The Truth About Integration. WHITE PAPER Cincom In-depth Analysis and Review

Transcription

1 The Truth About Integration Today, global coordination and synchronization is critical and can make or break profitability. WHITE PAPER Cincom In-depth Analysis and Review SIMPLIFICATION THROUGH INNOVATION

2 The Truth About Integration Today, global coordination and synchronization is critical and can make or break profitability. Table of contents Executive Summary Dispelling Integration Myths Processes Rule and Integration Follows WHITE PAPER Cincom In-depth Analysis and Review Business Models Define the Need for Batch or Real-Time Integration Conclusions and Recommendations By Louis Columbus Cincom Manufacturing Business Solutions

3 1 Executive Summary Integration, in many companies, is viewed as a black box, a series of inputs miraculously turned into outputs that are made compatible with the downstream systems relying on the transmitted, and in many cases, transformed data. From this black box mentality originates many of the myths surrounding integration. The goal of this white paper is to dispel the myths of ERP integration and give you a useful framework for defining your organization s integration strategy. This white paper specifically captures best practices in integration strategy, and highlights why integration should be a critical part of any line-of-business strategy. What makes the intersection of integration strategies with line-of-business objectives so difficult to accomplish, is that the underlying foundation of integration itself the platforms are shifting and inconsistent in the market today. The commitments companies have to Service- Oriented Architectures (SOA) require by definition, a loosely coupled series of applications that are flexible enough to be melded to a company s many line-ofbusiness goals. But at the same time required hard-wired connections between front-office and ERP systems create conflicts over integration spending priorities at the least, and potential conflicting line-of-business strategies at worst. SOAs are critical for the ability of any manufacturing or service company to stay flexible enough to respond to changing market requirements, serve rapidly changing channels, and efficiently work with suppliers. Far from a black box reputation that integration had widely throughout the world s largest corporations as late as ten years ago, the area now has become part of nearly every Fortune 1,000 company s strategic planning process, tightly integrated with the core business strategies and line-of-business divisional objectives. Today, global coordination and synchronization is critical for companies with over $1 billion in sales, and for this reason integration can make or break profitability. Integration also suffers from expectation management challenges. For many smaller companies it means the ability to toggle their order capture, lead management and other front-office applications for batch loads of orders to their ERP systems and for many smaller businesses that is sufficient given their business models. Yet for Fortune 1,000 companies integration is the cornerstone of their global customer retention and expansion strategies; the level of cross-system compatibility and integration that emulates the performance of SOAs is critical for sales, marketing, operations and service objectives accomplished on a global scale. Figure 1 is a graphical representation of a Service-Oriented Architecture (SOA) as defined by AMR Research.

4 2 Suppliers Distributors Fulfillment Partners Divisions Customers Configuration and Quote Role-Based and Contextual Personalization Pricing and Contracts Credit Management Product Catalog Presentation Services (Internal/External Constituents) Order Promising Sourcing and Allocation Order Visibility Consolidation Settlement Process Services Inventory Visibility Automated Replenishment Delivery Management Service Management Event and State Management Order Broker (Integration Framework) Business Process Management Application Services Master Data Services Analytical Data Services Data Services SAP Siebel Order Management Legacy Cincom Oracle PeopleSoft Figure 1: Service-Oriented Architecture as defined by AMR Research We were able to use the concept from AMR research document: CRM Architecture Strategy Decision: Application or Infrastructure? Dispelling the Myths Friday, June 06, 2003 Eric Austvold, Rod Johnson, Joanie Rufo, Heather Keltz The creation of a Service-Oriented Architecture is a long range strategy for many companies, creating the critical, common platform required for delivering the core strengths of a company, and coordinates customers, suppliers and prospects to ensure consistent, long-term value.

5 3 Dispelling Integration Myths It is critical to dispel the myths surrounding integration and the vital role it plays in many companies line-ofbusiness strategies. Given the pervasive nature of integration it is literally the glue that connects all systems together in the service of customers, channels, suppliers and employees integration gets turned into a panacea for all that is wrong with a company. Cincom is working with clients to specifically dispel several of the more popular myths. Myth: Web Services is ready to support transactions including order management. Reality: In many of the customer engagements completed by Cincom and corroborated by studies completed by AMR Research on the early adoption of Web Services, there is a definite trend emerging that favors using Web Services selectively for internally facing applications. AMR Research has found that the majority of ROI from Web Services comes from reducing personnel and integration costs internally. According to AMR Research, Web Services are today predominantly used behind the firewall of companies for employee-facing tasks, most often integrating two systems. It is important to note that there are very few companies running Web Services outside their firewalls. Myth: Hand-coding adapters and connectors is a costeffective approach to handling integration. Reality: In fact the opposite is the case, as these types of approaches for point-to-point connections between systems often do not scale over time as the demands of greater throughput and more complex data streams turn these connectors into bottlenecks. Often these connectors are quickly created to integrate customer-facing applications the most critical when it comes to reliability and responsiveness and are impacted the most by handcoding connections between systems. Hand-coding connectors also locks companies into more dependence on the hard wiring of systems, which makes the strategic goal of Service-Oriented Architectures the most systemic approach to integration. Consider these additional points describing why hand-coded adapters and connectors are a bad investment despite the low costs: High risk for the low cost. Often hand-coded connectors are written in haste with little if any documentation. When a connector needs to be modified, it can take weeks or months, especially if the programmer has moved on to other tasks or worst-case scenario, to another company. Scalability Is a Liability. Since many of the hand-coded connectors are built to be band-aids for connections between systems, there is a lack of system testing done, there simply is never enough time. As a result scalability suffers. Headcount justifications specifically for integration are a tough sell. Ironically many of the vendors selling integration applications define their value proposition as the ability to trim headcount. Holding onto or increasing headcount purely for integration is a tougher sell than ever before, given the IT budget scenarios in many companies. No one wants to sacrifice a position on their staff and use the dollars saved for integration. Vendors of integration platforms, applications and tools need to get focused on measuring the value created and not purely the cost reductions being generated. Myth: All manufacturing companies need to be realtime enterprises. Reality: By definition, a real-time enterprise can share data from any application in seconds from the request. The average manufacturing company has twenty systems, and even in the best cases, six of those systems are integrated with one another. The bottom line is that not all companies need to enable their processes to real-time levels of efficiency to reach their optimal level of performance. An AMR Research survey shows that only 44% of companies integrate an average of only three systems, which signals that while the hype over real-time continues to grow the reality is that companies are realizing that only a few select processes need to be enabled in real-time. Further, the selection of those processes depends on the business model the manufacturing company relies on, the depth of integration expertise internally, and the relative growth or maturity of the industry itself.

6 4 Myth: Large ERP and platform providers (Microsoft and IBM) will dominate integration, forcing a consolidation of the market. Reality: For many manufacturing companies struggling with data integration, major ERP and platform vendors appear to be the best solution. While these companies are setting the pace of the market on Master Data Management (MDM) and with data synchronization, as is the case with IBM acquiring Trigo in 2004, the next step in integration is all about process. Look past the data integration goals of your company and pursue the processes where data needs to be applied. Process-centric integration relies heavily on Business Process Management (BPM), and the fragmentation of needs that continue to make this market one that defies simple consolidation. The breadth of individual company and vertical market needs is too diverse, and the niches that BPM vendors serve defy quick consolidation. Myth: For my company to achieve best practices, all data needs to be available in real-time. Reality: Only the data needed to support core business processes needs to be online, all other data can be archived, batched and used on an as-needed basis. Cincom has seen best practices achieved by customers who have focused first on enabling business processes, and next on the accompanying data to support only the core processes. There is no correlation between having all data online, and attaining real-time enterprise performance. In fact, the opposite is often the case. The time required to access the required information for a given processes requirements, or information latency, expands depending on how much information is being cached and managed. Trimming the amount of data online actually can contribute to a company becoming more real-time in its response to customers, channels, suppliers and partners. No company has achieved real-time enterprise performance by first making all data available 24/7 in real time; the processes that attract, sell and support customers are the most important to attaining real-time enterprise performance.

7 5 Processes Rule and Integration Follows Results recognized by Cincom customers and further validated by the research completed by ARC Advisory Group, AMR Research, Gartner and others reveal strong agreement that business processes should dictate integration strategy over technology acquisition. There is also consensus that the future of integration is pointing towards the creation of Service-Oriented Architectures (SOAs). The point made earlier in this white paper that hand-coding connections between systems, creating connectors and adapters, while solving short-term integration issues, can wreak havoc with the broader lineof-business strategies your company wants to accomplish. This becomes even more acute as years of business model shifts completely change a company s integration needs hence the need for a flexible, adaptable architecture, for which SOAs are purpose-built. A common example of this is presented when a company decides to move manufacturing offshore and requires connections to its ERP system in order to scale with new requirements. In many cases, global support for transactions in different currencies requires support for different trading partners with varying levels of integration requirements. Most critical, when a company plays the role of supplier or buyer, the integration requirements can range from the time-tested Electronic Data Interchange (EDI) standards that interlink so many suppliers and buyers globally to the internet-based approaches to handling data interchange including RosettaNet, a standard currently promoted for high-tech manufacturers to share product and transaction data. AMR Research findings from interviews with RosettaNet users support the fact that only Intel was using the standard for content synchronization with its channels due to the rapidly changing nature of their product lines. Across all other High Tech manufacturers EDI was considered efficient enough for handling transactions and content. In fact, the one point all High Tech manufacturers could agree on was the format for order management, making it possible to complete transactions in real-time using this standard. There are several key take-aways from this example providing implications for any integration strategy: Processes served reliably with batch-based technology are not easily changed. This is the reason RosettaNet has failed to gain a greater share of the integration share-of-market in high tech manufacturing and distribution. RosettaNet, in fact is considered an EDI replacement more than a next-generation approach to sharing content and handling order management tasks. The take-away from this example is even if a business model changes and begins to require real-time data, companies will shift their business models to allow for batch-oriented processing of requests, like EDI, due to its proven dependability. The greater variation in transactions the less urgency to change integration. This is a key take-away from broader dynamics of the market and explains why only Intel and one of its trading partners was able to pioneer the use of RosettaNet to support content, while other high tech companies contacted focused on order management and streamlining that core process using RosettaNet. It is noteworthy that the only process both buyers and suppliers could agree on was how to complete a transaction. When it came to supporting integration for content management and replication across channel partners only one market maker, Intel, was able to enforce a strategy. The bottom line is that integration has to be more flexible to support the many information and transaction needs throughout a channel hence a strong SOA appears to be in the future for many companies. The demand for real-time data creeps into companies because of inefficiencies. As much as companies want to think that greater competitiveness forces them to adopt the very costly and potentially disruptive tasks of making data real-time throughout an enterprise, the reality is quite different: companies in industries that rely on high inventory turns and thin margins often try and compensate for lack of competitiveness in supply chain management or production scheduling by demanding all data be in real-time. This is one of the biggest fallacies relating to the establishment of an integration strategy you cannot speed your way out of business problems in fact going to a real-time data strategy company wide can just accelerate the downward path of a company. Instead start with the customer-facing processes and build integration strategies that make the most sense for the expectations that you are creating, either explicitly or implicitly, with your customers.

8 6 Business Models Define the Need for Batch or Real-Time Integration The following table displays what makes sense for many manufacturers concerned about inventory turns, margins, and accelerating product lifecycles in short those manufacturers who must excel at exceeding the expectations of their channel partners, service organizations, direct and indirect customers to merely stay at competitive parity. Increased market share occurs when companies exceed expectations, partially attributable to stronger execution, hinging on a stable and strong integration strategy. Defining Batch Versus Real-Time Integration by Channel Strategies Channel Strategy Direct Sales Model Channel and Business Model Characteristics Sales force calls directly on customers; High margin and high ticket products and services sold directly to customers; cost per sale is high; response time on sales cycles is high; price elasticity of products is low. Batch or Real-time Integration? Batch-oriented tasks: Lead management and escalation; structured content and catalogs; content for sales configurators; training materials; competitive analysis; pre-sales support and training; post-sales support and service training. Real-time tasks: Pricing for quotes; order management and supply chain links for Available-to-Promise (ATP) and additional supply chain information that customers in specific industries expect; quoting and pricing approval process. Indirect Sales Channel Single Tier Manufacturer s sales force calls on distributors and valueadded resellers only; product information is sporadically provided and pricing is updated periodically. Batch-oriented tasks: Product information including new product introductions; changes to products positioning and end-of-lifing a product; lead management and escalation; definition of pricing strategies. Real-time tasks: Quoting responses; Special Pricing Requests; Lead escalation on products targeted for specific promotions; exceptionbased transactions. Indirect Sales Channels Multiple Tier Manufacturers sales force calls on both distributors and resellers; supports the first tier of distribution with leads, pricing, training and product knowledge to second tier of dealers. Lag time between manufacturers and second tier resellers is often perceived as lack of responsiveness. Batch-oriented tasks: Comparable to Single-Tier Indirect Channels including new product introductions; changes to product positioning and end-of lifing products; multi-tier channels also include more coordination of batch processes for sales promotion programs; greater requirement for batch-oriented warranty reimbursements to second-tier channel participants; this channel strategy requires the greatest level of support for channel partners and their dealers and resellers. Real-time tasks: Support for Special Pricing Requests; coordination of training and benefits internally throughout multiple layers of distribution channels; extensive support for exception-based transactions; heavily focused on automating Special Pricing Requests and providing real-time self-service tools to multiple layers of the channel. OEM Sales Manufacturer sells directly to Original Equipment Manufacturers (OEM)s who many times have products tailored to their specific needs. Batch-oriented tasks: Manufacturers rely on direct sales forces to sell into OEM accounts; heavily batch-oriented for presales, sales and support. Real-time tasks: Intensive real-time support for design and engineering validation; pricing is often done in real-time; supply chain integration necessary for tracking customized builds for OEM accounts.

9 7 Conclusions and Recommendations For many manufacturing and service companies, best practices in integration start when the following recommendations and steps are taken. There is never a one-size-fits-all best practices cookbook approach to making integration work; rather it s more about making the IT platform of a company permeable and adaptable enough to strengthen and speed up processes critical to the business. That is why getting away from static, hardcoded connections between specific parts of systems has to be planned out of existence, and a more flexible platform approach to integration must be taken. Build a roadmap for moving from hand-built adapters and connectors today. Despite the fact that it is easy to pay for hand-coding adapters and connectors since they are written by on staff programmers, this strategy can wreak havoc with the ability of your company to be competitive in the future. That is because the business model of many companies is in the midst of a major shift and the integration platform of your company needs to flex with the significant changes that will happen to your business model over time. Real-time integration is overkill for many companies. It does not make sense to have all data in your company available in real-time when ironically this can cripple responsiveness to customers. Selectively define the data repositories you need to use for supporting customerfacing and supplier-enabling processes first. ERP integration is the best place to start. Cincom continues to see more than 60% of manufacturing companies in the process of completing or having completed ERP integrations between their front-office and ERP systems, enabling pricing and product availability deliverable in real-time. Develop an integration strategy that includes a Service- Oriented Architecture. Instead of continuing to develop stopgap solutions to your integration challenges, start creating a strategic plan for how integration will serve your line-of-business objectives into the future. Research from several advisory firms reveals that Services Oriented Architectures have the potential to transform business performance more than any temporary and inflexible approach to integration.

10 8 Notes:

11 9

12 Cincom, the Quadrant Logo, and Simplification Through Innovation are trademarks or registered trademarks of Cincom Systems, Inc. All other trademarks belong to their respective companies. 2005, 2006 Cincom Systems, Inc. FORM CM /06 Printed in U.S.A. All Rights Reserved World Headquarters Cincinnati, OH USA US CINCOM Fax International