How to Determine if You Suffer from (ECS) – ERP Centric Strategy?

What This Article Covers

  • What is ECS?
  • What are Symptoms of ECS?
  • How to Manage ECS

erp

Introduction

This was going to be a very different article than the type I ordinarily write. Today I want to talk about a serious topic. You see there is a silent disease-oriented around enterprise software decision making that goes undiscussed within companies.

The following shocking statistics apply to this disease.

  1. A recent study showed that executive decision makers at 4 out of 5 companies suffer from this mental affliction.
  2. Employees that use systems where executives have this affliction are eight times more likely to report that, for planning and analysis, the applications they use to get their work done.

“Totally suck!”

And

“…yea then at that point I have to export it to a spreadsheet…”

or

“…wait, and then after I download that, then I have to manually make the assignments, and then I…”

At this point, you have probably guessed that I am referring of course to the dreaded ERP-Centric Strategy.

ECS is a disease that affects the mind and its only observable through the subject’s statements, the propensity to overpay consulting companies for customization work, an obsessive use of Excel, and of course by the devastating effects on industrial productivity.

Bummed

ECS is at epidemic proportions within companies, with many people hiding their symptoms from friends and family for years.

Look Out Window

ECS sufferers can often be found looking out windows, saying things like.

“I just want to get more out of our ERP system.”

And

“I know that the ERP system can do it, we just need a little customization. How about just a little code!”  

or

“How hard can it be to create a forecast with our ERP system? The brochure said that it does forecasting right? I mean I thought I remember it said that it did…”

Happy

What is at the Heart of ECS?

Clinically, ECS is a form of wishful thinking combined with an oversimplification of how requirements must be met by software. The most foundational underpinnings of ECS are a fundamentally irrational belief in the following ideas.

  1. The ERP system should be emphasized above all other systems because “it’s the biggest.”

  2. The ERP system the system of record for all data.

  3. ERP functionality is used — even when it is weak in a particular area.

  4. Integration should be avoided.

Earth

The History of Mistaken Centric Thinking

ECS has many historical precedents. For the longest time, the Earth was considered the center of the known universe. Galileo created a huge stir when he said.

“…No, the Sun is actually the center.”

Telling people that what they think is the center isn’t is a dangerous business. Galileo was almost killed by the Roman Inquisition in 1633 for this observation.

Galileo

It was later found that Pope Paul V suffered from Earth Centric (EC), which is an early precursor to what we now call ECS. What this shows is mistakenly thinking that things that are the center that isn’t, goes back nearly 400 hundred years.(1)

ECS

The Effects of ECS

ECS is continuing to affect management and executive decision makers, and it has the following symptoms: 

  1. Thinking that the very limited functionality in ERP systems can meet all the company’s requirements.
  2. Consistently approving new requests for enhancing ERP to build common, high maintenance functionality, that should be fulfilled with applications outside of ERP.
  3. Repeating statements from the 1980s made by ERP sales people.

Myth

Those suffering from ECS don’t know that the idea that ERP could meet all or almost all requirements was never true. It simply started out as something that ERP vendor marketing departments made up; that was then promoted to executive decision makers by account executives.

These same ERP vendors who promoted ECS thinking soon abandoned the idea when ERP vendors started to buy other systems that they could also sell. However, those who suffer from ECS never got the memo.

Is There a Cure for ECS?

Fortunately yes, as bleak as ERP-Centric Strategy can seem, there is a cure. However, it’s not in the form of a pill. Executive decision makers can recover from ECS there is not anywhere you can go for treatment. There is no Betty Ford Clinic for ECS….not yet anyway.

ECS can be beaten, but important realities must be acknowledged to put someone on the road to recovery. Some of these are listed below.

  • The Big Tent Concept: ERP is simply a large footprint application that provides some functionality areas under one “roof.” It always needs other systems to do work in specific areas.
  • Getting Real on Spreadsheets and Customization: Spreadsheets and customization are performed when the ERP system cannot meet the business requirements. If customization is written, then the application is not meeting the demand, and one is at that point on par with using an external application.
  • Refocusing on the Objective of Enterprise Software Purchases: The objective to get business value out of the purchased solutions, and these means that applications must compete with one another by this concept.

Help

Offering a Helping Hand for the Afflicted

I have studied ECS for a long time now and having seen the effects up close and personal. At first, I used just to scratch my head, but now I see it’s a real medical condition.

While not a physician, I have still successfully shown CIOs in companies that they can use point solutions to enhance their enterprise software categories, and that they don’t have to feel shameful about not “getting more out of the ERP system.”

Brain Gears

I also have a book titled The Real Story Behind ERP: Separating Fact from Fiction. This book can help stop ECS in its tracks, and it explains the entire history of ERP marketing, and then what happened in reality, and paradoxically how no one who said all the things that were used to sell ERP felt guilty afterward.

If you know someone who has ECS, send this book to them. I know that together we can beat this disease.

References

Brightwork Explorer for ERP Parameters

How to Tune ERP Systems

ERP applications require MRP parameters to be optimized externally to the ERP system. Having analyzed many ERP systems, we developed the Brightwork MRP & S&OP Explorer. It is free to access until it sees “serious usage” and is free for students and academics. Click the image to find out more.

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

1. Threatening to torture and kill Galileo is as one imagines for something he was right about is very embarrassing for the Vatican, yet there was someone, a Giovanni Battista Enrico Antonio Maria Montini, who actually choose to take the name Pope Paul the VI.

This was in 1963 mind you. Now you can choose any name you want as the new Pope. However, one has to ask, what was the mentality of the guy who wanted to be the 6th Pope Paul?

How to Understand the Problems with Bias in Enterprise Software

What This Article Covers

  • The Objectivity of Those that Work in Enterprise Software.
  • The Hidden Income that Gravitates to Those that are Subjective.
  • Why Being Objective is Bad for One’s Career.
  • The Assumption of Objectivity from Information Providers.

Introduction

This sub-blog focuses on how little evidence there is that the most popular software category in enterprise software — ERP — provides benefits beyond costs to the companies that implement it. This is the topic of my book The Real Story Behind ERP: Separating Fiction From Reality.

However, ERP systems continue to be popular, and beyond that, there is zero questioning regarding ERP.

The lack of objectivity extends to just about every other area of enterprise software. Here are some examples that I have witnessed.

  1. Most software vendors exaggerate how good their application is versus the competition. They not only amplify to prospects and clients, but to anyone they interact with.
  2. There are very few employment positions where one can be objective without negatively affecting one’s career. Obviously, if one works for one software vendor, one cannot say good things about competing for software – however, the lack of ability to be objective extends to consulting companies and IT, analysts. As a consultant working for a consulting company, the policy of what software to recommend is made at a very high level with those below senior partner positions having substantially no input. As an IT analyst, due to the need to sell services to software vendors, one cannot realistically be objective as an analyst and expect to have a good career. IT journalists also must write articles that pass their editor’s review, and that means those that make their advertisers happy — which are the large consulting and software vendors. Conferences also have specific funders and do very little to mitigate the bias of the presenters that provide information to the conference attendees.

Conclusion

There is essentially no objectivity in the enterprise software market because there is no way of making a living from being objective. All the income resides on the side of being subjective. Much of how the revenue flows to influence bias is hidden. For instance, some journalists received direct payments from software vendors.

Consulting companies recommend one software application, but don’t mention that their opinions are highly influenced by the fact that they can make the most money from that particular application.

Gartner and other IT analysts hide the fact that they receive income from software vendors, they also hide who they receive income from, and there is no way to find out — either from their website or even from their annual reports. Rather than declare their sources of revenue,

Gartner proposes that their funding is irrelevant and that they have an ombudsman, which is a false position that in effect does nothing to mitigate the effects of vendor money on Gartner, but instead acts as a PR function, to convince customers of Gartner’s objectivity. It allows Gartner to continue to take large sums of money from the biggest software vendors — which then highly influences their ratings — that they then also sell to enterprise software buyers. This is all covered in the SCM Focus book, Gartner and the Magic Quadrant: A Guide for Buyers, Vendors, and Investors.

Interestingly, there is the assumption that information that is provided — either by consulting companies or IT analysts or other entities is objective — if this were not the assumption that there would be little reason to listen to information in the first place. Furthermore, almost every entity that provides information in the enterprise software space claims they are objective. They just happen to hold the views that line up 100% with their career and compensation structure. It is truly an amazing coincidence.

References

Brightwork Explorer for ERP Parameters

How to Tune ERP Systems

ERP applications require MRP parameters to be optimized externally to the ERP system. Having analyzed many ERP systems, we developed the Brightwork MRP & S&OP Explorer. It is free to access until it sees “serious usage” and is free for students and academics. Click the image to find out more.

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

How Much Money Has Been Wasted on Oracle and SAP ERP

 What This Article Covers

  • Background on the Waste with Tier 1 ERP Systems
  • The Team Effort for Required for the Analytical Failure
  • Tips for Interpreting the Book

Introduction

In the book The Real Story Behind ERP: Separating Fact from Fiction, extensive research performed by SCM Focus is presented — and the conclusion is that ERP was never proven to improve either the operations or finance of any company. Furthermore, one after another prediction made by — particularly the Tier 1 ERP vendors never came true.

The uncovered story of how ERP software become the most popular category ever developed within enterprise software. This was done without any evidence that it could either pay back the enormous investment it required, could improve the return or efficiency of applications which were connected to it. Or even reduce the integration costs incurred by IT departments relates to a central problem in IT decision making, which is explained in the quotation from the book below:

  1. Accepting Simplistic Explanations: Companies tend to be easily influenced by oversimplified rationales or logics for following particular courses of action. This will repeatedly be shown in this chapter. If the executive decision-makers had known technology better, and if they had studied the history of both enterprise software sales methods there is no way that the simple logics that were so effective in selling ERP would have worked. Another way of looking at this is that it was simply all too easy.

The Team Effort for Required for the Analytical Failure

It was a team effort to make such poor decisions, and the research shows repeated unsubstantiated comments made by both IT analysts as well as consulting companies. The book chronicles evidence-free statements made by the most prestigious IT analysis, consulting firms and from enterprise software media. What is clear is that most of the entities which put out articles on enterprise software combine both a financial bias with an inability to perform original research — or even to review research that should not have been that difficult to find.

Tips for Interpreting the Book

The first step for readers — and it is a big step, is to review the evidence presented in the book to understand what transpired in an over 30-year misinformation program. Because ERP is now so ubiquitous, it is assumed that ERP is necessary — even if it does not provide any payoff. However, there are a large number of flaws in this common assumption. “ERP” is some things. First, it is a concept, which is defined by the book as the following:

“Conceptually, ERP is a combined set of modules that share a database and user interface, which supports multiple functions used by different business units.”

However, it is more than this idea and the following are just some of the aspects of ERP that are covered in the book.

  1. ERP as the Central System: ERP is also a philosophy that ERP should be the center of the IT system – when in reality it is simply another application.
  2. Functionality if of Secondary Importance: ERP takes as a foundational assumption that functionality is secondary in importance to integration — which was never true. In fact, the benefits of all software — enterprise or consumer — are what the application can do. Integration is a consideration, but it can never be the driver to what software to purchase. ERP vendors were not only able to get companies to implement common functionality which resided in the ERP application, but also in the standard feature in uncompetitive non-ERP solutions that they sold. ERP vendor, and their partners — the major consulting companies, are significantly responsible for the low efficiency of enterprise software as so much standard and low functioning software has been implemented by ERP vendors at so many companies.
  3. ERP as a Method of Account Control: ERP – as practiced by both Tier 1 and many Tier 2 vendors are connected to anti-competitive practices which are centered around account control. In the grand strategy of the Tier 1 ERP vendors, the ERP system serves as “the wedge.” Once the ERP vendor has sold the ERP system, the ERP vendor has both the established relationships and from there uses a variety of logical fallacies to take over as much of the IT business of the customers as possible. The eventual goal gobbles up as much footprint as possible and to turn the IT department into a passive and controlled entity which implements the software it tells it to.

Conclusion

The book includes specific examples of how ERP limits companies which are listed below.

  1. Case Study #1 of ERP Misuse: Managing the Bill of Materials/Recipe
  2. Case Study #2 of ERP Misuse: Disabling the Enterprise for Collaboration
  3. Case Study #3 of ERP Misuse: How ERP Undermines Internal/External Planning
  4. Case Study #4 of ERP Misuse: Intercompany Transfer

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.

Brightwork Explorer for ERP Parameters

How to Tune ERP Systems

ERP applications require MRP parameters to be optimized externally to the ERP system. Having analyzed many ERP systems, we developed the Brightwork MRP & S&OP Explorer. It is free to access until it sees “serious usage” and is free for students and academics. Click the image to find out more.

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

Do Non Manufacturing Distribution Companies Require ERP?

Executive Summary

  • Background on OEMs that do Not Need to Explode the BOM
  • Does A Company That Performs No Manufacturing and No Distribution Require an ERP System?
  • Alternate Designs to Exploding the BOM with MRP.
  • If MRP is Required, Must it Come From an ERP System?

Introduction

In this article, we investigated what happens when an OEM performs no manufacturing and an alternative model to the convention design — where the OEM runs MRP and explodes the BOM. In one alternative, MRP is run by the OEM, but only for the well-finished level. In this article we take this thought exercise to one following level — and this third scenario is where the OEM also performs no distribution. In fact, many high-tech OEMs outsource not only manufacturing but distribution as well. However, most consulting companies follow a standard policy of recommending ERP implementations to their clients.

Why?

This is done not because there is any evidence that ERP systems provide a financial return (they don’t as is explained in the SCM Focus Press book The Real Story Behind ERP: Separating Fact from Fiction.)

Consulting doesn’t know or care much what works for their clients but are intensively driven to maximize their revenues — which means software categories which maximize the revenues of consulting companies will be recommended. ERP provides a negative return on investment, even for enterprises that have most of the business processes covered by ERP systems, but can be especially poor values for companies that cannot use ERP systems for much more of a minority of what they do because they do not fit the ERP cookie cutter design. To see why this is the case, let us look at the application components of ERP systems:

  1. Sales
  2. Materials Management/Distribution
  3. Production Planning
  4. Finance and Controlling

For many high-tech OEMs they, as we have just discussed do no production or distribution, so they have no use for two of the standard application components of any ERP system. As for the Sales component, this is an entertaining area.

How About Sales and Finance?

What is happening is that CRM is encroaching on the standard sales module of applications like SAP and Oracle. Increasingly solutions like Salesforce can provide most all of the functions of the sales module of ERP systems — and they are far easier to use, and allow a true connection to the sales force. Specific best of breed applications for sophisticated functionality such as pricing can be added at a higher functionality level than anything offered by the major ERP vendors. This leaves the finance module – which any company requires. The finance module can be acquired with a system such as Financial Force, which is pre-integrated with Salesforce and is native to the Force platform, or Intacct, which also provides easy to integrate stand-alone finance application, and which is capable of scaling to the accounting needs of even large companies. However, the original argument, or should I say one of the major original reasons for ERP system acquisition was that one could use all of the modules of an ERP system and they have been fully integrated (sit on the same database, no interfaces, etc..) However, while this may apply to many traditional companies – it in no way applies to many other businesses that do not perform all the traditional functions of a manufacturing company. Here is why:

  1. The ERP system may be integrated, but these high-tech OEMs have little use for the set of functionality that ERP systems offer.
  2. ERP systems are a significant expense, much larger than anyone originally projected. It is laughable now, but ERP was originally planned to decrease IT costs. This is probably the point where anyone who has worked in ERP sales will want to stop reading. This is because promoters of ERP systems have been proven wrong on every one of the major logics that were used to justify ERP (as is covered in great detail the SCM Focus Press book The Real Story Behind ERP: Separating Fact from Fiction). And this applies in particular to Tier 1 ERP vendors and becomes less and less true, and one moves through the Tier 2 and least true as one moves to cloud-based ERP.

Alternate Designs to Exploding the BOM with MRP

  1. The Alternative Design 1: MRP at Finished Good Level at OEM

The Benefits of the Alternative Design

The OEM gets a much easier and lower cost to maintain the system, and the complexity manufacturing is moved to where it should reside, at the CM as they are planning the production. Some companies attempt to prepare their CM/subcontract suppliers actively. This can work when the OEM is a sizable part of the demand of the CM/subcontractor (and there are still complications in this – a detailed explanation of the type of software that can relatively easily handle this requirement is covered in the SCM Focus Press book  SuperPlant: Creating a Nimble Manufacturing Enterprise with Adaptive Planning Software) if one represents only a small fraction of the demand for a CM/subcontractor capacity, it makes little sense to model this plant – in fact, it is highly unlikely the CM/contractor would be willing to share capacity information – it is simply not worth their time.

If MRP is Required, Must it Come From an ERP System?

In Alternative Design 1 above, MRP is still performed for the well-finished level. Wouldn’t an ERP system be required to run MRP? Actually no. MRP functionality can be purchased at low cost compared to a full ERP system. Demand Works Smoothie runs MRP and does so with overall functionality and usability, which is superior to any ERP system that SCM Focus has tested – which includes all Tier 1, and several Tier 2 as well as multiple clouds based ERP systems. More on this topic is covered in detail in the article Why Not All MRP Systems Are Created Equal.

Conclusion

The answer is that for many companies that do no manufacturing or distribution even, do not require an ERP system. Instead, they can combine much high value best of breed applications at a fraction of the cost and long-term total cost of ownership, while increasing their flexibility. More on this topic will follow at this site, as we will release portions of insights from upcoming books on these subjects.

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.

Brightwork Explorer for ERP Parameters

How to Tune ERP Systems

ERP applications require MRP parameters to be optimized externally to the ERP system. Having analyzed many ERP systems, we developed the Brightwork MRP & S&OP Explorer. It is free to access until it sees “serious usage” and is free for students and academics. Click the image to find out more.

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

http://www.sciencedirect.com/science/article/pii/0272696381900310 MRP. Accessed October 18, 2013. http://en.wikipedia.org/wiki/Material_requirements_planning

Should OEMs with CMS use MRP and BOM Explosion?

What This Article Covers

  • How Much Does MRP and BOM Explosion Help Companies that Use Contract Manufacturing?
  • Do Companies that Outsource Need to Have a Manufacturing BOM in Their Supply Planning System?
  • The Alternative Design 1: MRP at Finished Good Level at OEM

How Much Does MRP and BOM Explosion Help Companies?

There is little doubt that the introduction of MRP took a great deal of the effort out of the supply and production planning process and by automating the process of supply and (initial) production planning and of BOM explosion. A review of the research on the benefits of MRP is available in this article.

An Approach That Becomes Dominant

For the past several decades MRP/DRP and ERP have become dominant concepts, The general thinking has been the following:

  1. All companies must acquire and implement ERP systems. A good example of this mindset is found in a white paper written by Aberdeen titled — To ERP or Not to ERP: In Manufacturing, It Isn’t Even a Question. This paper did not analyze any of the previous research on ERP, but simply reviewed the opinions of manufacturers, which favored the continued implementation of ERP.
  2. All companies much maintain a full BOM and explode this BOM using MRP or using other supply planning/production planning methods to accomplish the same objective.

However, is this always the case?

For companies that perform their production, some supply and production planning system – be it MRP or MRP substitute is a necessity.

In the last few decades have shown the rise of companies that design, but do not manufacture their products. This is, in fact, the common approach among high-tech OEMs.

So let us first review what MRP does.

  1. BOM Explosion: Automates the calculation of input products (raw material and components) which are necessary for a particular quantity of desired output products (finished goods). BOM explosion is one of the foundational functionalities within all supply planning system. All companies need to multiple the number of finished goods by the bill of material (production or procured items), and BOM explosion is how that is accomplished.
  2. Inventory Netting: Reduces the forecast + sales orders by the planned on hand from the planned inventory position.
  3. Inventory Planning: Calculates reorder points, safety stock, etc..
  4. Purchase Order Creation: In the quantities and the adjusted for the lead time required to meet the demand date.
  5. Production Order Creation: In the quantities and the adjusted for the lead time required to meet the demand date.
  6. Create Stock Transfers: This is technically not part of MRP but is the output of DRP — however, when people refer to “MRP systems” they are referring to both MRP/DRP, as they work in conjunction. A system with only an MRP procedure would have no way of creating stock transfers and moving stock through the supply network.

Now let us review how these MRP/DRP functions are used or not used by companies which outsource their manufacturing:

  1. BOM Explosion: No (BOM explosion is sometimes performed by the OEM, but other times the BOM explosion is often carried out by the outsourced factory in their MRP or other supply planning system)
  2. Inventory Netting: Yes
  3. Inventory PlanningYes
  4. Purchase Order CreationYes – but only at the good finished level.
  5. Production Order Creation: No
  6. Create Stock Transfers: Yes

Therefore, even companies that outsource all of their manufacturing still need to use an MRP or other supply planning system.

There are other ways to perform these same activities — and all the more advanced supply planning/initial production planning methods provide the same categories of output. This article is about sticking to the simpler side of the supply and production planning continuum, and so MRP/DRP is still useful.

Do Companies that Outsource Need to Have a Manufacturing BOM in Their Supply Planning System?

I want to be careful to be specific here so as not to cause confusion.

  1. Design BOM or Manufacturing BOM?: There are many different types of BOMs, however for our purposes here we only need to be concerned with the design BOM and the manufacturing BOM (or MBOM). The design BOM is as the name implies the BOM that is produced by the engineering and design side of the business.
  2. Must the OEM Instantiate and Maintain an MBOM in their MRP (or other supply planning/production planning) System?: There is no doubt the OEM will have a design BOM. It is their design after all. However, the question is – if they do not perform any manufacturing do they need to maintain the MBOM? The answers are no because the OEM does not need to explode the BOM because they are not communicating with their supplier’s detail below the finished good. This is because the CM is delivering the finished good to the OEM.

The Alternative Design 1: MRP at Finished Good Level at OEM

The OEM can move directly from the forecast for the finished good and then sending the finished goods forecast. This is the same as the OEM procurement plan to their contract manufacturer.

The steps in this process look like the following:

This design can be used with a product called Arena Demand. Arena Solutions, a PLM/PDS vendor, has a soon to be released product called Arena Demand that can allow the OEM supply plan to be aggregated and then exported to a file to be sent to the CM. It would allow the following to be performed.

  • The demand report is intended for general quoting.
  • From a top-level demand plan, the OEM probably would use a spreadsheet and type in the fields themselves.
  • As the CM already has the BOM in their MRP system, they would be able to derive the component demand themselves.
  • The OEM can’t see the component demand (if they don’t run MRP) and therefore Arena Demand enables them to see the component demand based on the supply plan.
  • The OEM can use this information to quote component cost across the market to ensure that each component is taking advantage of the purchase volume planned for the upcoming months.

Arena Demand-2-1

Notice the quarterly supply plan shown above for the two GPS units. This is a finished goods supply plan, and because there is no BOM, there is no necessity for the Arena application to calculate lead times.

That calculating is performed by MRP when the CM has provided feedback to the OEM on the feasibility of the OEM supply plan, and when POs have been sent from the OEM to the CM. Notice that in the upper right corner there is an export button, which is used to export the supply plan to a file.

Also, notice that this is just one possible planning bucket – one can also choose the monthly planning bucket rather than quarterly. Arena refers to this as the “Interval.”

The Benefits of the Alternative Design

The OEM gets a much easier and lower cost to maintain system, and the complexity manufacturing is moved to where it should reside, at the CM as they are planning the production.

Some companies attempt to actively plan their CM/subcontract suppliers, however, while this may work when the OEM is a sizable part of the demand of the CM/subcontractor. And there are still complications in this – a detailed explanation of the type of software that can relatively easily handle this requirement is covered in my book SuperPlant: Creating a Nimble Manufacturing Enterprise with Adaptive Planning Software.

Conclusion

If one represents only a small fraction of the demand for a CM/subcontractor capacity, it makes little sense to model this plant – in fact; it is highly unlikely the CM/subcontractor would be willing to share capacity information – it’s simply not worth their time. Therefore this brings up the question of whether BOM explosion is actually necessary for companies that have outsourced manufacturing.

To learn about the history of MRP see this link.

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How to Tune ERP Systems

ERP applications require MRP parameters to be optimized externally to the ERP system. Having analyzed many ERP systems, we developed the Brightwork MRP & S&OP Explorer. It is free to access until it sees “serious usage” and is free for students and academics. Click the image to find out more.

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

http://www.sciencedirect.com/science/article/pii/0272696381900310

MRP. Accessed October 18, 2013. http://en.wikipedia.org/wiki/Material_requirements_planning

Castenllina, Nick. To ERP or Not to ERP: In Manufacturing, It Isn’t Even a Question, Aberdeen. 2011 http://aberdeen.com/aberdeen-library/7116/RA-enterprise-resource-planning.aspx

I cover BOM explosion in MRP in the following book.

Repair MRP Book

 

MRP System

Repairing your MRP System

What is the State of MRP?

MRP is in a sorry state in many companies. The author routinely goes into companies where many of the important master data parameters are simply not populated. This was not supposed to be the way it is over 40 years into the introduction of MRP systems.

Getting Serious About MRP Improvement

Improving MRP means both looking to systematic ways to manage the values that MRP needs, regardless of the MRP system used. It can also suggest evaluating what system is being used for MRP and how much it is or is not enabling MRP to be efficiently used. Most consulting companies are interested in implementing MRP systems but have shown little interest in tuning MRP systems to work to meet their potential.re

The Most Common Procedure for Supply and Production Planning?

While there are many alternatives to MRP, MRP, along with its outbound sister method DRP, is still the most popular method of performing supply, production planning, and deployment planning. In the experience of the author, almost every company can benefit from an MRP “tune up.” Many of the techniques that the author uses on real projects are explained in this book.

Chapters

  • Chapter 1: Introduction
  • Chapter 2: The Opportunities to Improve MRP
  • Chapter 3: Where Supply Planning Fits Within the Supply Chain
  • Chapter 4: MRP Versus MRP II
  • Chapter 5: MRP Explained
  • Chapter 6: Net Requirements and Pegging in MRP
  • Chapter 7: Where MRP is Applicable
  • Chapter 8: Specific Steps for Improving MRP
  • Chapter 9: Conclusion
  • Appendix A: Calculating MRP