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Multi-Enterprise Commerce May Be What Comes After ERP

In my last commentary for First Thing Monday, I speculated a bit about what might come after ERP, but I wasn't really prepared for the outpouring of opinions. It turns out lots of you have been thinking about this question, and a number of you are pretty sure you know the answer. The responses came from folks from one of the following categories:

* People who feel that ERP is either the right approach or too entrenched to ever be unseated

* Business process management (BPM) zealots who are convinced that models, templates and orchestration are an inevitable paradigm that will replace applications like ERP

* Several hundred bloggers who felt that they had already dealt with this issue in some previous post that I must have inadvertently overlooked

* A substantial set of respondents who are desperately hoping that I'll either discover or encourage a next-generation business solution

Many readers complained that I was overemphasizing the cloud, but I'm convinced that new deployment models (mainframe, minicomputer, client/server, Internet and mobile device) often stimulate real breakthroughs in business systems. The key is to take advantage of that new technology to encourage and support new business processes or whole new business models.

In my conversations with clients about this topic, I have frequently speculated about the potential of using a cloud-based system to solve the growing problem of "multi-enterprise commerce." Many companies in the retail, distribution and manufacturing industries are struggling to manage complex and dynamic global supply chains with ERP systems that were intended to support the internal operations of a vertically integrated enterprise. The "enterprise"; in ERP was definitely singular!

The problems that I dealt with as a material planner in the 1970s, or that I designed ERP and supply chain applications for in the 1980s and 1990s, are largely irrelevant today. I needed systems that could help me plan materials with six- to nine-month vendor lead times, where everyone's warehouses and distribution channels were stuffed with inventory. Today, the supply chain benchmark is Apple's ability to deliver a custom-engraved iPod from China to Boston in three days. The fulfillment benchmark is Amazon's "1-Click" ordering and next-day shipment of millions of products from thousands of suppliers. This is true global, multi-enterprise commerce, and it requires a different technology solution than traditional ERP.

As I considered what the business system of the future might look like, I realized that some of the most enthusiastic responses came from the e-commerce folks. Emptoris CEO Patrick Quirk, Ariba CMO Tim Minahan and several clients using E2open suggested that the real action is taking place between ERP systems. These vendors are delivering tremendous value by enabling or improving the buying, selling and collaboration between entities in the supply chain. Customers are using a combination of software and cloud-based services to gain efficiency, speed and much better visibility - just what ERP used to offer.

I find it intriguing that these companies rose from the ashes of the 2001 B2B software meltdown that took out high-flyers like Commerce One, PurchasePro, VerticalNet and Internet Capital Group. Perhaps "trading exchanges" weren't really a bad idea after all - they were just a decade too early. The multi-entity commerce problem was still in its infancy, and communication was all point to point.

As I watch more and more "product companies" rely on networks of suppliers for design, sourcing, production, logistics, fulfillment and service, it's hard not to wonder whether ERP is the right solution anymore. Does it really make sense for each company to own and support a complex, on-premises suite of applications to manage a set of activities that are increasingly done by other entities? The built-in data and process integration of an ERP suite is of limited value in an environment where most of the people and material reside in someone else's facility.

The real business problem that today's manufacturers and distributors are struggling to manage takes place between companies, not within them. Planning, sourcing, production, costing, tracking and fulfillment must take place in an environment that can be accessed and updated by all the players in the value chain. This certainly suggests cloud-based services, rather than a series of on-premises systems hidden behind various firewalls. The applications themselves will also have to be redesigned to accommodate rapidly evolving supply networks and extremely fluid material ownership.

Application designers could learn a lot from today's Web store, supply chain and sourcing products, but they need to extend the scope to include finance, asset management, traceability, order management and service. In a multi-enterprise environment, these activities will need all new business processes, and the expectations for control, visibility, and efficiency will be quite different.

I can envision this "multi-enterprise commerce" suite, and I can see how valuable it would be for companies in industries like electronics, life sciences, food and beverage, or fashion. Their businesses today are really based on creating and managing global value chains that may have dozens or hundreds of participating entities. I don't think the fundamental design of ERP fits this business model very well, and I don't think just moving it to the cloud really solves the problem.

What's not clear to me is who will step up to build such a system, and which organizations might be bold enough to adopt it. If you have any ideas, I would love to hear from you.

As always, I can be reached at jim.shepherd@gartner.com.

Source: Gartner

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