How Accurate are the All Industries Benefits of ERP?

Executive Summary

  • ERP is sold on the ability to be used in any industry.
  • Learn why the proposal that ERP works for any industry is incorrect and what this means for projects.

Introduction

ERP vendors have been adamant that their software can be used for any industry. SAP has many different industry solutions. However, when one examines these advertised capabilities, the actual functionality is often lacking. These SAP industry solutions are really more marketing constructs than usable functionality, and because the marketing is so good, it took me years of working on SAP projects to figure this out. While I have not worked with every industry solution, I have worked with many of them, and none of them have been as advertised. Most of the time the ERP system is implemented without using the functionality of the “industry solution.” SAP industry solutions are designed to get executives in purchasing companies to think that SAP can meet the unique requirements within their industry, but in truth, SAP tends to offer generic functionality as a base, which they sell to most of their customers. Then they add some functionality for the specific industry, which is of dubious implementation value, but serves as the “hook” to make the executive decision-makers think the software has been customized for their needs. I have worked on several SAP implementations for repetitive manufacturing.

The Example of Repetitive Manufacturing

Repetitive manufacturing is a manufacturing environment where the production is continuous and the equipment investments are high, as is the rate of production. Late in one project, it finally came out that the repetitive manufacturing functionality was not worth turning on. As a result the implementing company decided to forgo the functionality and stick with the standard discrete functionality with a few adjustments. SAP got the sale by pitching repetitive functionality down to the eleventh hour. But the company wasted an enormous amount of time discussing whether or not repetitive manufacturing functionality would be used. As a very experienced SAP consultant (from SAP itself) once stated to me, “There is really more sizzle than steak to SAP repetitive manufacturing.” This issue of “there not being much there” is repeated throughout SAP industry solutions. Among prospects there seems to be some confusion on this topic. Just because a software vendor has a number of customers in a particular industry does not mean that their software serves that market or provides the necessary functionality. But with applications from name-brand vendors, so much of the purchasing decision is based upon the brand yet so much of the ERP system is customized by many clients. Across all industries, one of the greatest unheralded “helpers” is probably Excel. It might be more accurate to say in airport advertisements “XYZ ERP vendor + Excel is used by four out of five top chemical companies.” An honest statement—but obviously not as catchy.

Simply put, many executives buy software to advance their careers, because other companies buy it, or because the marketing and the salesmanship dazzled them. As discussed in the next section, another common division between manufacturing companies, who are the most common implementers of ERP systems, is the division between discrete and process industry manufacturers.

The Example of Discrete Versus Process Manufacturing Requirements

In discrete manufacturing (e.g., automobiles, toys and tools), usually there are multiple input items and a single output item. However, in process manufacturing, where the fi nal item cannot be broken down and converted back to the original input products (i.e., cheese cannot be disassembled into its original components, but an automobile can), one input item can convert to multiple output items, or multiple input items can convert to multiple output items. All of these relationships can be easily modeled in a spreadsheet. The finished product of process manufacturing is not simply the assembly of the input products, but is in fact an altogether transformed item. For example:

  1. One cannot unthread fabric to get to the original spools and restock the thread as inventory.
  2. Once crude oil is cracked into jet fuel, kerosene, tar, etc., it cannot be reconstituted back into crude oil.
  3. In some types of process industry manufacturing, the input product is literally “gone.” For instance, when coal is converted into electrical energy, it cannot be converted back into coal.

So what common and important capabilities are typical of process industry manufacturing? The software vendor TGI, which states the following capabilities within its Enterprise 21 software application, can demonstrate the requirements for process manufacturing planning.

“1. Supports infinite-level formulas with yielding at the top level or ingredient level and rank-ordered ingredient substitutes

2. Products can have global formulas or unique facility-specific formulas

3. Supports scalable batches

4. Supports recipes through the integration of formulas and associated processing instructions and notes for use during batch process production

5. System maintained version and revision control with a fully integrated engineering change order process

6. Formulas support nested formulas and intermediates and can have infi nite notes and instructions

7. Supports online review of formulas via single-level and multi-level explosion

8. Multi-level where-used functionality enables rapid access and mass change to all finished goods using specific ingredients, intermediates, and nested formulas

9. Formulas and recipes are easily duplicated and updated for the same product or a new product

10. Formulas are pulled into work orders or batches for tracking and recording of actual ingredients consumed or backflushed at defined standards”

Batch Functionality in SAP ERP

Batch functionality in SAP can be enabled, which is used for batch process manufacturing. Batch functionality is a very popular requirement for all types of batch manufacturing (including manufacturing such items as bakery items, paint, glass, specialty chemical, and pharmaceuticals, as is explained in the book Process Industry Manufacturing Software: ERP, Planning, Recipe, MES & Process Control). Batch functionality allows specific batches (e.g., a batch of pharmaceuticals from a single production run) to be tracked. Batch manufacturing can be enabled in SAP ERP.

However, batch functionality is well known as a major headache to enable. Batch management was added as an afterthought, even though it is foundational to a batch management ERP system and also a process industry ERP system. SAP ERP was designed to work with discrete manufacturing, which simply has quite different requirements. This is not just an issue with SAP ERP, but of ERP generally, and not just with ERP as a software category, but with all manufacturing enterprise software sold to process industry customers. This is a topic in the book, Process Industry Manufacturing Software: ERP, Planning, Recipe, MES & Process Control. The following quotations talk about how enterprise software designed for discrete manufacturing customers is sold to process manufacturing companies.

“For IT chiefs like Pam Haney, IT director at Irvine Scientific, a $28 million life sciences company, issues of competitive advantage are overshadowed by ever-present customization needs with her ERP system. ‘What we’re faced with is having to deal with ERP packages that are not designed for process manufacturers.’” — Why ERP Systems are More Important Than Ever, CIO

“Originally business information systems for manufacturing companies were designed for discrete manufacturers, not process industries. These systems targeted industries such as automotive, consumer electronics, machine tools, etc. The discrete manufacturing sector produces piece parts to form subassemblies, which are then combined to form the fi nal product. Nearly all ERP suppliers have built their information systems to support the business functions of discrete manufacturers.”Process Industry ERP Requirements

Very specific requirements exist in process industry manufacturing companies that must be met one way or another.

“Today, process manufacturers have a proliferation of products. These products are produced using the same equipment or using existing processes downstream but at the same site. Because of the number of products now fl owing through the same cost center, using financially based cost systems to develop accurate, individual product costs is difficult, sometimes impossible. Furthermore, as multiple methods evolve for producing the same end item (whether in a sister plant or with newer technologies in an existing plant), the setting of standard costs must reflect a weighted average cost. This type of costing can only be done using an ERP system designed for the process environment.”Process Industry ERP Requirements

Unplanned Customizations

Businesses require solutions that have been designed from the ground up to meet their requirements, not software that attempts to meet their requirements. ERP vendors claim they can address the specific requirements of manufacturers by appealing (successfully) to all industries with slick marketing literature, yet with the barest level of functionality. Right now, thousands of companies have made unplanned customizations to their ERP systems because ERP vendors told them that the software would cover their industry-specific requirements when, in fact, they could not. So much money has flowed into Tier 1 ERP vendors who have provided generic solutions and left promises regarding industry-specific functionality unfulfilled, that money has been prevented from flowing to solutions that could have been developed to offer companies software that meets their requirements. This is another example of a prediction make by many ERP vendors that helped them get sales, but has been bad for their “customers” and bad for the enterprise software market overall.

Conclusion

The concept of using ERP for any industry with little customization is a sales construct that after decades has proven not to be true. The more customers have bought into this sales pitch, the more unplanned expenses and corrections and customizations were required of the ERP systems that they purchased and implemented.

Financial Disclosure

Financial Bias Disclosure

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

ERP Contact Form

  • Want Honest Information about ERP?

    It is difficult for most companies to make improvements in ERP without outside advice. And it is close to impossible to get honest ERP advice from large consulting companies. We offer remote unbiased multi-dimension ERP support.

    This article is free, we do not answer questions for free. Filling out this form is for those that have a budget. If that describes you, just fill out the form below and we'll be in touch asap.

References

The Real Story on ERP

ERPThe Real Story Behind ERP: Separating Fiction From Reality

How This Book is Structured

This book combines a meta-analysis of all of the academic research on the benefits of ERP, coupled with on project experience.

ERP has had a remarkable impact on most companies that implemented it. Unplanned expenses for customization, failed implementations, integration, and applications to meet the business requirements that ERP could not–have added up to a higher Total Cost of Ownership for ERP were all unexpected, and account control, on the part of ERP vendors — is now a significant issue affecting IT performance.

Break the Bank for ERP?

Many companies that have broken the bank to implement ERP projects have seen their KPIs go down— but the question is why this is the case. Major consulting companies are some of the largest promoters of ERP systems, but given the massive profits they make on ERP implementations — can they be trusted to provide the real story on ERP? Probably not, however, written by the Managing Editor of SCM Focus, Shaun Snapp — an author with many years of experience with ERP system. A supply chain software expert and well known for providing authentic information on the topics he covers, you can trust this book to provide all the detail that no consulting firm will.

By reading this book you will:

  • Examine the high failure rates of ERP implementations.
  • Demystify the convincing arguments ERP vendors use to sell ERP.
  • See how ERP vendors take control of client accounts with ERP.
  • Understand why single-instance ERP is not typically feasible.
  • Calculate the total cost of ownership and return on investment for your ERP implementation.
  • Understand the alternatives to ERP.

Chapters

  • Chapter 1: Introduction to ERP Software
  • Chapter 2: The History of ERP
  • Chapter 3: Logical Fallacies and the Logics Used to Sell ERP
  • Chapter 4: The Best Practice Logic for ERP
  • Chapter 5: The Integration Benefits Logic for ERP
  • Chapter 6: Analyzing The Logic Used to Sell ERP
  • Chapter 7: The High TCO and Low ROI of ERP
  • Chapter 8: ERP and the Problem with Institutional Decision Making
  • Chapter 9: How ERP Creates Redundant Systems
  • Chapter 10: How ERP Distracts Companies from Implementing Better Functionality
  • Chapter 11: Alternatives to ERP or Adjusting the Current ERP System
  • Chapter 12: Conclusion