Debunking the ERP myths
Understanding the real risk for asset-intensive companies
By Terry Ray, IBM -- Plant Engineering, 9/15/2007 1:00:00 AM
The goal of having one enterprise resource planning solution for all business processes is still popular, yet the idea is no longer practical, particularly in asset-intensive industries. Changing requirements in the areas of compliance and risk management are increasing the pressure on an enterprise's operations group to manage their assets to higher standards and to demand the best available solution for people, process and technology.
Changes in technology such as service-oriented architecture (SOA) and Web services eliminate the need to compromise operational effectiveness. Platform-oriented strategies of the large enterprise software vendors, and the adoption of standards-based architectures, blur the boundaries between what is developed by the large ERP vendors versus those with specific, business-critical functions.
Several common misconceptions exist about the value, capabilities and deployment of ERP solutions in asset-intensive industries. Demystifying the myths will help decision makers in these asset-intensive industries better understand what the real risk is.
Myth 1: ERP solutions are sufficient to manage the infrastructures of asset-intensive companies.
In asset-intensive industries, failure of a critical asset infrastructure can have a detrimental impact on an organization, not only from a financial perspective, but also from a social and environmental viewpoint. For a multi-national company, an asset failure can be the kind of event that makes headline news. This type of failure can often be measured in the hundreds of millions of dollars, a risk that organizations cannot take lightly. When large companies look for asset management solutions, it is imperative that they implement the best technologies and/or solutions available.
Company executives, may claim that the modules for managing assets that are part of the financial systems are sufficient. But for organizations that manage critical asset infrastructures, there is too much risk associated with this compromise. It increases the operational risk for the organization and sends the wrong message to its employees when a company selects an insufficient solution. The financial performance of the company, the safety of the workforce and the preservation of the environment are at stake.
Myth 2: An ERP solution will lower IT costs and risk.
Asset-intensive companies that use an ERP solution for asset management typically end up with only 60% to 80% coverage for their functional requirements. What do people do when they have a need for application capabilities that the ERP solution doesn't support?
They create their own solutions. Independent divisions or departments use productivity tools to create applications “on the fly” to deal with changes in regulatory requirements or changes in business process. These applications are sometimes called renegade applications.
These applications are created to fill a functional gap in a larger system, such as ERP, in order to enable the company to better complete its operational mission. Often based in Excel, Access or some small niche application, these stop-gap solutions are generally not secure, not supported by the IT organization and not auditable. They are costly to integrate and are typically managed “under the radar” by one person or small group. The implications of these types of applications are two-fold. They also increase the cost of IT. They increase the operational and regulatory risk (e.g., Sarbanes-Oxley, Basel II) to the organization, as there is no longer a single, readily auditable repository of information related to the assets.
Myth 3: Integration of best-in-class solutions with ERP is complex, risky and costly.
One of the old arguments in the enterprise vs. best-in-class debate is that it is very costly to integrate a best-in-class solution with an ERP system, and that any integration will increase the risk of the project. Consider three points relative to this myth.
In most cases, integration risk and operational risk are not equal. Integration technologies have changed dramatically over the last five years, enabling new levels of integration.
When evaluating integration, one should not only consider the integration between one solution and the ERP but the integration for the entire ecosystem. An experienced systems integrator vendor can help make sure the SOA solution of choice integrates easily and correctly with an ERP system.
Companies that are managing critical asset infrastructures that can impact people, the environment and the company's financial performance should select solutions that allow them to manage their assets to the highest standards in the areas of safety, integrity and reliability. They should not trade off perceived reductions in IT costs against placing their company at a higher risk (e.g., for potential fines, prudent oversight, accidents, environmental problems, brand/corporate reputation damage, etc.). Furthermore, integration technologies have matured significantly over the past decade and, as a result, the actual costs and risks of integration have changed as well.
Point-to-point integration
With this older approach, applications are connected to each other with dedicated integration points. Users generally build an interface for each requirement using each application's proprietary application programming interfaces (APIs). These interfaces are built specific to the two applications and tied to each other's version and configuration, making the applications tightly coupled. This type of integration is manageable on a small scale. However, it can grow at an exponential rate and quickly get out of control as more applications are connected to each other. For instance, a seemingly insignificant change in one application could affect the interfaces with all other applications to which it is connected, both directly and indirectly.
Hub-and-spoke integration
An update to point-to-point integration, applications are connected to a central integration system, commonly referred to as an enterprise application integration (EAI) hub. The EAI hub, in turn, provides integration services and handles communication from application to application (spokes). While the hub-and-spoke approach does promote centralized management, standardization and reuse, the connections at the spoke typically require some effort. Applications at the spokes may not have APIs, or may have proprietary APIs that require development and maintenance related to each change to the applications (upgrades, enhancements, etc.).
Service-oriented architecture
The most modern approach is SOA, an architectural framework for enterprise application services and the interoperability of these services. In order to implement SOA, applications are required to have discoverable, reliable services that can be implemented. Also, SOA requires a robust platform and the means to explore, discover and route services and messages. Enterprise Service Bus (ESB) is the concept associated with the service invocation and routing aspects of SOA. ESB relies heavily on the platform to manage and route service invocations, events and messages.
This platform is the key to SOA. Major ERP vendors, realizing the importance and the momentum of SOA, have either built or acquired SOA-capable platforms and are expanding their application provider role to include platform, integration and core services.
Industry-leading software solutions use an architecture that is built on the same technology standards as the platform architectures of the large enterprise vendors. Positive user experiences promote acceptance of asset and service management solutions.
The market has shifted its view of asset management as an internal function to a view that asset management is a support service to the business. This concept is called asset and service management and it involves creating a layer around the asset management function that helps create alignment to the business. This helps the business maximize return on assets against limited resources and within a compliance framework. Further, this alignment ensures high reliability at a lower cost. Asset and service management solutions are designed around the people using them. They provide the user experience that drives the engineers to use the system. These systems empower the user, which, in turn, drives higher quality data.
Myth 4: The best run businesses use ERP only.
Many of the best run businesses use solutions from large enterprise software vendors, but they may not be the best solution for asset management. This ERP approach may make sense when the risk profiles are low. However, in enterprises where the risk profile is high, such as in asset-intensive organizations, you will find that for asset and service management, a majority of the leading global companies use best-in-class enterprise asset management solutions. All of the Fortune 100 companies use an ERP system to manage their businesses, but more than half of these same Fortune 100 companies use an EAM solution to manage and service their business-critical assets.
The business process platforms that ERP companies now provide serve as a great foundation for developing a seamlessly integrated environment that is based on solutions from multiple vendors. Organizations can view this as an opportunity to use best-in-class solutions that are built on the right architecture as a way to increase the value of their ERP investments.
Use of an enterprise asset management solution as a strong operational system can enhance the quality of asset data, contribute to the safety of the workforce and help facilitate best practices that directly and significantly impact the long-term success of the business.
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