The cloud is the seedbed of the new technologies affecting ERP, including AI and IoT. It could soon lead to autonomous software that takes over many everyday business processes.
By David Essex 19th December
As 2020 kicks off a new decade of ERP trends, the very concept of ERP is changing, as new technologies intertwine and drive the software forward.
Here’s a look at five of those forces and how they could affect the future of ERP.
Cloud computing, the amorphous term for software and infrastructure delivered over the internet, has been the biggest technology change to sweep through ERP in the past 20 years. Cloud is also what enables most of the other technological advances in ERP, such as B2B invoice processing, HR employee self-service and blockchain, the ledger system for secure data exchange.
The cloud is also the only place where enough CPU power and memory can be aggregated for the number crunching and big data needed for AI. And it’s the communication gateway between ERP systems and the people who use them.
These capabilities are transforming the purpose and reach of ERP far beyond its origins in accounting, HR, manufacturing and the supply chain.
“It’s not enough to only cover my supply chain,” said Sudhir Chaturvedi, president and executive board member of Larsen & Toubro Infotech Ltd. (LTI), an IT services firm based in Mumbai, India. “If you really look at the changes that have happened, ERP is not limited to just the processes.”
ERP has also moved to different areas such as experience, stakeholder satisfaction and fulfilment, he said. “That’s a massive change.”It’s not enough to only cover my supply chain. If you really look at the changes that have happened, ERP is not limited to just the processes.Sudhir ChaturvediPresident and executive board member, LTI
An example of how cloud ERP connects workers around the world is the SAP S/4HANA Cloud ERP system that Magna International Inc., an auto parts maker based in Aurora, Ont., has been rolling out for the past two years. S/4HANA Cloud is the multi-tenant SaaS version of SAP’s latest generation of ERP, which means Magna shares the same instance of the software with other tenants.
The move allowed the company to consolidate five ERP systems and standardize data and business processes across its global operations, said Kurt Siegl, vice president of manufacturing solutions at Magna International. The system runs processes such as finance, procurement, HR and payroll in six countries.
Public cloud ERP products can’t be altered in the same way their on-premises counterparts can, but that’s not necessarily a downside. For instance, you can’t customize S/4HANA, but that helps enforce standardized processes, Siegl said.
SaaS is the cloud deployment option that tends to make other applications the ERP systems interact with — for example, online procurement marketplaces or employee survey tools — cheap, user-friendly and integrated. SaaS is the mechanism by which ERP vendors can deliver new technologies the fastest. It’s also the seedbed of the emerging technologies that are most affecting ERP.
Powered by the internet’s ubiquity, SaaS is at the center of one of the most important ERP trends: the dismantling of the traditional ERP architecture, or what Gartner calls the devolution or deconstruction of monolithic ERP, resulting in today’s “postmodern ERP.”Public cloud ERP products can’t be altered in the same way their on-premises counterparts can, but that’s not necessarily a downside
On the other hand, the ERP landscape appears to be morphing into one that mirrors the past. It’s just happening in the cloud instead of on premises.
As well-heeled vendors such as SAP and Oracle continue to add modules to their suites, SaaS ERP is becoming comparable to the legacy suites it’s intended to replace. The start of the 2020s may bring a gathering in the cloud of giant ERP suites that used to exist only on premises.
Oracle, for example, calls its Oracle ERP Cloud a “comprehensive, integrated suite,” and other vendors use similar language to sell their SaaS offerings. But unlike 20 years ago, integration between business processes and ERP modules occurs mostly in the cloud.
“The irony of the industry is Oracle today has a value proposition, which made SAP the market leader 20 years ago,” said Holger Mueller, vice president and principal analyst at Constellation Research.
The comparison isn’t entirely fair because the scope of ERP is now much bigger with modules for functions like talent management and eCommerce, he said. Companies don’t want to be system integrators.
“There will always be the best-of-breed vs. suite pressure,” Mueller said. “That’s what we’ve seen going on since, basically, manufacturing was added to finance on the first mainframe [ERP].”
The story of ERP trends in recent years is one of how the software, like other segments of IT, absorbs some of the most advanced, science fiction-level technologies ever to hit computing.
Vendors have tried to make ERP more user friendly with simpler, easier-to-navigate screens; voice user interfaces that allow people to speak commands and enter data; and chatbots that handle repetitive tasks.
AI, especially machine learning and natural language processing (NLP), is changing how people interact with ERP and what the software can do by itself. The major ERP vendors all have AI platforms that companies can use to develop their own “intelligent” applications. Most also embed in their ERP systems AI programmed to handle narrow tasks in common workflows, such as invoice processing, where machine learning extracts data from an image and forwards the invoice to a manager.
In fact, ERP vendors are struggling to figure out how best to deliver AI.
“You don’t have AI users,” said Darren Roos, CEO of IFS, an ERP vendor based in Sweden. “What you have is use cases.”
The focus should be on the processes within finance, procurement and scheduling that can take advantage of AI, machine learning and automation, he said. ERP-managed workflows that embed AI are more effective than creating a nebulous AI platform people don’t know how to use.
AI often takes the form of a chatbot that uses NLP to translate a user’s typed or spoken words and initiate a process like emailing a health insurance form or job application. Chatbots are part of the broader trend of robotic process automation (RPA), an aptly named technology for using software robotics to do some of the work humans usually do.
“These frictionless user experiences and intelligent assistants are the major focuses that are going to transform ERP and business applications probably more than anything ever has,” said Evan Goldberg, founder and executive vice president of Oracle NetSuite, one of the first SaaS ERP vendors.
This demand for AI is again making hardware an issue in ERP deployment, Mueller said.
“The cloud — aka the hardware on which I run something — matters a lot again,” he said.
With on-premises ERP, hardware became commoditized to the point of not mattering, he said.
ERP vendors and analysts have come up with a name for what’s possible with well-integrated business applications beefed up with these bleeding edge technologies: digital transformation. And ERP is a natural foundation for digital transformation, considering how it typically touches every corner of a business but also provides external links to partners and customers.
But the phrase has mostly been a marketing buzzword and may be too broad to have much meaning. Ask a vendor what digital transformation is, and you get answers that suggest it’s everything you want it to be. The how proves equally elusive.
Some companies are giving it a serious try.
Otis Elevator Co., a manufacturer based in Farmington, Conn., is using the LTI consultancy’s help to attempt a digital transformation by moving 154 member companies to a single global instance of JD Edwards EnterpriseOne (JDE), an ERP brand Oracle acquired with PeopleSoft in 2005.
“ERP sounds so old fashioned by today’s standards,” said Russ Kadziolka, director of digital technology at Otis Elevator, in a presentation at Oracle OpenWorld. “However, you need that digitized core in order to build upon and leverage a lot of the new technology.”
The company expects to have a third of its companies and half its revenue on JDE 9.2 by the end of 2019, with an eventual finish in 2021 that brings 17,000 users on board.
A digitized ERP core also allowed Otis and LTI to build a customer portal that puts elevator diagnostics, account information and other key data in one place, Kadziolka said. Chatbots handle customer help desk tickets and RPA plans ERP invoicing and purchase orders.
The next generation of IoT is also part of Otis’ digital transformation.
“Our goal is to have 2 million units around the world connected to our technology and gathering all the diagnostics,” Kadziolka said.
ERP also enables the company to create truly modern sources of revenue.
The initial goal was improving the productivity of field engineers, but Otis’ technology team quickly realized there were opportunities to monetize the performance data by selling subscription services. This is known as product as a service, and it’s a new revenue stream for manufacturers using ERP and IoT. In this case, Otis’ customers could learn how many people ride in their elevators and what floors or time of day were the most popular.
As the 2010s fade away, one of the top ERP trends seems firmly focused on systems that can handle more of the tasks people usually do. It’s more thorough automation of business processes in the old sense of automation, in which machines take over human tasks like robots on an assembly line.
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