- 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.
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.
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 Bias Disclosure
Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.
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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.
- 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.