ERP becoming a bottleneck within supply chains


ChallengingTheSurf.jpgRecent Gartner research indicates that Enterprise Resource Planning (ERP) systems are showing their age and that, by 2016, it will be common practice to refer to ERP as legacy software.¹ Increasing supply chain complexity, driven by globalisation, outsourcing and widely distributed partner networks, has created challenges that current ERP systems cannot fully address, Tech-Pro Personnel tells SmartProcurement.

Defined as comprehensive transaction management systems that integrate many kinds of information processing abilities and place data into a single database, ERP systems can potentially enhance transparency across the supply chain, leading to significant gains in supply chain effectiveness.²

Yet, while ERP software has delivered transactional efficiency³, many believe that monolithic, all-in-one and highly customised’¹ ERP systems will not be able to meet future SCM needs.

Future supply chain management needs

SCM expertsagree that the key issues facing supply chain management over the next decade will be:²

• Increasing collaboration between multiple, disparate parties in the supply chain will require deeper, cross-enterprise integration of systems.
• The need for more flexible IT systems able to handle rapidly changing SCM needs.
• Consumer demand for mass customisation, which, while increasing product and service offerings, will simultaneously place downward pressure on lead times and inventory.
• Shifting balance of power and ownership, as standard structures cannot be applied across a network of supply chain partners.

Limitations of current ERP systems

Research from graduate business school Insead predicts that on-premises solutions will play “only a modest role in improving future supply chain effectiveness” and that there is a “clear risk of ERP actually limiting progress in SCM”.²

Limitations include:
• On-premise ERP systems are closed applications that were not historically designed to facilitate cross-enterprise collaboration, with the result that data needed for decision-making is frequently out of reach.
• Inflexibility. Extensive customisation has made ERP ‘arthritic, slow and unresponsive’4 to dynamic SCM needs.
• Traditional ERP lacks functionality beyond transaction management and was not designed to offer planning solutions. According to Lora Cecere, founder of advisory organisation Supply Chain Insights, ‘only 8% of companies are satisfied with the ‘what-if’ capabilities of their ERP software and only 22% can get cost data in making planning decisions’.³
• User expectations have evolved. Generic, one-size-fits-all ERP systems are no longer acceptable to second and third generation ERP buyers, who want to access and arrange information from multiple sources in a manner that suits them.5

Despite these limitations, ERP software is set to make a positive contribution to four key issues currently facing SCM, namely standardisation of processes and information, customisation of products and services, globalisation of IT systems and transparency.²

The future

Experts suggest that ERP should be considered as a “partial solution to enterprise and cross enterprise integration, working in conjunction with best-of-breed niche software” – and that the areas to watch include:6

• Enterprise application integration (EAI): An ‘emerging generation of integration software that addresses more effectively the need to integrate both intra- and inter-organisational systems which, in doing so, securely incorporates functionality from disparate applications, combining traditional integration methodologies with new EAI technologies to support the efficient incorporation of information systems’.6
• SaaS (Software as a Service): A‘software delivery model in which software and associated data are centrally hosted on the cloud, reducing IT support costs’.7

Kimberly Knickle, Practice Director at IDC suggests that, with SaaS and mobile computing moving confidently into the supply chain arena, “cloud-based options provide a more flexible way to beef-up supply chain software coffers without having to give up ERPs”.8

Capgemini’s Ben Pivar believes that the “ERP of the future will largely be shaped by the customers that are using it”.8

Is ERP software effectively meeting your SCM needs? What role do you think ERP will play in supply chain management over the next decade? We’d like to hear your views – join our discussions on LinkedIn.

1: ‘Gartner: Today’s On-Premises ERP Systems Will Soon Get the ‘Legacy’ Label, Chris Kanaracus writing for IDG, January 2014
2:‘The Impact of ERP on Supply Chain Management: Exploratory Findings from a European Delphi Study’, Akkermans, H.A; Bogerd, P; Yucesan, E; van Wassenhove, L.N
3: ‘Piece Parts’, Lora Cecere, February 2014
4: ‘Supply Chains and ERP Systems: Not Answer for Today’s Global Company’, Greg Kefer writing for GT Nexus, February 2014
5: ‘Supply Chain ERP: The Ins and Outs of ERP’, Business Excellence Magazine, August 2011
6: ‘Enterprise Application Integration: An Emerging Technology for Integrating ERP and Supply Chains’, Themistocleous, M; Irani, Z; Love, P.E.D
7: Wikipedia
8: ‘Supply Chain and Logistics Technology: ERP vs. Best of Breed’, Bridget McCrea writing for Logistics Management Magazine, July 2013

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