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Extreme ERP Makeover

Extreme ERP Makeover

For a company to undertake a single-instance project, there has to be a compelling reason. The CIOs interviewed for this story named three: financial reporting, cost control and competitive advantage.

Why They're Waiting for Web Services

Proponents of the single-instance approach, everyone from CIOs to vendors, recognise that what they're gaining in integration they are sacrificing in functionality. An inventory module from an ERP vendor simply won't have all the features that one from a vendor of inventory software will. For Chapman, it was an easy sacrifice to make; he says that Ensco's point applications weren't that good to begin with. But for other CIOs, that may not be the case. For them, cost, functionality and the ability to collaborate with partners dictate that either they integrate their existing systems using today's XML-based integration tools or they wait until Web services matures (see the Special Report on Web services, starting on page 88).

Costs. Many companies have made substantial investments in best-of-breed software that they don't want to write off. When, for example, big oil companies were first moving to ERP packages in the late 80s, Holly, a $US1 billion oil refiner, looked at the big vendors before deciding to build its own ERP-like system for financials, called Trafx. Over the years, Trafx grew to include crude-oil purchasing, joint-interest and product billing, and project accounting, evolving to the point where it had one data store. But Trafx doesn't do everything the company needs - for example, asset management and enterprise reporting. "We looked at several ERP solutions, and they could perform all of the new functions we needed," says Holly CIO and vice president of IT Tommy Guercio. "But the problem was that if we wanted the full benefit, we would have had to buy their financials, purchasing and billing as well. We couldn't have gone in and just done the areas that we needed."

To Guercio, replacing Trafx didn't make sense. It would have cost a bundle, and it would have been a tough sell internally - people don't want to go through the trauma of change when the current system is working, he says. Instead, he decided to augment his existing system with best-of-breed solutions, which, he asserts, have more functionality than systems from ERP vendors. Guercio integrated the solutions using a variety of methods ranging from point-to-point to XML. This strategy has allowed him to preserve his company's core investment in its home-grown system.

Guercio says that Holly has had more success with the point integration than the XML, both because the company lacks familiarity with the newer technology and because XML tags generate a tremendous amount of data, which slows down overall performance.

Eventually, he believes, Web services could solve that problem.

Functionality. For some companies, a single ERP system is simply too generic to fit diverse or highly specialised business needs. For example, one Rock-Tenn division makes cardboard supermarket display boxes for products such as batteries and toothpaste. This unit needs to track the location, inventory level, lot number and expiration date of the products that will ultimately fill the displays, as well as the customer location and shipping date of finished displays - all in case of a product recall. Another division makes 2-ton cardboard rolls. Rock-Tenn needs to track each roll's weight, width and dimensions in linear feet and square feet. "There is no ERP system that does that," says CIO Shutzberg.

For Rock-Tenn, "trying to adapt an ERP system to fit our business process is stupid", he says. "And customising ERP is even more stupid." Instead, the company has had to find the best ERP-type solution for each of its six business units. Shutzberg is in the middle of a two-to-three-year project to integrate each unit's system.

"It's no panacea," he admits, but it's the best solution available to him. Besides, the systems that each business unit now has work, and, he says, "the worst thing to do is throw away what's working in order to get to the end-of-the-rainbow utopia".

Today, Rock-Tenn's integration is largely application to application, although there are some Web services at the middleware level. That's the plan for the short-term future as well; Shutzberg says that there hasn't been enough development within the Web services community to convince him that Web services integration will be practical in the next year or two. "I like the concept," he says, "but I have to wait and see it mature."

Collaboration. A third reason that companies are banking on Web services rather than choosing a single-instance option is that Web services would allow them to connect with business partners regardless of the partners' ERP system. That's the case for $US37 billion British American Tobacco. "The same rules apply to [your partner's apps] as they do to your own," says Gabor Makkos, CIO of the company's Mexican division. "I don't have to ask my provider to change their app architecture, and I don't have to change mine to collaborate."

British American Tobacco's ERP is SAP R3, with best-of-breed applications for specific processes; integrating with it used to require point-to-point connections. That means that when something changed - a supplier's application or its CRM system - the whole integration had to be redone, says Makkos. An integration layer built with XML-based messaging queries is immune to that problem.

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