Consolidated Order Management - ERP Alone Doesn''t Deliver
While users have received many benefits from their investments in ERP systems, including dramatic improvements in data integrity and process efficiency, 90 percent of users still have not achieved the ultimate goal of unifying the customer fulfillment (CF) process. In fact, the extended order management process remains fragmented across numerous ERP instances: legacy systems that were never replaced and others that were assumed in mergers or acquisitions. In addition, the process is changing dramatically, based on strategies to outsource, customer demands for responsiveness, and revenue strategies linked to new channels or service offerings. All of these factors point in one direction: users must develop a viable long-term IT strategy to deliver a consolidated order management process. Success will depend on betting on the right tools and constructing a strategic plan that maps closely to business strategy. The following are two key points:
- After substantial investments in ERP-based order management systems, the state of order management process remains fragmented and poorly integrated for the majority of users; and
- Rather than focus on a single instance, users should create a CF strategy that integrates multiple order management instances.
AMR Research interviewed more than 400 companies in the United States and Europe to understand current order management systems, business drivers, and approaches. The key findings are as follows:
- Systems architectures must be redeployed to deliver on an integrated CF strategy;
- Early adopters endorse the distributed order management approach in small, controlled deployment;
- The market is new, but leading vendors are investing aggressively;
- A lack of strategic planning and point-solution deployment is adding to CF quandaries rather than solving them; and
- Allocating only 19 percent of order management budget to new technology initiatives will not be sufficient to deliver the integrated CF architecture.
Introducing CF: The Quest for The Demand-Driven Supply Chain
The trends in order management and fulfillment are obvious. From a demand perspective, global companies are focused on unifying the order process, enabling multitier distribution channels, extending product offerings with services, and dramatically improving customer response times. From a supply perspective, they continue to push more of the fulfillment process to partners and suppliers for the design, manufacturing, distribution, and installation of the product. The next great information technology challenge is to help enable perfect customer experiences through proactive visibility, accurate real-time responses to requests, and perfect delivery performance within an increasingly complex and fragmented set of participants.
The challenge of integration and coordination is the No. 1 barrier to achieving the cost-savings benefits of supply strategy and the revenue enhancement benefits of the demand strategy. In addition to the challenge of integrating outside of the enterprise, integration within the enterprise is massive because the average company has 5.2 order management systems and 4.3 fulfillment systems; 45 percent require customers to place orders through several different systems. The challenge is compounded by companies that are unwilling to replace reliable legacy or divisional ERP applications with a single integrated application in order to achieve desired results. This is in many ways irrelevant, since current order management and fulfillment systems were designed to support the order fulfillment process within the four walls of the business and not the multiparty, mulitiered fulfillment process that exists in most supply chains.
CF Sits at the Heart of AMR Researchs New Focus
The next generation of business strategies will be based on the creation of new global processes that link various functional areas, lines of business, and external parties to promote performance. CF is at the center of the model because it is the reason that companies are in business. Effective CF achieves customer needs, requests, or orders and requires the support and coordination of the entire enterprise. CF strategy is by definition customer- or demand-driven, not driven by production or supply chain economies. The ultimate goal is to get everything right - the right product to the right customer for the right price at the right time. To do this, companies must align processes and measures and rethink the architecture and applications that link key functions and external parties in this extended and increasingly distributed process.
All Business Processes Need to Be Focused on CF
All business processes help achieve a variety of critical organizational goals, including long-term profitability, asset utilization, and sustainability. To achieve these goals, companies need to keep a constant focus on excellence when executing CF processes.
After substantial investments in ERP-based order management systems, the state of order management process remains fragmented and poorly integrated for the vast majority of users. After nearly 10 years of pursuing the vision of a single, integrated ERP system that ties together key enterprise processes like order to cash, the state of affairs has improved, but process is still plagued by a fragmented and poorly integrated system landscape. The average company has 5.2 order capture and 4.3 order fulfillment; 60 percent have no or limited integration between the systems. Only 10 percent of users have successfully moved to a single order management environment, while 90 percent still struggle with customer responsiveness, visibility, automation, and data quality.
Clearly, a single integrated order management environment is ideal because of the significant advantages in data integrity, manageability, and total cost of ownership. However, AMR Research believes that the ERP approach will only be successful for 20 percent to 25 percent of large multinational corporations (much more achievable for small- or mid-sized businesses) because it does not provide flexibility to support the diversity in the order process that exists across geographies, customer channels, and product segments. Attempting to consolidate the order process to common order types and flows will jeopardize competitiveness, which, in the end, will derail most projects. As a result, the vast majority of companies pursuing a strategy to consolidate the order management environment must rethink their technology and business approach to this long-term strategic imperative. There are four potential paths for delivering the integrated CF process, which are dictated by the complexity of the demand and supply chains (see Figure 1).
Companies with low or average complexity in demand and supply chain participation are the only low-risk candidates for single-instance ERP. For all others, including any company with a significant merger and acquisition strategy, single-instance ERP represents a significant risk in delivering the integrated vision based on the cost, compromises, and customization required to make it work. The risk is driven by the inflexibility of the configuration environment to support the diversity of process definitions required to support the business strategy. However, for those organizations that can achieve it, single instance ERP offers by far the lowest total cost of ownership of any approach. Rather than focus on a single instance, most users should create a CF strategy that integrates multiple order management instances. As much as 75 to 80 percent of companies will need to significantly extend existing ERP investments or totally rethink the architecture and applications that will provide the flexibility, cross-system, and cross-company integration. These users will fall into three camps (see Figure 2).
Distributed Order Capture
This approach is designed for users with complex demand chains based on participation in a number of unique channels to market for the initial sale, as well as the aftermarket. The need is to provide the flexibility to support specialized order capture by channel or segment through an application platform to consolidate all order and requests into a single statement of demand and broker the orders or requests to sub-systems to be fulfilled or answered. The key criteria of systems to support this strategy is the ability to become the presentation layer for a given channel or act without a presentation tier and capture demand from the existing front end. The back end, including procurement and sourcing, distribution, planning, and logistics, will be better suited for a single application footprint.
Distributed Order Fulfillment
This method is intended for users with complex supply chains characterized by multiple sources of supply, heavy reliance on outsourcing partners, and specialized supply chains to support various products. While users are more likely to be successful unifying the order capture environment on a single ERP system, they are likely to face a significant challenge in using that application to support the different processes and communication requirements to suppliers and partners. Most users must consider a new architecture to coordinate the fulfillment of customer demand within the network.
Distributed Order Management
A high percentage of companies - around 30 percent - live in a world based on the complexity of the demand chain and diversity of supply chain relationships. In the past, companies have organized the business structure around channels/segments, products/supply chains, and geographies to minimize complexity. However, the move to global processes and the demand from customers to have a more unified relationship is forcing companies to rethink the systems approach and organization alignment. The approach requires a new strategy, and ERP systems will provide local execution, but not the global integration and coordination. The approach is not about functionality; it is about achieving process flexibility and data rigidity to support a distributed process.
System architectures must be redeployed to deliver on an integrated CF strategy. While a single instance ERP system may not be the long-term solution to the extended CF vision, it will continue to be a critical building block, providing much of the master data and transaction processing. The question is not whether there is a role for ERP systems in the CF process, but rather is it the architecture to provide the integration and coordination across the extended internal and external network. The monolithic design of all ERP systems requires that all channels, business units, and supply chain organizations come to an agreement on the configuration of the system and the data model. AMR Research believes that companies must begin developing and redeploying current order management architectures with the focus on delivering more flexibility rather than a strategy that delivers far less. The move toward customer-driven fulfillment processes requires the ability to build and adapt channel-specific, product-specific, and customer-specific order flows quickly without an army of developers creating custom code.
However, the days of big bang, rip-and-replace implementations are over, and any significant IT project must have two key attributes: the ability to use existing investments in data and business logic and the ability to be deployed iteratively. Users who are good candidates for the various types of distributed order management (DOM) applications that are defined in this article should place significant emphasis on the architecture support across the following four key levels:
- Data services. Construction of a shared and consistent repository of analytic and operational data is the single biggest challenge in effectively deploying distributed applications.
- Application services. There are three critical components of the application services layer, which are all shared services required to manage a distributed environment.
- Process services. There are currently 12 key modules that provide the business logic to assemble and configure a complete DOM system. Few companies will require all, since priorities will be highly dependent on need and current environment.
- Presentation services. The key capability is to provide relevant user-specific content, data, reports, and alerts to support the consistent and efficient execution of the CF process. The key requirement of vendors is developing the ability for the application to be run with or without presentation services, allowing users the flexibility to leave existing user interfaces in place and use the business logic and data for application.
Early Adopters Endorse the DOM Approach In a Small, Controlled Deployment
DOM systems are not ready for large, complex, or global deployments, but early adopters have proven that the distributed approach works and it can deliver on the promise of process flexibility and distributed execution. The key challenges facing the 15 early adopters that we interviewed include the following:
- Magnitude data clean-up and normalization effort is underestimated. A prerequisite to any successful deployment is a synchronized product and customer master data;
- Project scope management struggles because of the challenge of determining what business logic should be centralized rather than maintained in existing systems. For example, several users struggled with the decisions to centralize pricing and credit management;
- Scalability and reliability of the systems in higher-volume order management environments; and
- Over-promising by vendors and significant amount of joint development. While not true across the board, several vendors have underestimated the complexities and intricacies of the order management process.
The market is new, but leading vendors are investing aggressively. Overall, the DOM market is a very new market, with a variety of potential vendors from all walks of life. Most users recognize that their current system environment does not efficiently support the current business environment and is increasingly becoming a constraint to new business strategy. However, they are less willing to admit that the current strategy of consolidating ERP instances and adding bandages in the form of custom development and point solutions is flawed, and the long-term solution may require dramatic retooling of the system architecture. Consolidation and short-term extensions may be the only option because of budget constraints, but users must recognize that the strain on current systems driven by restructuring, M&A, outsourcing, and demands from customers or channels has only just begun. Developing a strategic plan includes three major steps, but also requires a deep understanding of the business drivers.
