The Problem with Being Trapped by ERP

Executive Summary

  • ERP systems were introduced with great promises and fanfare, pushed by financially incentivized entities.
  • Now decades after, the research shows few benefits to ERP, but high costs. And customers are trapped in their ERP.

Introduction

ERP systems were aggressively marketed as fixing nearly all the ills that companies faced. In our book The Real Story Behind ERP, we evaluated all of the academic research and found that ERP systems have no history of producing an ROI. A major reason is that ERP systems are simply not that advantageous, they impose high maintenance costs, and the implementations of ERP have become parasitized by consulting companies that increased the costs of implementations, as we covered in the article How Vendors and Consulting Firms Parasitized the ROI of IT.

Out of the Fantasy Stage of ERP and Into the Reality Stage

In the 1980s and 90s, the case was frequently made the ERP systems would be transformational. They would become…

“The only system that any company would ever need, eliminating the overhead of integration between many systems and bringing best practices to companies globally.”

In the modern age, now that nearly every company has an ERP system, its much less common to hear such rosy projections about ERP. What has replaced the hallucinating is pragmatic discussions around how an ERP system is a “necessity.” However, another observation is that companies can’t leave ERP systems because they have invested so much into them, and this means they are essentially trapped.

The following quotation highlights this exact issue.

“Granted that most ERP systems do not live up to expectations but what is the alternative? Having best of breed systems in the cloud is not going to help either. It will only result in more integrations and more potential for errors. The problem that most organizations face is that they have already implemented an ERP system. Now all their digital transformation initiatives result in quick and (dare I say) agile cloud solutions / mobile apps which then need to be integrated back to either the ERP system or a reporting solution/ data warehouse. Therein lies the problem. Customer information is now spread across multiple systems and someone in the organization suddenly wants campaign analysis or better still an AI analysis that needs information from ERP and other systems. And obviously the ERP system should now do this instantly or else it gets tarred with being slow and unresponsive.” – Jayshree Ravi, ERP Manager 

And the following quotation.

The most important solution ERP systems offer is that there is a single data structure supporting them. The most important disadvantage is that the single data structure inherently needs to be very complex and can hardly be used other than for transactional processing. Bottom line ERP systems replace good data architecture, which should form the basis of tooling choices, allowing a best of breed policy to be followed.” – Maarten van der Heijden

And the following..

I’ve observed the entire life cycle of ERP. Great analogies about the shift of previous industries. I’ve always thought ERP systems delivered a fraction of the promise and have always been really, really expensive FinApps. Sort of like sails that only capture 10% of the wind. ERPs should be kept on life support. Don’t yank it out. Don’t upgrade it. And for heaven’s sake, don’t replace it. A comment made earlier about the robust nature of the ERP ecosystem and sales/marketing influence is not to be ignored. Hopefully, since ERP’s have been ineffective since their inception all the ERP fanboys at the customer retire and the next generation strip ERP down to its value. Maybe stop paying maintenance contracts and support staff to patch the holes in the ERP sail and apply 75% of that savings toward tools that actually enhance your enterprise. Better systems and process, happier users/employees and a 25% savings to take into the board room? That’s an agenda any executive would be happy to support.” – Steve Christensen

How Really Likes ERP Systems?

Well, it certainly is not customers!

Having been on many customer accounts there is never much excitement when discussing the company’s ERP system. Mostly is it “just there” and is something to contend with, something in many cases to work around, rather than anything viewed as enabling the company. ERP systems were not supposed to need so many interfacing systems, but it turns out that the ERP system alone can’t do much more than the basic “blocking and tackling” needed by a company to account for inventory, post goods issue and manage the books. It is not that these are unimportant things, certainly, they are critical, but ERP systems have not demonstrated they are capable of much more than this.

However there is a category of people that are very impressed with ERP systems, and this is invariably ERP consultants. They are the most assertive proponents for ERP, not the buyers of ERP systems, and certainly not the users of ERP systems. When the strongest proponents of something are those that sell or install or service that item…..this naturally brings up questions as to the value to the consumer of that item.

Getting Out of the ERP Trap

Many have resigned themselves to the ERP trap. However, there are ways of either escaping the ERP trap or minimizing the ERP inefficiencies imposed on companies.

One thing to consider is that ERP systems impose high costs and mediocre functionality on a customer. So it is not only the cost side but the functionality that is worse than alternatives.

Considering the Resources that ERP Annually Consumes

The first thing to dispel is that there is something magical about combining a number of modules and calling it ERP. It isn’t. The idea that investing in ERP over custom applications would provide a significant benefit did not pan out. There is nothing to say that this can’t be reversed, then a major problem is that ERP is consuming so many resources every year. This was the genius of ERP marketing, and once you got in, it became difficult to get out. So in the short term moving away from ERP will be probably more expensive. However, to get out of the clutches of an ERP vendor can in many cases be worth it. One way to cut the umbilical cord is to drop support and go with outside support. That will save money every year. Then one can begin to carve up the ERP system and migrate pieces to new things — this can be customized code in some cases, a best of breed solution in other cases.

Specific Areas of ERP that Can be Remediated

Let us take the topic of forecasting software. Some companies were told their forecasting would be covered in ERP. That was never true. There are great forecasting applications out there that can be used that actually allow the forecast accuracy to be improved. Let us take MRP and supply planning. Doing MRP in ERP is a ticket to adverse outcomes, which we covered in the article. Why Do Companies Use ERP for MRP?. That functionality can be migrated to a custom solution on AWS at low cost with vastly superior run times and outcomes in Real Time MRP. Order management is easy to improve with an outside web-based application, and at low cost with better integration to CRM. There are some excellent pure financial applications out there, or the finance portion can be kept from ERP for a while. Finance is most of what ERP systems have to offer in any case. Being stuck with ERP will increasingly hold a company back, and I see a swing back to custom solutions. This is being promoted by cloud services that make most of the ERP systems look entirely backward. Finally, the concept presented by ERP vendors is that ERP reduces integration. It does, but only really to the ERP system. However, ERP systems have integration to other systems.

Conclusion

Ahmed Azmi, of Brightwork, has the following to observation on this topic.

“People sometimes ask, if ERP is bad, what’s the alternative?

The comments immediately point to multiple cloud apps as alternatives and say that’s not better because of data silos and integration issues. In my opinion, the alternative to ERP is nothing. Don’t adjust with it if it works for you and do not replace it with multiple clouds. Innovate at the edge and focus on systems of customer engagement. Ask any “thinking” enterprise IT person who runs on-premises what’s your biggest pain been and they will all say integration and data silos. The gaps between departmental apps are so big, companies spend huge amounts of money on integrating data and workflows that span multiple departments. This problem is so big, an entire “integration” sub-industry was born to address it. Notice how much Excel is used at ERP customers to work around those integration gaps?

If the promise of ERP, process integration, was remotely realized by customers, they would never have had to spend so much time, effort, and money on systems integration.”

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.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, tell us your question below.

References

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

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 Myth of ERP Being 90% Out of the Box

Executive Summary

  • ERP vendors nearly always tell companies that the functionality they provide will cover more requirements that it does.
  • This leads to unplanned customization.

Introduction to the Myth of ERP Coverage

ERP systems were first introduced in the 1980s as a single system that would meet all of a company’s needs. Consulting companies helped vendors present this fiction because they made so much money from ERP system implementation.

SAP Promotes the 90% Out of the Box Myth

One of the most assertive promoters of the 90% out of the box myth was SAP. SAP has been extremely assertive in declaring that all systems that exist at an SAP prospect that are not SAP are “legacy” as we covered in the article How SAP Used and Abused the Term Legacy. SAP also promote the false construct that SAP was only built upon best practices, as we covered in the article How Valid are SAP’s Best Practice Claims? SAP argues that companies should implement as much of standard SAP functionality as possible and minimize customizations. However, SAP only offers a portion of the functionality necessary to run companies. This is where the proposal is made to perform business process re-engineering, as we covered in the article Reengineering and its Impact on ERP Sales. Re-engineering was a trend that eventually petered out, primarily because re-engineering projects did not demonstrate the ability to add value to customers.

90% Out of the Box

Even though ERP systems have been implemented for decades and vendors like SAP know that 92% of the ERP systems will be moderately or heavily customized, SAP sales continue to propose to prospects that 90% of their functionality will be addressed “out of the box” SAP ERP. This is one of the significant reasons ERP systems were able to become so prevalent. In this way virtually all ERP systems are sold under a false set of pretenses. In each case, they have to escalate in time and budget because the customization percentage is perpetually underestimated. There was never any effort (by consulting firms, but also by Gartner/Forrester) to illuminate this fact to customers. If someone can make me aware of some entity that did this, I will read it, but there is a peculiar silence on this topic.

Proprietary ERP and High Expense

When a company buys SAP, they also end up with the high-cost ABAP customization environment. They did not have to accept SAP’s recommendation to use ABAP, but almost all of them have. This served as a “double whammy” for the customer. First, they accepted the false assumption that they would only have to perform limited customization. Then when they found out that they would have to customize highly, they were stuck with the ABAP coding and SAP customization environment, which dramatically added to the cost of ERP projects. SAP and other ERP systems have turned out to be high cost closed systems that give the vendors increasing levels of control over the IT budgets of these customers. While SAP is the most difficult broadly sold ERP system to customize, ERP systems have tended to be developed as monoliths, and have been expensive to customize.

Customers that relied upon consulting companies found that the consulting companies were “in on it” and merely repeated whatever the vendors said. This entire system of the undisclosed history of ERP has only helped the bottom lines of consulting companies.

Conclusion

For decades ERP and partner consulting companies have been telling prospects something they know is false. This falsehood is that most of the requirements of the customer will be met by the standard functionality of ERP. Once purchased, proprietary ERP systems have proven very expensive to customize. In this way, and other ways, ERP systems appear to have been a Trojan Horse, allowing entities to take control of IT spends under false pretenses. Interestingly, the companies that have told all of these lies and have so misled their “customers” have not been called out on this inaccuracies. Buy this does explain, or is one of the explanations for the broad negative ROI to ERP systems.

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.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, tell us your question below.

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

SAP Labs Publishes Dishonest Paper About ERP

Executive Summary

  • Interesting Quote on ERP Commodification
  • How Accurate Were the Predictions
  • The Problem with Industry Promoted Fake Research

Introduction

“Some mature information technologies, such as ERP systems and relational databases, are now undergoing commoditization, much like what happened in the automotive and chemical industries over the past 15 years. This trend is accelerating by reducing IT spending because of slowing economic growth.

I see big technology and business model changes coming from ERP. New technology trends such as high-performance computing, pervasive connectivity, Web services, and SOA will affect the front end as well as the back end of ERP.

….an ERP’s average life cycle is about 15 years.”

This is a study from SAP Labs. Interestingly none of these things happened in the roughly nine years since this was published. SOA and web services went nowhere. High-performance computing has had no effect on ERP.

SOA lets developers partition and decouple applications. It provides a bridge between incompatible technologies.

No one did more to undermine SOA than SAP. SAP is based upon coupling applications and restricting competition. Why would they want to decouple applications?

Web services are ideal for letting developers adapt ERP to fast-changing business processes. Web services can be orchestrated to create multi-service business processes that connect via SOA to the robust and reliable back end….

Once again, no one did more to undermine this than SAP. SAP does not want flexibility or open systems. But people who work for SAP Labs are not going to put this in a paper.

Conclusions

This is a completely dishonest paper written by SAP Labs and should not have been accepted as a research paper. There is much more in it that what we have quoted, but it is all primarily self-serving information for SAP, and as we described, none of it came true. It obscures the fact that SAP as a matter of policy undermines the supposed openness trends that are a big part of the paper.

This paper was written by Paul Hofmann who is Vice President of Research at SAP Labs. He has a Ph.D. in physics from Technical University in Darmstadt Germany.

However, this demonstrates that private industry research offerings can’t seem to do much more than serving as marketing puff pieces for the company they work for. This is why private research has such a poor reputation. This paper should not have been accepted for publication.

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.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, tell us your question below.

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

ERP is Deal, Long Live ERP. SAP Labs, Published by the IEEE Computer Society, Paul Hoffman. 2008.