ERP problems abound, but a recent ruling in the UK focuses the spotlight on ERP’s one fatal flaw…
Reading the recent news on SAP UK’s legal victory over Diageo, I couldn’t help thinking about the more fundamental issue dogging ERP… the flawed nature of the ERP paradigm itself. The battle SAP waged in the courtroom over “indirect access” to data, puts a spotlight on the problem: the essential nature of ERP and how it deals with data.The SAP UK legal win over Diageo highlights the fatal flaw in ERP... Click To Tweet
What is ERP?
“ERP” stands for “Enterprise Resource Planning,” which typically includes a package of software applications that help a business plan and manage its business. With roots in Material Requirements Planning (MRP) dating back to 1960s, today ERP software “integrates all facets of an operation — including product planning, development, manufacturing, sales and marketing — in a single database, application and user interface.” (ERP, Webopaedia)
Sounds good, “integrated applications to manage almost every aspect of your business.” What’s the problem?
The Fatal Flaw in the ERP Paradigm
You don’t do business with yourself. A trade involves a buyer, a seller, and almost always many other parties in between such as those that facilitate the trade and those that move the goods from the buyer to the seller.
Thus business is always multi-party.Business is inherently multi-party. Does your technology embrace that fact? Click To Tweet
So, enterprise-centric ERPs make no sense and only make doing business harder. Here are three of the top problems that the ERP paradigm engenders.
1. ERP Creates Barriers to Doing Business
ERP is built around the enterprise; its primary focus is internal. This makes communication with other enterprises an afterthought and results in enterprise “silos” that must be integrated after-the-fact. This creates complex, costly and messy integrations (using EDI or other protocols).
2. “Dirty” Data – Multiple Versions of the Facts
Separate enterprise silos create added complexity and cause a cascade of other problems, including:
Inconsistent and Redundant Data
This data must be reconciled within each participant’s ERP silo for every transaction. Contrast this with a multi-party transaction on a multi-enterprise network: The purchase order and the sales order are represented as two views of a single transaction, like two sides of the same coin. The latter is an elegant and much simpler model.
Lack of Common Community Master Data
ERP gravitates towards the lowest common denominator, creating highly generalized data models across industries and business models. These models have become so diluted that they are one size fits none.
Is it any wonder that most ERP implementations require customizations?
The alleged cost advantage of commercial off-the-shelf software (COTS) thus evaporates.
3. Stale, Sluggish and Bloated Supply Chains
In a world where the pace of innovation and commerce is accelerating, ERP slams on the brakes.
Information latency is endemic to ERP as systems need to transfer data back and forth in periodic batch processes. This means much of the data in the system is stale and a poor basis for making decisions and driving operations.
The delays inherent in the system and compounded down the chain, creates uncertainty and a tendency to buffer against this doubt with increased inventory levels – the “Bullwhip Effect”.
Is ERP Relevant in a Real Time, Agile and Hyper-Connected World?
In summary, ERP at its very core is unsuited to today’s global and fast-paced business. Although ERP can connect enterprises it is contrived, complex and costly. It introduces conflicting and redundant data and creates more complexity and uncertainty. The result is slow, stale and expensive operations with little ability see beyond the four walls of the enterprise and an inability to cooperate with trading partners effectively.
SAP’s victory only highlights the contradiction at the core of the paradigm, the fact that ERP doesn’t fundamentally account for and embrace the multi-party nature inherent in business.
A multi-party network approach recognizes that businesses need to communicate and act in harmony to satisfy the end consumer quickly and at the lowest cost.
It’s a simple model based on a single version of the truth which all (permissible) parties can access and act on. It doesn’t penalize parties for sharing data, it encourages it. A multi-party network model recognizes clean, real-time data as essential to creating a harmonious, efficient and responsive network serving the consumer.
It’s this simplicity and effectiveness that is driving disruption in supply chain and fueling the growth of multi-party networks.
Recommended on Supply Chain’s Digital Transformation
As a pioneer in supply chain management, Adeel has guided successful transformations at over 25 Fortune 500 companies across diverse industries. He has also been a visionary and prolific innovator having created several breakthrough supply chain solutions and secured over a dozen patents.
Previously he was Chief Science Officer at JDA Software.Adeel was named as one of Supply Demand Chain Executive Magazine's "Pros to Know" in 2009, 2010 and 2015. He holds a doctorate in Industrial Engineering and Operations Research from University of California at Berkeley.
You can follow Adeel on twitter @AdeelNajmi and on LinkedIn.