BI and ERP integrationDavid C. Chou and Hima Bindu Tripuramallu

Department of Computer Information Systems, Eastern Michigan University,Ypsilanti, Michigan, USA, and

Amy Y. ChouCollege of Business Administration, University of Toledo, Toledo, Ohio, USA

Abstract

Purpose – This paper seeks to propose a business intelligence (BI) and enterprise resource planning(ERP) integrated framework that adds value to enterprise systems.

Design/methodology/approach – A conceptual approach is taken.

Findings – ERP systems integrate all facets of the business and make data available in real time.BI tools are capable of accessing data directly from ERP modules.

Originality/value – The value-added system proposed allows enterprise-wide transaction data to becollected and analyzed for organizational decision-making processes.

Keywords Decision support systems, Data handling

Paper type Conceptual paper

1. IntroductionOver the past few years, integrated enterprise resource planning (ERP) applicationshave brought a new way of delivering operation information. The advantages of thesechanges have transformed many organizations, which improved financial visibility,streamlined supply chain processes, and minimized human resource (HR) processesand overhead.

The beginning of ERP concept can be traced back to 1960s. During that time, themanufacturing systems were mainly handling inventory control, based on traditionalinventory concept. The next decade’s (1970s) manufacturing systems shifted tomaterial requirement planning (MRP) transactions. MRP helped in translating themaster production schedule into requirements for raw material planning andprocurement. The concept of MRP-II (manufacturing resource planning) came in 1980s.Manufacturing resource planning involved optimizing the production process anddistribution management (Yen et al., 2001). Later, MRP-II was extended to includeareas such as corporate finance, personnel management, engineering process, andbusiness project management. The development of manufacturing systems gave birthto ERP that supported the cross-functional coordination and integration within theproduction process. The modern ERP includes the entire range of a company’sactivities. ERP system is a business management system that integrates all facets ofthe business, including planning, marketing and manufacturing (Yen et al., 2001). Morethan 20,000 firms in the world spent billions of US dollars to install the ERP systems.Around 70 percent of the Fortune 1,000 companies had deployed ERP applications by1997 for manufacturing, finance, HRs, and other main areas (Yen et al., 2001).

Information is the foundation of every critical business decision. The creation ofERP systems integrates all functional areas of the organization. ERP systems arebackbone systems for most organizations that integrate back-office applications such

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Information Management &Computer SecurityVol. 13 No. 5, 2005pp. 340-349q Emerald Group Publishing Limited0968-5227DOI 10.1108/09685220510627241

as finance, purchasing, HR, inventory management, etc. Although ERP systems canintegrate all business transaction data into their master databases for organizationalplanning, it is not a system for data analysis and decision support process.

Decision support function is vital to any company since it helps company planahead and reduce the time on decision-making, and then improve efficiencies. Decisionsupport capability can be a key to the success of an organization. Providing aconsolidated analysis of the data and user-friendly reporting capabilities will helpusers make intelligent and correct decisions and gain advantages over theircompetitors. If an organization does not take advantage of decision support systems, itcan not take complete advantage of the data and may lose its competitive edge.

Most ERP systems today have highly integrated databases. Report writers canaccess data from multiple ERP modules and then integrate them into reports. Manyvendors also have business intelligence (BI) tools to access their data modules directly.The most current information technology is to congregate all needed data from theERP system and then load them into a data warehouse or a data mart, and then link toBI tools (such as OLAP, data mining, query and reporting) and report writers to createa more consistent and knowledge-centric data reports. This BI and ERP integratedframework adds value to enterprise systems. Enterprise-wide transaction data can becollected and then analyzed for decision-making usage.

This paper identifies the value of integrating ERP and BI systems and how theywork together to provide a better decision support capability. This paper firstdiscusses the content and the challenges facing ERP systems and their needs for BI.It then identifies the power and the capabilities of BI. Comparisons of existing BIproducts are conducted next. The next section provides an integrated architecture forERP and BI, and then its benefits and concerns. The final conclusion is provided in thelast section.

2. Enterprise resource planning systems2.1 Implications of ERP systemsERP is a software-driven business management system that integrates all facets of thebusiness, including planning, manufacturing, sales, and marketing. ERP systems canbe used to manage operational business information for corporate resource planning.ERP can be applied to areas such as finance, HRs, manufacturing and logistics, supplychain management, and data analysis. ERP can provide the following businessfunctions (Yen et al., 2001).

. Finance. General ledger, accounts receivable, accounts payable, fixed assets,treasury management, cost control.

. HR. HR administration, payroll, self-service HR.

. Manufacturing and logistics. Production planning, order entering, warehousemanagement, transportation management, project management, plantmaintenance, customer service management.

ERP systems usually have the following key components: client server system,enterprise database, and application modules (Yen et al., 2001). According to Yen et al.(2001), an ERP system is supported by client/server technology and its applications arecommonly deployed in distributed and dispersed manner. Some ERP systems provideweb-based interface. ERP system is always implemented via a core database system.

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All applications in the ERP system interact with the database, which ensures theintegrity of the enterprise data. ERP vendors provide diverse modules for corporation’sunits, such as finance/accounting, HR, sales, manufacturing and logistics, etc. Mostapplication modules can be integrated for ERP processes.

ERP systems make large enterprises rely on information technology more than ever.Automate routine process in areas such as accounting, inventory control, andprocurement that accomplishes organizational accessing through automatic updatingof the transaction data. ERP connects various functions of the organization in anintegrated fashion. It improves the responsiveness to customer needs and deliversproducts to market quickly through compressed cycle times. ERP system makes dataavailable in real time and hence allows for a more comprehensive and unified datamanagement. ERP applications are good at capturing and storing data, but theirreporting capabilities are a major concern to ERP users (Scheurich, 2002).

2.2 Challenges facing ERP systemsThe main objective of utilizing ERP systems is to merge corporate-wide data fromvarious sources so that corporate employees, external partners, suppliers, anddistributors can make good use of the data. Nowadays, the need of data distributionacross the company boundary is extensively increasing and analytical functions are nolonger the province of certain users within the organization. Therefore, organizationsneed to distribute the analytic capability to various operational levels, targeted atspecific business needs via key performance indicators (KPIs), dynamic reporting andreal-time analytics (Agostino, 2004). However, ERP systems do not seem to provide allof the required functionality. The challenges to be faced by ERP systems are discussedbelow.

. Reporting capability. Usually, ERP systems do not offer reporting service onproduct line revenue analysis. Also, ERP systems are not capable of providingad hoc reporting service. Online views of business operations are not available.ERP systems do not support cost allocation and profit and loss reporting.Any complex analytic solutions often require external software or systems(Agostino, 2004).

. Budgeting capability. Corporate budgets can be identified and controlled invarious ways. Budgetary changes, however, need to be handled outside the ERPsystem, which meant that the budget data within the ERP system will soonbecome obsolete (Agostino, 2004).

. Systems integration capability. Another weakness of ERP systems is its limitedintegration capability with other systems. For example, CRM and sales forceautomation systems’ forecasting capability could be used to empower businessdecision if they can be integrated with ERP systems. Also, the budgeting toolsare often not well integrated with ERP systems, which cause concerns onfinancial data consistency (Agostino, 2004).

. Practical problems. Since ERP are complex systems, implementing such systemscan be difficult, time consuming, and expensive. Because ERP are complex innature, user training becomes a burden to each ERP-adopted organization.Another practical concern to the top management is that most ERPimplementations do not offer corporate decision-making functions.

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2.3 The needs for business intelligenceOrganizations recognize the wealth of information within ERP systems, the challengelies in the ways of mining them. Since ERP systems were not originally designed toprovide real-time reports to massive users, the entire system could not facilitate thedecision support function. The hope that ERP systems would provide better analyticaland reporting functions is therefore discontented. In order to justify theirreturn-on-investment (ROI), more and more organizations are turning to BI toolsthat make data collected by ERP, customer relationship management (CRM), and otherdata-intensive applications meaningful. BI systems can pull the data in ERP systemsand then perform various analyses and deliver superior reporting, which help usersmake timely and accurate decisions. More and more organizations extend their ERPsystems beyond the level of back-office to improve sales, customer satisfaction, andbusiness decision-making (Stedman, 1999).

BI tools are capable of analyzing the long- and the short-term business scenariosusing existing data captured from the enterprise information systems. BI technologycan be used for any organization to structure the information in ERP systems and otherdata repositories such as data warehouses and data marts for performing optimizedand effective decision-making. Many companies have to rely on a single source ofinformation (i.e. the transactional systems) to run their day-to-day operations.However, these transactional systems do not meet management’s need to discovertrends and patterns that can be derived from their inherent business rules.

ERP systems built structural and operational characteristics that could weakentheir flexibility because ERP systems have been focused on maximizing dailytransactional capability. In other words, ERP systems are usually designed to recordbusiness transactions data, make changes to existing data, reconcile data, keep track ofbusiness transactions, run predefined business reports, and manage businesstransactions. In contrast, analytical systems are designed to examine large volumes ofdata and then to generate essential information for decision-making.

The integration of the BI system and the ERP system contributes additional valuesto the business community, for example:

. Providing meaningful analyses. Although operational reports from ERP systemprovide recent business events, they do not satisfy managers’ needs for ad hoc,forecasting, and exceptional reports. BI systems, on the other hand, provideonline analytical processing (OLAP) and data mining tools to discovermeaningful trends and patterns. For example, business users can use BI tools toobtain more detailed information to generate best- or worst-case scenarios forbusiness planning. Therefore, BI systems add value to ERP by providingmeaningful and comprehensive analyses of the operational data.

. Optimizing the ERP investment. By integrating BI and ERP systems, organizationscan continuously improve their competitive advantage. For example, a sound BIsolution might allow purchasing personnel to discover patterns in pricing, which inturn allows the company to obtain better pricing by changing purchasing processes.These discoveries are then used to enhance ERP system.

3. The power of business intelligenceBI tools can be used to generate various aspects of business views throughmanipulating existing data captured by company’s information systems. BI can be

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used for any organization to structure its ERP information and other data repositories,for fast and effective decision-making. The conventional structured query language(SQL) and reporting tools provide ad hoc queries; however, BI tools allow users to buildneeded queries in a more efficient and user-friendly manner.

Companies that adopt BI can empower their employees’ decisions capability in afaster and reliable way. BI delivers better business information through a powerfulgrip of organizational data. Since a BI system includes technologies for reporting,analysis, and sharing information, it can be integrated into the ERP system to trulymaximize the ROI of ERP.

BI is a term introduced by Howard Dresner of Gartner Group in 1989 to describea set of concepts and methodologies designed to improve decision-making inbusiness through the use of facts and fact-based systems (Hashmi, 2004).Fact-based systems include executive information systems, decision supportsystems, enterprise information systems, management support systems, OLAP,and newer technologies such as data mining, data visualization, and geographicalinformation systems.

Although some of the enterprise systems furnish with reporting and basic queryfunctionality, organizational data are scattered in business information systems.The isolated reporting capability is insufficient for an organization to seek for aconsolidated picture of business operations. Therefore, BI applications step in toprovide tools that can be used across the organization to access, analyze and shareinformation from a variety of data sources.

3.1 Why BI?In today’s competitive marketplace, a company owns BI possesses distinct advantagesover its market rivals. What does a company know about the customers, vendors,partners, products, and market will allow its executives to make wise decisions thatmay result in dramatically revenue increase, cost reduction, and profit enhancement.Distinct from conventional reporting tools such as spreadsheets, BI reporting toolsprovide a visual interface for accessing and navigating through multidimensional datasources that stored in transactional systems. This means that decision makers andanalysts will have easier and faster access to frequently updated information, whichsupports quicker and better decision-making.

A powerful BI tool can generate different views from available data system. A scaleddata mart or data warehouse can provide rich, timely, and well-structured and cleansedinformation to the BI tool. It needs only a few seconds to use BI software to generaterequested views of the business. For example, BI software can be used to queryfinancial views such as (Rasmussen et al., 2002):

. Sales order entry. Sales by top customers with time comparisons; sales bycustomer and salesperson; sales by customer by location; etc.

. Accounts receivable. Aging periods by salesperson; aging periods by collectionmanger; collections by customer – 91 days and over; etc.

. Bank reconciliation. Cash in the bank; cash on First National Bank; etc.

. General ledger. Sales and profit by channel; actual, budget, and variance bydivision; etc.

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BI software can also be used to answer marketing and sales queries such as(CRM2day.com, 2004):

. who are my best and worst customers?

. what parameters affect my sales? and

. where are we making or losing money in different geography, product line, andcampaigns?

The BI tools play a major role of enhancing the quality of decision-making. Generallyspeaking, businesses need to focus their BI activities in the following areas in order tomake their business more competitive: cost reduction, profitability analysis, product orservice usage analysis, target marketing, relationship marketing, and CRM.

4. Comparison of BI productsMacVittie (2002) compared the technological features of five major BI software (BrioIntelligence 6.6, Cognos Series 7, Information Builders WebFocus 4.3.6, Microsoft dataanalyzer, and MicroStrategy 7i) based on the following aspects: deployment platform,databases supported, web servers supported, supports ad hoc queries, distributionserver included, direct access to data sources, OLAP support, and presentation formats.

All these five BI software can be performed through Microsoft Windows platforms.Other than Microsoft data analyzer, all the remaining four BI products can work withHP-UX and Sun Solaris operating systems. Microsoft data analyzer can be deployed byWindows-based platforms only. The “databases support” is an important BI capabilitysince BI solutions need to use data from various databases within enterprise systems.Most BI solutions except Microsoft data analyzer can work with database systemssuch as Informix, DB2, Microsoft Access, Oracle, SQL Server, and Sybase. Most BIsolutions can support web servers such as Apache, IBM WebSphere, iPlanet, andMicrosoft IIS. Microsoft data analyzer, however, supports only Microsoft IIS. It isclearly to see that Microsoft data analyzer is a Microsoft-bounced BI solution. Thisphenomena is evidenced by the features of “distribution server included” and “directaccess to data sources” (MacVittie, 2002), in which they indicate that all BI software butMicrosoft data analyzer can be connected to distribution servers and other datasources.

Features on “data analyses” are very similar among BI software. They all supportad hoc queries and OLAP. These two features are the major capabilities of BI solution.The “presentation formats” show that all these five BI software provide web interfaceto view HTML and Excel reports. Other than Microsoft’s data analyzer, the remainingBI software can produce PDF formatted reports, XML code, and web-based interface.

BI software vendors are advancing their products by adding wireless and webservices capabilities into their products. Recent efforts are made toward easyaggregation of data from multiple sources to make it appears as if the data is comingfrom one source. BI vendors such as Brio and Cognos have announced that theirreporting tools will be integrated with SAP – an ERP product.

5. ERP and BI: integrated architectureERP systems are transaction-based, that is, ERP applications are designed toprocess large volumes of business transactions within sub-second response times.

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ERP repositories contain thousands of small tables without the anomaly of dataredundancies, making it easy to find and update a single data item. On the other hand,BI systems are query-oriented; they are optimized to handle long-running, complexqueries submitted by users against much larger volumes of data. With BI and ERPintegrated solution, businesses take the advantage of the new tools to access, analyze,report, and share the information that held in the ERP applications.

The Figure 1 shows the typical BI software that fits in the new framework of ERP(Datamonitor, 2001). This BI and ERP integrated system consists of the following maincomponents (Datamonitor, 2001).

(1) Operational data. Organizations must have transactional systems that recordtheir daily business transactions. The operational data can be found in legacysystems, CRM applications, ERP applications, click-stream data, and variousonline transaction processing (OLTP) systems.

(2) Data integration. Data generated from various transactional systems need to beconsolidated and merged into an enterprise-wide operational data store forfurther usage. Through data integration, diversified systems and data formatscan be integrated into a compatible data source.

(3) Data storage. Data warehouse technology plays a major role in data storagecomponent. Unlike conventional relational databases (where data isnormalized), data is denormalized in a data warehouse. Also, the database isbuilt around subject matter, and all data regarding that subject is piled into thatdatabase. These characteristics make data warehouse efficient for data access,

Figure 1.BI and ERPintegrated framework

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multi-dimensional analysis, and reporting purposes. Data marts also reside indata storage component. Data mart is a small-scaled data warehouse designedprimarily to address a specific function or departmental needs. Data warehouseand data marts form good source of information for BI to perform faster,complex, and ad hoc queries, and generate user-friendly reports with drill-downcapability.

(4) BI software. BI software consists of query and reporting, OLAP, and datamining tools. BI reporting tools provide a visual interface for accessing andnavigating through multidimensional data that stored in either relational ormulti-dimensional databases. OLAP is a capability of BI that supportsinteractive examination and manipulation of large amount of data from manyperspectives. Data mining is a technique for selecting, exploring, and modelinglarge amounts of data to discover previously unknown patterns andcorrelations, which lead to anticipating future behaviors, events, andconsequences. This BI software allows dynamic enterprise data search,retrieval, analysis, and explanation for the needs of managerial decisions.

(5) Analytical applications. Analytical applications explain the phenomena ofbusiness based on the existing data. Possible tools for analytical applicationsare statistical analysis and forecasting software. Subjects to be analyzed areapplications in eCRM, Financial and KPIs, operations, web traffic, and B2Bexchanges.

5.1 Benefits of integrating BI and ERPBI performs various processes that exploring data, data relationships, and trendsthrough related methodologies to draw conclusions, this process can drive revenuegrowth and improve operational efficiency inside an organization. Whileorganizational ERP system is powerful for processing and storing transactional datafrom various internal and external sources, it is not the most effective data distributionsystem in existence. The integration of BI and ERP systems can strengthen corporatedecision-making capability through utilizing the analytical capability of BI system anddata managerial capability of ERP system. This framework will result in an optimalutilization of both ERP and BI systems. More specifically, this new framework cangenerate the following benefits (Agostino, 2004):

. enabling finance personnel to generate revenue/expense reports quickly;

. allowing the controller to recognize corporate cash flow in real time;

. sharing sales information with the management, this allows for making bettercorporate decisions based on a macro view of the business;

. facilitating a company to perform interdepartmental collaboration;

. improving accounts payable and vendor relation management;

. enabling sales force management;

. improving profitability by analyzing transactions data and forecasting businesstrends;

. improving customer relations through in-depth sales data mining;

. providing online access to data, which saving access time; and

. reducing time to generate regular reports.

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5.2 Concerns to integrationAlthough it can generate a sufficient amount of benefits through the integration of BIand ERP systems, there are concerns for effective implementation and utilization ofsuch integrated systems. These concerns are technological innovation, reliability andavailability, scale efficiency, and system flexibility.

. Technological innovation. The customer’s needs are changing constantly. BIsolutions should constantly adhere to the changing requirements and provideinformation infrastructures that well suites them instead of sticking with thesame old technologies that do not satisfy the user community.

. Reliability and availability. As a BI system scales up to the changing needs of thebusiness, it should guarantee a continuous service with reliable performance.A BI system should be equipped with tools that provide load balancing, backup,and automated disaster recovery in times of need.

. Scale efficiency. While ERP system supports the enterprise-wide transactions, anintegrated BI system becomes so critical on its scale efficiency. As an enterprisegrows, it must provide proven infrastructure to manage, schedule, and deliverinformation to the right destination at the right time.

. System flexibility. ERP systems are, most of the time, inflexible. Therefore, it isthe responsibility of BI systems to support all major web standards and integrateseamlessly with existing applications and infrastructures without muchcomplexity.

6. ConclusionsERP system has been recognized as a powerful system for handling corporate resourceplanning and supply chain processing. An eminent contribution made by ERP systemis its capability of integrating and managing enterprise-wide transactional data. MostERP systems in the market can perform this feature well, however, the data reportingand analytics capabilities are absent in them. In order to fill the gap of this importantneed for corporate decision-making, BI tools can be used to align the path of thisinformation technology innovation.

BI software gains more acceptance as users at all levels of the organization realizethe benefits of its decision support capabilities. Companies that were unable to justifyROI for ERP implementation are now implementing BI software since BI enhances theutilization of the enterprise data.

ERP systems are extremely complex and it is difficult to extract data for BI in a waythat is independent of the extract facilities supported by the ERP system. ERP systemsstreamline enterprise transactional data. BI systems add intelligence into their ERPdata. Together, ERP and BI can greatly improve the IT performance anddecision-making capability inside the organization.

References

Agostino, R. (2004), “Business intelligence: solving the ERP overload”, available at:www.crystaldecisions.com/jump/crystal_cfo/pdf/crystal_cfo_project_voll.pdf

CRM2day.com (2004), “Business intelligence”, available at: www.crm2day.com/bi

Datamonitor (2001), “Business intelligence: from data to profit”, available at:www.researchandmarkets.com/reportinfo.asp?cat_id ¼ 41&report_id ¼ 560

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Hashmi, N. (2004), “BI for sale”, available at: www.intelligenterp.com/feature/hashmiOct20.shtml

MacVittie, L. (2002), “Business intelligence with smarts”, Network Computing, 30 September,pp. 42-57.

Rasmussen, N., Goldy, P.S. and Solli, P.O. (2002), Financial Business Intelligence, Wiley,New York, NY.

Scheurich, L. (2002), “Maximizing the ERP investment”, Competitive Financial Operations:The CFO Project, Vol. 1, pp. 1-6.

Stedman, C. (1999), “What’s next for ERP?”, ComputerWorld, Vol. 33, pp. 48-9.

Yen, D.C., Chou, D.C. and Chang, J. (2001), “A synergic analysis for web-based enterpriseresources planning systems”, Computer Standards & Interfaces, Vol. 24, pp. 337-46.

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