Most companies that use ERP technologies also operate an online store for consumers, or use a web portal for B2B sales. However, many of these companies that use both types of digital technology have yet to unify them. Should they? If they did, what should they expect to gain? To what degree would such an investment yield tangible benefits?
Thanks to the rise of cloud technologies, digital products that were once out of reach for most small and medium businesses have become affordable web services. Probably the most valuable among these is ERP, which combines an organization’s various internal business processes into a tightly integrated and highly efficient whole. Companies that use ERP suites tend to spend less time managing business documents, customer information, and other internal data, and more time achieving their primary business objectives. As a result, productivity and profitability increase.
However, the effects of implementing a traditional ERP solution are almost exclusively felt within the organization, with only indirect benefits spilling over to inter-business processes like procurement and sales. ERP platforms are designed to make information sharing easier amongst company departments and personnel, but not with partner companies or other external stakeholders.
That’s where e-business technologies come in. These web-based (and increasingly cloud-based) technologies are designed with extra-organizational coordination in mind, and help companies securely and efficiently share critical business information across the supply chain. Procurement platforms help with bidding and RFQs, vendor management tools simplify replenishment and supplier relations, and e-commerce platforms provide an easier and more effective way to engage and do business with customers. The first two examples of e-business technologies share information ‘up’ the supply chain with suppliers, while the third communicates ‘down’ the supply chain with customers.
Even if you just went on instinct, you’d probably agree that transferring relevant information throughout the entire supply chain would be more efficient than operating your external upstream, internal, and external downstream information systems separately. For example, real-time information on customer transactions (downstream) could be sent directly to suppliers (upstream), which would provide much more accurate demand forecasting and mitigate the bullwhip effect. That sounds much easier than receiving a stand-alone report on online sales, manually calculating changes in demand, and then firing off an email to your supplier. With more accurate information on consumer demand, businesses can decrease their inventory levels without any adverse effects, and can also respond to unforeseen spikes in demand with greater agility. These improvements in business processes are only possible when both e-commerce and partner communication platforms are integrated with internal ERP systems.
Thankfully, you don’t have to rely on instinct. According to recent research (Hsu, 2013), the value created by integrating ERP and e-business technologies is real, and is significantly greater than the value of operating both platforms separately. The study involved 150 firms that use ERP platforms, and analyzed survey responses as well as objective accounting data to determine changes in cost efficiency, differentiation, and the intangible benefits of ERP, e-business technologies, and their integration. Hsu and other researchers (Srinivasan and Dey, 2014) have found ERP and e-business technologies to exhibit a high degree of complementarity. Not only were the benefits of integration found to be greater than the benefits resulting from the mere co-occurrence of these technologies, but the benefits of integration were also longer-lasting. While ERP platforms also yield greatest gains between years 2 to 5 since deployment, platform integration produces steady returns over a much longer period.
Now that we have evidence that integration makes a real difference, we can move on to address the question posed earlier: is integration worth it? In other words, do the returns justify the investment? Simply put, the answer is “yes”. With enterprise application integration (EAI), there isn’t any need to replace two separate platforms with a single, comprehensive (and often prohibitively expensive) replacement. Instead, EAI service providers securely connect the information systems that you already have in place to form a much more affordable unified system… one that your employees are already familiar with. Taken a step further, pre-built solutions exist that are designed to connect specific pairs of digital platforms. These platform connectors deploy even more quickly, cost less than custom EAI services, and make ERP-to-e-commerce integration a highly attractive path to achieving serious competitive advantage.
Researchers have, however, raised a caveat. While the benefits of integration are real, it isn’t enough to simply get different software packages talking to each other. Organizations that secure the greatest competitive advantage from integration are the ones that emphasize operational coordination of business functions across the supply chain. Software integration is necessary for this to occur, but is not sufficient on its own. To maximize ROI from platform integration, businesses must pay close attention to improving their inter-organizational processes alongside enhancements to their technology infrastructure. Whereas any organization can purchase and deploy the same ERP and e-commerce software, the competitive advantage gained from process optimization is firm-specific, and therefore harder to replicate. An experienced technology implementation partner is a major asset in this regard.
HSU, P. F. (2013). Integrating ERP and e-business: Resource complementarity in business value creation. Decision support systems, 56, 334-347.
Srinivasan, M., & Dey, A. (2014). Linking ERP and e-Business to a Framework of an Integrated e-Supply Chain. In Handbook of Strategic e-Business Management (pp. 281-305). Springer Berlin Heidelberg.