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ERP: Failure to Enhance Planning & Control
Thursday, April 04, 2013

ERP has been described as a technology that integrates all of the different elements of an organisation electronically to provide timely accurate information for effective decision making.

Whilst ERP encompasses many different types of organisations the real strength for manufacturing, distribution, construction and mining organisations is the ability to use the core planning and scheduling capability of Materials Requirement Planning (MRP) to proactively manage the supply chain from order entry, planning, procurement, inventory, production, product costing and delivery to the customer.

If you look at any manufacturing or distribution organisation the major issues are the scheduling of materials and information in a timely manner to efficiently feed production or distribution centre requirements.

This type of planning is where ERP roots lay. MRP, MRPII was specifically designed to manage materials flow based upon the demand for products and is capable, theoretically, of doing this very well. The problems with organisations implementing ERP is many organisations do not understand what needs to be done to get the system producing the right numbers to enhance the operations of the supply chain.

The rush to implement the technology part of the system with some form of expectation the computer will somehow fix all of the problems an organisation reveals what the company does not know. Essential data elements of what parts need to go into a product in a structured sense, the dynamics between under and over-structured bills of materials, routings and inventory issue and receipt seems to be missing from the understanding of many ERP implementers.

Many organisations we speak to, in the beginning, had an expectation the software vendors implementers knew all of this stuff only to find that the consultants used were focussed on getting the ERP system running and did not know the detail of how to structure essential data for different type industries and really didn’t see this as their area of responsibility.

Success from an ERP vendors perspective is the software runs, which can be quite different from the expectations of the customers who were, in many cases, swayed by vendor driven cost justifications that showed improvements and savings in many areas that are not achieved just by installing software.

The results of the failure to understand how the technology must be used and the structure the data for their specific type of industry has left many organisations with an ERP system in place but not able to generate the information required because they don’t understand the detail required or how to use it in a way to get the most from the system. These companies form a major part of the core 55-70% failure to realise the ERP benefits!

The missing component with these implementations is education on the capability of the technology and what needs to be done, in detail, within the specific company to get the returns and benefits from the MRP capability.

ERP, whilst it can be described in generic terms, must be brought down to the individual company requirements on how to structure bills of materials, routings, procurement, shop floor planning and control, inventory control and movement etc.

The real payoff in ERP systems is getting the MRP component working to smooth the flow of inventory and product through the organisation whilst minimising the levels of inventory and being able to consistently meet customer services promises without resorting to expensive crisis management.

ERP has major strengths but also weaknesses that can be overcome by the application of other concepts such as Lean, Just-in-Time inventory flow, Six Sigma, TQM etc. Determining how the system will be used prior to purchasing and implementing the software will eliminate a lot of downstream problems that otherwise can render the technology ineffective.

Education on the application and details of how to apply the technology as well as how to structure the data can significantly benefit the organisation and turn potential problem ERP implementations in real winners.