Case for Composable ERP

Consider a retail company operating on monolithic ERP system to manage it supply chain operations. As the company experiences rapid growth and expands into new markets, the monolithic ERP struggles to scale effectively. The system becomes increasingly complex and challenging to manage, resulting in longer time to market, slower response times, performance issues and difficulties in handling peak demands during sales events and seasonal spikes.

Some of the key challenges faced by the monolithic ERP are:

• Inflexibility to adding new functionality or easy customizations to meet the evolving Business needs.
• The system architecture does not provide for efficient scalability options, leading to performance bottlenecks and potential disruptions to customer experience.
• The tightly coupled nature of the system makes it challenging to integrate new applications, technologies, or services to enable e-commerce operations.

The above limitations coupled with the recent unprecedented times of pandemic, geo-political crisis, cybersecurity threats are causing more disruptions to the supply chain operations. This is driving the business need for a more agile, flexible and resilient architecture offered by Composable ERP.

What is Composable ERP

“Composable ERP” is a term coined by Gartner and is a key concept in the emerging era of Enterprise Applications. According to Gartner “Composable ERP is an adaptive technology strategy that enables foundational, administrative and operational digital capabilities through which an enterprise can keep pace with fast business change”. This strategy enables the organizations to create, modify and extend their ERP systems, by creating a network of applications, data and service providers which are inter-connected and work seamlessly to adapt to the continuously changing business demands.

In a traditional monolithic ERP, all the business functions like finance, supply chain and human resources are tightly integrated into a single software package. This approach often limits the customizations making the system rigid and less adaptable to changing business needs. They were “Built to Last” but not necessarily “Built for Change”.

Composable ERP also known as “Lego Brick Enterprise” takes a different approach to break down the ERP functions into smaller independent business functionalities or “Packaged Business Capabilities (PBC)”. A PBC can be considered as the smallest building block in the overall composable and evolvable architecture. It contains a set of microservices that fit together with the other blocks to form the Lego block system, synergized to enable a business capability. Each block is autonomous and can be swapped or re-used independently in a modular approach. There are a plenty of “Off the shelf” commercial offerings, which can be quickly integrated into the ecosystem to provide the value driven features. Also, custom built PBCs using open-source libraries can be developed quickly for creating a highly customized capability.

Composable ERP is not a new type of ERP but a technology strategy that empowers the organizations to change their enterprise applications as their business needs change. This paradigm shift towards building a fluid, agile, composable architecture with the “Best of the Breed” applications, considers the Composable ERP as a postmodern or the next generation ERP.

History of ERP

The evolution of ERP (Enterprise Resource Planning) can be broadly categorized into the following generations:

1. First Generation – MRP: The concept of ERP originated from the MRP (Material Resource Planning) which was developed in the 1960s. These systems focused mainly on the production schedules, raw materials, and inventory. Later with MRP II, the scope expanded to include coordinated manufacturing, product planning, parts purchasing, inventory control and product distribution.
2. Second Generation – ERP: In 1990s the ERP systems evolved further to incorporate additional modules and functionalities. These systems offered in integrated solutions for enterprise functions like supply chain management, manufacturing, warehouse management, finance & accounting and Human capital management.
3. Third Generation – Cloud based ERP: Around 2010s, cloud computing revolutionized the ERP deployment and accessibility. Cloud based ERP solutions were hosted and maintained by independent service providers, eliminating the need for organizations to invest in infrastructure and software licenses. Software as a Service (SaaS) model offered advantages in scalability, flexibility and allowed easier integration with other SaaS applications and services.
4. Fourth Generation – Composable ERP: Composable ERP is the adaptive technology strategy the enables organizations to compose and recompose their applications to adapt to the dynamic business challenges and master the ever-increasing business disruptions. It emphasizes on modularity, flexibility and customization by breaking down the ERP systems into smaller, independent modules or microservices.

According to Gartner report, “By 2024, at least 50% of the existing ERP megavendor clients will evaluate multiple vendors rather than automatically adopting the latest versions of the incumbent ERP Suites.”

Factors enabling Composable ERP

There are several factors which are accelerating the adoption of Composable ERP.

1. Cloud computing: The widespread adoption of cloud computing has significantly contributed to the adoption of composable ERP. Cloud-based infrastructure provides the necessary scalability, flexibility, and cost-efficiency to support modular ERP architectures. Organizations can leverage cloud platforms to deploy and manage the individual modules or microservices, enabling easy access, integration and updates.
2. APIs and Integration Capabilities: Effective integration is crucial for composable ERP. The availability of robust and well-documented APIs (Application Programming Interfaces) simplifies the integration process between different modules or microservices. Organizations can leverage these APIs to connect the modules and ensure seamless communication, data exchange, and process automation. Strong integration capabilities facilitate the adoption of composable ERP by promoting interoperability and reducing integration complexities.
3. Vendor Ecosystem: The growth of a vibrant vendor ecosystem plays a significant role in enabling the adoption of composable ERP. A diverse range of vendors offering specialized “low-code, no-code” modules or microservices provides organizations with ample options to choose from. A healthy competition among vendors drives innovation, ensures ongoing development, and offers organizations the freedom to select the best-fit modules for their specific requirements.
4. Agile Development and DevOps Practices: The adoption of agile development methodologies and DevOps practices has facilitated the implementation of composable ERP. These practices promote iterative development, continuous integration, and deployment of individual modules or microservices. Agile and DevOps enable organizations to quickly develop, test, and deploy modules, accelerating the overall implementation process and reducing the time-to-market.
5. Scalable Infrastructure and Technologies: The availability of scalable infrastructure, such as cloud platforms, containerization technologies (eg. Docker, Kubernetes), and serverless computing, enables the adoption of composable ERP. These technologies provide the necessary resources and flexibility to deploy, manage, and scale the modular components of the ERP system. Scalable infrastructure supports the growth and changing needs of organizations, making composable ERP feasible and efficient.
6. Industry Consortium – MACH Alliance: MACH alliance is a non-profit alliance of independent product vendors, service integrators, enablers and ambassadors who advocate and promote the use of MACH (Microservices based, API First, Cloud-native, Headless) principles to build a composable architecture. Alliance partners and MACH members are constantly rising, indicating a good acceptance and movement towards composable paradigm across industries.

Examples from Retail Industry

Coca-Cola European Partners (CCEP): CCEP, one of the largest bottling partners of The Coca-Cola Company, implemented a composable ERP strategy to replace its existing monolithic SAP system. They adopted a modular approach using microservices architecture, enabling them to integrate various best-of-breed applications and services for finance, supply chain, and sales operations. This approach allowed CCEP to achieve greater agility, scalability, and innovation while reducing dependency on a single vendor.

TechStyle Fashion Group: TechStyle Fashion Group, the parent company of fashion brands like JustFab, Fabletics, and Savage X Fenty, adopted a composable ERP strategy to support its rapid growth and e-commerce operations. They implemented a cloud-based ERP platform that allowed them to select and integrate different modules for finance, inventory management, customer service, and more. This modular approach enabled TechStyle to scale their business, support multiple brands, and quickly launch new products and features.

Adidas: Adidas, the renowned sportswear manufacturer, embarked on a composable ERP journey to replace its legacy systems and enhance its supply chain operations. They implemented a modular ERP system with cloud-based components, enabling better collaboration, visibility, and integration across their global supply chain network. This approach allowed Adidas to streamline processes, improve inventory management, and respond more effectively to market demands.

By 2024, 80% of CIOs surveyed will list modular redesign, through composability, as a top-five reason for accelerated business performance.

Conclusion

The key advantage of composable ERP is its flexibility and agility. Organizations can select and integrate the specific modules they need, rather than implementing a one-size-fits-all ERP solution. This enables businesses to tailor their ERP systems to their unique requirements, adding or removing modules as needed. It also facilitates easier upgrades and scalability, as new modules can be added without disrupting the existing system.

Surveys have indicated that there is a push from C Suite executives to move towards composable architecture in the coming months. There is a good progress in the past year, with over 19% increase in the companies that moved away from the monolithic stack to the best of the breed composable. Tech leaders see that composability is the future of enterprise architecture with 79% planning to increase investment over the next 12 months and beyond.

References:

https://www.focussoftnet.com/blogs/six-hallmarks-of-fourth-era-erp/

https://www.gartner.com/smarterwithgartner/gartner-keynote-the-future-of-business-is-composable

https://thestack.technology/composable-erp-modular-erp/

https:// www.rootstock.com/cloud-erp-blog/what-is-composable-erp/

https://www.focussoftnet.com/blogs/six-hallmarks-of-fourth-era-erp

https://www.geeksforgeeks.org/evolution-of-erp-system/

https://machalliance.org/newsroom/new-research-81-of-global-it-decision-makers-plan-to-add-microservices-based-api-first-cloud-native-and-headless-mach-elements-to-their-architecture-in-next-12-months