3 forces shaping the evolution of ERP

Moving into the digital 2020s, enterprises are contemplating the adoption of a new generation of collaborative, composable, and cloud-based enterprise resource planning (ERP) technologies, motivated by a stubborn pandemic, insecure supply chains, transient workforces, and other factors.

An overwhelming 94% of organizations worldwide are embracing a next-generation ERP strategy that involves migrating to cloud platforms and adopting high-end analytics such as artificial intelligence to overcome the limitations of legacy applications and modernize their businesses, according to a survey of 1,675 IT executives by Boomi. 

Gartner has forecast that 65% of organizations will adopt ERP applications that use one or more of what it calls “fourth-era hallmarks” by 2023. Those include AI, data-centric design, systems that can be used off the shelf, functions that augment decisions, developer enablement, and customer-facing technology.

The challenges of the past two years “are tipping the scales toward speedier adoption of next-generation ERP systems,” noted a team of analysts led by Neveen Awad in a report published by Boston Consulting Group. “It will be virtually impossible to use traditional ERP to manage the anticipated huge growth in e-commerce and the need for flexibility and speed,” they wrote. There is a push toward providing finance, procurement, and HR functions with “advanced automation that relies on fewer but more qualified workers and workers who can operate from their homes.”

Here’s a look at three areas where traditional ERP systems are falling short and what enterprises are looking for today.

Workforce shifts

If there was any hesitation about moving to cloud-based ERP, it was quashed as the COVID crisis erupted, and corporate workplaces became scattered across countless home-based offices. On-premises ERP is seen as “not as scalable as people thought,” says Sharon Bhalaru, partner at accounting and technology consulting firm Armanino LLP. “We’re seeing a move to cloud-based systems,” to support remote employees who need to perform HR, financial and accounting tasks remotely.

The roughly six in ten US workers who say their jobs can mainly be done from home are working from home all or most of the time, according to a recent Pew Research Center survey. That’s a significant increase from the 23% who said they worked remotely before the pandemic.

In addition, the share of non-temporary freelancers is at an all-time high of 36% of the workforce, according to an Upwork survey. A majority of these freelancers (53%) provide skilled services such as computer programming, marketing, IT, and business consulting, up from 50% a year earlier. The HR component of ERP systems will need to account for rapid onboarding, unpredictable hours, and frequent turnover. More organizations are also looking abroad for staffing, which has implications for government reporting, taxation, and benefits, among other factors.

Analytics

Recent events also exposed the relatively weak reporting capabilities of traditional ERP. “We want to have data at our fingertips and make decisions very quickly “Out-of-the-box reports from ERP systems were not applicable for many businesses,” Bhalaru says. “Now they seek reporting and dashboards and KPI [key performance indicator] capabilities in the very beginning as they’re designing and building the system,” rather than building out such capabilities over time.

Next-generation ERP platforms “give companies real-time transparency with respect to sales, inventory, production, and financials,” the Boston Consulting Group analysts wrote. “Powerful data-driven analytics enables more agile decisions, such as adjustments to the supply chain to improve resilience. Robust e-commerce capabilities help companies better engage with online customers before and after a sale. And a lean ERP core and cloud-first approach increase deployment speed.”

Supply chains

Unprecedented and ongoing supply chain disruptions underscore the need for greater visibility, more predictable lead times, alternative supply sources, and faster response to disruptions.

A survey from FiveTran and Dimensional Data found that 86% of executives seek access to real-time data through their ERP systems. However, only 23% said such capabilities exist within their current ERP systems and 99% reported they are unable to access the information they need.

Prior to the  pandemic, companies “were extremely focused on optimizing the supply chain in the pursuit of the holy grail of just-in-time sourcing,” says Mike Rulf, CTO of Americas at ERP consultancy Syntax.

“This came with an assumption that their upstream suppliers could deliver on pre-defined contractual schedules that were tightly integrated with ERP systems. Those assumptions went out the window.”