The ERP Paradox in Supply Chain Management Processes

By Israel Rosales on June 18, 2014

Depositphotos_77311034_m-2015 smallSince the early 1990s, most companies have gone through significant transformation to implement big ERP systems, such as SAP or Oracle. This change was typically driven by finance, in order to have more robust IT systems. Of course, it was not only implemented for financial reasons. In most cases, these companies ended up moving all of their disperse systems to an integrated ERP system.

However, a paradox came with the ERP implementation: What was supposed to be a system to increase efficiency and competitive advantage turned out to be a system that required a huge amount data input from end-users, both for master and transactional data.

In order to maintain the demands of data input, companies required more headcount to dedicate more time to control the processes in the new ERP system. In the end, what was supposed to be a huge improvement required a larger amount of time and effort. This was especially painful for those departments that are normally seen as “a cost,” like supply chain management, HR and finance.

 

Supply Chain Management CaseSupply chain management is the management of the flow of goods. Chart with keywords and icons

By design, supply chain management processes are supposed to:

  • Do more with less
  • Reduce costs continuously
  • Be flexible to adapt to new operational challenges

This requires the team to reduce process waste with small and continuous iterations of a classic lean PDCA (Plan-Do-Check-Act) or its Six Sigma DMAIC variant (Define-Measure-Analyze-Improve-Control). For many companies, however, the ERP installation brought about a totally different situation:

  • More time spent entering data into the ERP system
  • Less time for adding value in employees’ areas of expertise
  • A rigid framework that removed flexibility from the processes
  • High cost for any change in the existing ERP-based processes

Thus, continuous improvements were reduced because the team could not make small, iterative changes. Ultimately, the ERP system was built to last, to be rigid—not to adapt continuously to new business requirements.

Emerging ERP Flexibility

Around five years ago, a new trend started to appear in the market—the concept of “pace layering in enterprise systems.”This concept uses a “layered house” analogy, where the various layers differ in the amount of customizability:

  • The foundations are built to last; they are the backbone of the house.
  • If you want to change the pipes, doors or windows, you only need a contractor.
  • If you want to paint the house, you can paint it.
  • The furniture can be easily swapped out.

The same is true with an ERP system:

  • The ERP should be the backbone of your system—build to last, rigid and reliable.
  • The layers should be adaptable to new requirements that adjust to business needs.
  • Some layers of the ERP should have a “no programming” approach, so that business users can participate directly in the changes to their processes.

With this model, a new wave of products is allowing supply chain management professionals to continuously improve their ERP systems. This is especially important since supply chain management is no longer viewed as just a way to reduce costs, and companies now demand that it add value to the business. For companies to compete well in today’s economy a flexible ERP system environment is a requirement.


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