problems,” such as the looming Y2K deadline, Pond says, “the trend today is to buy best-of-breed within the eERP market.”
Capitalizing on industry expertise
Seattle-based clothing maker Union Bay Sportswear is currently installing a best-of-breed, hybrid ERP system to capitalize on industry-specific software available from Richter Systems International Inc. of Atlanta. Although it classifies its product as an ERP system, Richter specializes in functionality for the soft-goods industries. Richter, a supplier of supply-chain-management software, doesn’t provide integrated modules for corporate operations such as human resources and financial management. Therefore, buying Richter means adopting a best-of-breed integration.
Union Bay uses Richter’s SUCCESS suite for such operations as manufacturing, procurement, inventory control, and order entry. The system lets the clothing maker capitalize on Richter’s expertise in retailing–expertise that, in the view of Union Bay’s MIS director Kevin Evans, couldn’t be acquired elsewhere. For example, Richter stays on top of industry-specific issues like customer compliance, loading its software with features that let users meet changing demands from retailers for details like unique labeling or sales-floor-ready packaging.
“Our ERP system needs to be able to react to that,” Evans says. “The Richter system provided the greatest flexibility.” It also provides links designed to ease integration with applications covering the areas SUCCESS overlooks. Union Bay takes advantage of one such premade integration by using the PKMS warehouse and distribution management system from Manhattan Associates Inc., in Atlanta. A partnership between Richter and Manhattan Associates accounts for the ready-made integration.
No one vendor can do it all
Such ERP partnerships and other measures supporting cross-system integrations encourage greater mixing and matching. Probably the most prominent example comes from SAP, worldwide leader in single-system ERP. Its R/3 system includes a feature named the Business Framework, a kind of super application interface that contains the protocols that other systems need in order to exchange information with R/3.
“No one vendor will have all the applications,” says Andrew Zoldan, vice president for strategic initiatives at SAP America, based in Newtown Square, Pa. Accordingly, ERP packages such as the one he sells become more like an information-technology platform than a solitary system. It will provide core functions like financial management and human resources. But beyond that, Zoldan says, “it is a platform upon which you can build all your extended business functionality.”
| Do you have any “Lessons learned in creating hybrid ERP systems” you’d like to add to our list? E-mail them to us. |
“People come up with new technologies that then need to be supported within the enterprise framework,” Zoldan says. “That’s going to go on forever.” //
Jeffrey Zygmont writes about business and technology from Salem, N.H. He can be reached at jzygmont@concentric.net.
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Hybrid ER |
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Companies are leveraging strategic advantages from building hybrid ERP systems around packaged integrations. |
The DataGate middleware system from Software Technology Corp. of Monrovia, Calif., sits at the center of the best-of-breed applications strategy helping to propel the fast-growing catalog retailer Genesis Direct Inc. of Secaucus, N.J.
Founded in 1996, Genesis took in $400 million last year, selling sports gear, gifts and collectibles, and children’s products. It’s driving toward a goal of $1 billion in sales by the new millennium. Not all of that growth will come through sales increases though. Genesis plans to continue its acquisition and consolidation strategy: acquire more nonstore retailers, and consolidate those retailers’ operations into its 500-seat call center in Secaucus and its national distribution service in Memphis.
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Centralization lets Genesis drive down costs through economies of scale. But it demands the support of information systems that are both very capable and flexible enough to absorb the burgeoning growth of the company, says CIO Dominic DiMascia. Therefore, when he joined the company as its 19th hire (Genesis now employs more than 1,600), he set out to assemble an integrated enterprise information system that put best-of-breed functionality ahead of single-source compatibility.
“We wanted to find and implement the best software for a given need. We didn’t want the technology to drive our decisions,” DiMascia says.
The two key elements of the system are separate applications for catalog management and warehouse management: the Mailorder and Cataloging System (MACS) from Smith Gardner and Associates of Boca Raton, Fla., running on an HP 3000 server, and PKMS from Atlanta-based Manhattan Associates, on an IBM AS/400. Six other elements round out the hybrid package, including a financial-management system from Lawson Software of Minneapolis.
To make that level of choice possible, Genesis sank about $6 million into its DataGate integration to join the various modules, including software, hardware, and consulting. Development and implementation ran about 20 months. DiMascia’s IT staff of nearly 70 people uses STC’s DataGate to create communication sockets that plug into each application. That’s a programming job, using the C++ language. Additionally, IT business analysts set up data maps, repositioning and reconfiguring information exiting one system so that it will be in the appropriate places to be recognized by the receiving system.
“It’s not just one-to-one record mapping,” DiMascia says. “We can also split transactions. We can take, say, a ship-confirmation record coming up from the warehouse, and [while] we’re sending it through DataGate to the catalog management system, we can push a sales record up into general ledger.”
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Using another middleware feature, the warehouse-management system constantly monitors a data queue within the catalog management application, ready to pick up credit-card-authorized orders that it can begin filling on the spot. Thus, for some sales at least, Genesis cycles from order entry to fulfillment practically instantaneously–a big benefit in mid-December, when order banks typically log $3 million daily. During the holiday rush, DataGate clears as many as 1.75 million transactions a day, DiMascia says. //
Jeffrey Zygmont writes about business and technology from Salem, N.H. He can be reached at jzygmont@concentric.net.
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Sonoco does the ERP packaging itself |
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At Sonoco Products Co., real-life experiences with integration have solidified executives’ preference for the single-vendor approach to ERP. |
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When it kicked off a corporatewide, mixed ERP implementation on a client/server platform several years ago, Sonoco Products Co., a Hartsville, S.C.-based manufacturer of packaging materials, began the implementation at its industrial products division. There it coupled manufacturing software from the The Baan Co. of Menlo Park, Calif., with a manufacturing software module with an advanced planning and scheduling application called Rhythm from i2 Technologies Inc., based in Irving, Texas.
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Packaging manufacturer Sonoco Products opted to put together its own hybrid ERP system. |
“Single-vendor was our preference three years ago, but [planning and scheduling] wasn’t available from any of the vendors we were evaluating,” says Bernie Campbell, vice president for information systems. “We didn’t want to wait to begin the implementation.”
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Sonoco connected the Baan and i2 packages by writing an interface. While the initial, proof-of-concept version of the software link was easy to implement, it took the packaging manufacturer about a year to bring the integration into full production. “We underestimated how difficult it would be,” Campbell says.
Campbell recognizes that the middleware tools available today are an improvement over the tools that Sonoco used three years ago (see “Emergence of the middle(ware) class“). Still, as the company is beginning a similar update of business systems at its flexible packaging division this year, it is using the newly available, preintegrated, supply-chain planning module from Baan, instead of i2’s Rhythm. Campbell concedes that he may be giving up some functionality with the Baan module, but not enough to justify a middleware link.
“There’s the up-front development time and the fact that we’d have to maintain that integration over time,” Campbell says. “As new releases of software come out, the burden of keeping the integration working would be on us. It gets down to a total cost of ownership issue.”
Sonoco has another experience mixing and matching disparate ERP modules. While Baan runs its manufacturing systems, PeopleSoft Inc. is its choice for financial management, human resources, and payroll functions. Sonoco opted for the functionality available in those PeopleSoft packages because “even though Baan provided a very strong ERP package, it did not meet all our requirements in the financial area,” says Campbell.
The integration connecting the Baan and PeopleSoft modules is relatively simple because it doesn’t involve real-time data transfer. Information such as inventory transactions are moved from Baan to PeopleSoft’s financial system in batch transfers. “That’s suitable for our needs,” notes Campbell. “We just don’t need a real-time update of PeopleSoft.” Naturally, the batch transfer skirts the more difficult problems of connecting the two systems. //
Jeffrey Zygmont writes about business and technology from Salem, N.H. He can be reached at jzygmont@concentric.net.
