Four reasons to stop looking to your ERP vendor to solve all your supply chain problems.

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I noted an article from IndustryWeek several weeks ago that identified a growing problem with corporate ERP systems;  The article, which referenced a study by IFS North America, shows that companies are going beyond simple make-to-stock, make-to-order models and are instead moving to more complex manufacturing models like engineer to order.  ERP software, however, doesn’t appear to be keeping up. While I can’t comment on the specifics of what the study authors have found, I have seen many instances where traditional ERP systems simply don’t align with the needs of the business.

  1. Many ERP systems don’t allow you to see forecast and actual customer orders in the same view.
  2. Many ERP systems have an “all or nothing” approach to capacity planning – you need to fully populate capacity planning data and track actual performance at the operation level or you can’t do capacity planning.
  3. Some systems only present views on a part by part basis – so you can’t see aggregated details without running a special report
  4. Most systems make it very difficult to try what-if scenarios and get timely results.

There are many more examples, but what is interesting is what happens when ERP users don’t get what they need from the ERP system; they try to get the information someplace else…typically from Excel. I’ve talked in previous posts (How are spreadsheets like cockroaches?, Is Excel the right tool for S&OP?) about the dangers of running your business on Excel.  Excel is a fine tool for creating charts and doing one time analysis, but things start to fall apart when you start building business processes on it. Like a foundation for a building, the software you build your processes on is critical.  A weak foundation, and your process will come tumbling down. So why is Excel a weak foundation?

  • Excel propagates multiple copies of “the truth”. How many times have you gone to a meeting where two people presented different versions of what is supposed to be the same data?  Whose data do you believe?
  • Excel allows non-validated business logic. Who created the spreadsheet? How sure are you that the formulas used are correct? In my “How are spreadsheets like cockroaches?” post, I cited a study that showed that 90 percent of spreadsheets in use by businesses today contain serious errors.  Errors that could result in you making a bad decision.
  • Excel has a poor collaboration model. Many processes today require inputs from multiple people.  Excel doesn’t handle concurrent edits well, so often processes must be structured such that edits happen consecutively. This can prolong processes, especially if you have difficulty getting people to make their changes on-time.
  • Complex processes result in complex Excel worksheets. I managed the S&OP process at a manufacturing company in a previous life.  The S&OP spreadsheets for our four product lines were built up from multiple component workbooks.  Macros were used to manage the rolling time window. When something went wrong with the process, I was guaranteed to spend days trying to debug and pick up the pieces.  Things went wrong far too frequently.

So, what’s the solution?  Use ERP to manage transactions but stop looking to your ERP vendors to solve all your supply chain problems. In our personal life, we wouldn’t go to the same vendor for everything would we? For example, I use my bank’s website to manage my day to day transactions. They are very good at it…they’ve been doing it for years.  However, to manage my budget and to look at my spending patterns, I use Mint.  I looked at my bank’s budgeting offering and while it sounded good…it didn’t fit my needs. My advice? Look at what your ERP vendor offers, but be sure to look at other offerings that are available. You might just be surprised at how well these tools meet your needs, and with the many on-demand services available, you won’t be looking at a large capital expenditure or an ongoing IT burden. Are you using third party or best-of-breed supply chain solutions? Comment back and let us know your thoughts.

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Jon Kirkegaard
- March 31, 2011 at 9:40pm
Great short article and so true !

To futher amplify you point about ERP's general ability to schedule and provide capacity planning on a shop floor or across multiple facilities. Our experience is pretty much every ERP vendor architects plannign capabilities such that the only way to feed core order, capacity, material infor to plan is to have perfect transactions in the system.

In reality there are very few busienss that have perfect transactional info... planners usually have to substitute or add key data to make a plan inputs equal reality... then run constraint based algorithms or anchored schedules and see problem windows .... ERP does not think this way and does not operate this way.

Good luck with the message.... it is so true, so helpful if clients will listen, and one that should keep ERP vendors up at night long enough to break their monolithic approach... but have watched for 20 years and the financial returns of locking in a client seem to strong for ERP to change

Too bad, to sad but if you study really top firms in almost every industry they don't let ERP lock them in.... wish one of the "analyst" firms would actually analyze rather then promote the vendors that sponsor their white papers ?
Charles Rathmann
- April 01, 2011 at 3:52pm
John ~
Thanks for paying attention to our research. The data do in fact show that ERP solutions in use in many companies do not adapt well to changing needs. Whether a vendor in fact meets the needs cited by Jon. But even if they do, can you implement it without disrupting your existing ERP instance -- and implement it in a timely fashion?

Lacking a well-design, component-based and granular service oriented architecture, the answer is often an emphatic no. Even we at IFS do believe in integrating in some instances with ancillary software products just so long as there is an API-level or database-level integration so data is shared in real time. But we typically don't find our customers need that in the supply chain area.

Thanks for a fascinating blog!
~ Charles Rathmann
IFS North America

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