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June 22, 2013

The Business Network to Supplement ERP

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The evolution of the manufacturing industry is one that portrays the development of the supply chain and all the elements based on it over the past few decades. Some time ago, the manufacturing industry used to rely on vertical processes, where materials would enter the plant from one side and come out as saleable products from the other. Nowadays however, companies rely upon partners, suppliers, and even customers in the design, manufacturing, and delivery of their products. This change in the type of relationships between the different parties involved in the processes of given products over the years, required and inspired the creation of the business network to supplement the ERP systems already in use.

ERP systems are best used when dealing with internal business processes within a given enterprise. Its main objective is to harmonize business processes by providing cross-departmental visibility into their statuses. This is done by automating “manual, paper-based processes (from order entry on one end, to invoice and payment collection on the other)”. ERP systems also allow the collection and storage of data needed for managing the business, as all transactions occurring between a given enterprise and other parties are recorded.

ERP systems have been around for quite some time now, pushing many to try and optimize it in order to make use of it in modern supply chains. And that’s where the problem lies. ERP systems were never meant to deal with the modern network-like supply chains (it was meant to deal with straight line supply chains). No matter how much we try to optimize ERP systems, they will still lack efficiency, be prone to error, and be slow to react in a dynamic and fluid networked world, where “customer demand pulls production in its wake, meaning that companies must be able to respond quickly to volatile demand”. For all the positives of the ERP systems, they will still be retrospective, as they rely on the data in store; still be rigid, as they rely on push production and management of inventory instead of pull; and will still provide a narrow picture of any given process within an enterprise, instead of putting it in perspective vis-à-vis the entire supply chain network (which includes partners, supplier, etc.). And that’s where the business network’s role comes.

The business network was created in order to solve the problems that the ERP systems were not meant to address. As a result of the interdependence of the different parties involved in a given operation, the business network provides a shared space, facilitating the communication and collaboration between different parties during the execution of shared processes. The architecture of a business network seems optimal as a cloud-based network, where the common objective is more easily set at the center of the value chain, with all trading partners forming the network represented by nodes interconnected in many different ways. Three points are essential for the business network to be effective. First, the trading partners are to be connected by exchanging related data in near-real time. Second, the data exchanged needs to be understandable to all parties involved. And third, all parties need to have access to the flow of data in order to make decisions based on the latest information available. In general, the business network allows the different parties to be leaner, by being able to respond quickly to the ever changing market demands, and gets them closer to being proactive by giving them access to fresh, instead if old stored data.

In conclusion, the business network was never meant to overtake ERP systems. It was meant to supplement it by providing more flexibility in one to many or many to many interactions that characterize the modern supply chain. So whilst ERP systems allow cross departmental visibility for processes within a given company, the business network enhances cross enterprises visibility for all parties involved in a given operation, which prompts us to realize that in order to optimize the processes, one ought to use the right tool for the job at hand.

E2open. 2013. Beyond The Four Walls: ERP and The Business Network. [online] Available at: [Accessed: 20 Jun 2013].

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