Do you ever think about the evolution of Enterprise Resource Planning systems into Systems of Record? Wonder what implications this has for supply chain professionals?
In the beginning there was Y2K
Those of us who were involved with Enterprise Resource Planning (ERP) and Advanced Planning & Scheduling (APS) systems in the late 90s will no doubt remember the scramble to implement new ERP to guard against the Y2K risk. I was involved in the transition at a major FMCG organisation from our mainframe Cincom Manufacturing Resource Planning (MRPII) system to SAP R/3 (with Manugistics).
We were all told how SAP was going to unlock our data and automate planning processes, and so justifying the multi-million dollar (or in fact British Pound and Irish Punt) investment.
Those of us tasked with delivering this transformation took a more pragmatic attitude. We recognised the need to establish a robust system of record to manage the business and we just needed to work to make sure that we could plan our supply chain as effectively with SAP as we had previously with Cincom.
In the noughties we faced the reality
Throughout the noughties through various organisations the myth persisted that we should expect to deliver the savings that had justified the significant investments that had been made in our ERP systems. By then we realised that the myth of unlocking our data was, in fact, true in the reverse. We tried to educate our stakeholders to understand that true Enterprise Resource Planning required process capability enabled by technology.
Most of us SAP users migrated from R/3 to ECC6 without really noticing. We spent our energies trying to make SAP work for us rather than us for it. We tried to help our colleagues who had given up and reverted to planning in spreadsheets. Those of us at the coalface recognised that SAP’s biggest competitor was Microsoft (Office Excel, not Dynamics).
We wrote enhancement requests for SAP Business Warehouse (BW) reports to ‘unlock our data’, and they sat in a queue for delivery some time well into our more mature years. We watched as our C-suite lamented the resources we had engaged to manage data – and slashed them mercilessly.
Approaching our twenties we matured…
Rolling into the late teenies, things are starting to look up. SAP has finally developed a significantly improved database that truly does ‘unlock our data’. SAP has stopped trying to compete, and now integrates better, with Excel and, in general, is a more user-friendly beast. For example, SAP has developed customisable Graphical User Interfaces that do not require hard coding and therefore should not inhibit in-life patches and upgrades.
SAP has also announced a product roadmap that forces our organisations to stop and think about their IT strategy, rather than just going with the flow. There is now a recognition that spending on an ERP System of Record, like spending on an audit or accommodation for employees, is a necessary business expense that is unlikely to deliver competitive advantage and should not need to be justified in itself (rather, a business case should examine the various options for performing this necessary function). Even what was previously described as an Advanced Planning System is now regarded by Gartner as a ‘Planning System of Record’.
The old artificial boundaries between ‘business’ and ‘IT’ supply chain professionals are blurring. We now have a pragmatic understanding of how to bridge the difference between what the software salesperson promises and what is actually delivered, and all ERP presentations start with that important disclaimer making it clear that we should not believe everything we see in the brochure.
Finally, everybody is talking about Industry 4.0 and analytics, so our C-suite are now asking us how we are going to invest in big data to drive competitive advantage. So how should we capitalise on this opportunity?
How to deal with our ERP midlife crisis…
Leading FMCG organisations now have ERP/APS under control and working for them to deliver competitive advantage in their supply chains. This has been a journey in which they have invested significantly. They have been able to attract and retain the most capable supply chain and ERP/APS professionals who have worked tirelessly on this challenge.
For smaller FMCG organisations, and other industries where supply chain has not historically been such a differentiator, the challenge still remains. Supply chain managers are left wondering how to start to make more progress on catching up. Unlike the top global FMCG leaders, these other organisations are not going to be able to attract, retain and develop the lion’s share of the most capable global supply chain and ERP/APS talent, especially in more remote global outposts. They do, however, need to have a strategy to nurture supply chain ERP/APS capability. This is likely to include a mixture of organisational design, recruitment, training, incentives and coaching.
Some businesses also need to have a strategy to make things simpler as an alternative to investing in capability. They also need to recognise that many ERP-supported supply chain processes may not have been well-defined or understood in the resource constrained ERP/APS deployment, or the process definition may have not evolved since the initial deployment and therefore bears no relation to what anybody actually does any more.
Certain ERP capabilities that are not at all used by the supply chain FMCG leaders (notably Project System) or certain industry solutions (e.g. Oil & Gas or Defence) have not been subject to the same breadth of deployment scope or rigorous challenge from a capable user base as the core business modules (like Finance, HR, Material Management, Production, Sales & Distribution). In these areas there is still an important role for pioneering clients or user groups to push back on the ERP developers asking them to develop their functionality to properly support the industry specific requirements.
SAP Hana as an Inflection Point
For those of us who use SAP, Hana is a significant technological advance that dramatically increases the power of the ERP core database engine. It’s like the difference in start-up time between an iPad and a PC with a hard drive. Data that is needed quickly is held in a microchip rather than a spinning magnetic disk so it can be read much faster.
Hana is already starting to have a huge impact with SAP’s Business Intelligence (BI). The reporting capability is significantly enhanced. No longer does the BI reporting database need to be significantly limited in scope for performance reasons. Pretty much the entire global SAP database can now be made available with standard database extractors set up as memory resident queries.
The increased native scope of the BI database, coupled with advances in web-based graphical user interfaces, means that business super users can be given significant freedom to enhance or build their own reports. This significantly reduces the complexity, lead-time and development overhead for BI solutions but requires a new type of skills in business users and IT support. The more powerful BI database also helps outbound interfaces, as they can now use a BI based architecture that removes constraints on the core ERP database performance.
SAP is migrating its core ERP from the current version (ECC6) to the Hana-based S/4 Hana. Like previous transitions, users will be forced to migrate away from ECC6/APO, but it will not be such a simple choice as the previous R/3 to ECC6 transition.
The capability of Hana means that some APS functionality will migrate to ERP. Although Integrated Business Planning (IBP – SAP’s APS successor to APO) will now use the same database engine as the ERP, it looks like it will only be offered as a cloud-based solution that might not suit everyone.
APO is now languishing in the uncherished bottom left corner of Gartner’s magic quadrant for Planning Systems of Record and, whilst already plugging some long-term gaps in support for management level dashboards / sales & operations planning functionality, not enough is known about IBP’s full end-state functionality to even make a place in the Gartner magic quadrant.
Indeed, Gartner’s magic quadrant for Planning Systems of Record certainly only tells a small part of the story these days. Leading FMCG supply chain organisations are supplementing their APS with best-of-breed planning applications for specific functions, such as demand sensing or inventory optimisation. This is much easier to do now than it ever was before. Modern technology, advances in interfaces and the simplicity of implementing cloud-based SaaS systems help all companies partner to develop supply chains that can start to compete with the industry leaders. The organisations developing these Planning Systems of Differentiation often do not have sufficient revenue or breadth of scope to make it anywhere near Gartner’s magic quadrant.
Some of the Planning Systems of Differentiation are not even systems. A number of the supply chain leaders, and some of the less mature organisations that just want a simpler approach to managing their supply chains, are adopting Thoughtware instead of Software, and using DD-MRP as a radically different supply chain planning approach to the traditional APS/MRPII model.
Big Data… Big Deal?
Exploiting the opportunities presented by big data may seem like a pipe dream to the supply chain manager struggling to get to grips with process compliance and poor data quality in their own ERP or APS. Indeed, I must confess coming from a similarly sceptical position when pitching an innovative analytic solution for inventory planning to a software vendor who specialised in master data management.
The software vendor’s CEO was very interested but ultimately declined to support the pitch, believing that Industry 4.0 and an increased focus in master data would keep them more than busy enough in their core market. With the benefit of the passing of only nine months since that incident, I now accept that the CEO probably made a well-informed and wise decision.
The lesson learnt from this is that getting the basics right with master and transactional data is also going to start being a lot more sexy than it used to be. Organisations are going to need to start crawling with data before they can walk or run, and will need to start taking action soon. The good news is that the companies that are really leveraging data now (like Google or Amazon) do not compete in all our industries. Most of our industry peers are facing the same issues that we face – we have not yet been left behind.
The risk, however, is that, unless we start to get our data in order soon, either our competitors, or a more nimble start-up, will be better placed than us to exploit the new opportunities. Master Data Management, Governance and Data Metrics are terms previously bandied around by data architecture geeks who were the sort of people that we avoided at work Christmas parties. We now need to understand what they do and establish strategies to address the issues that they espouse.
With almost two decades of experience, now we are more realistic in our expectations and regard our enterprise backbone as a System of Record rather than an Enterprise Resource Planning System.
With this in mind, and taking into account wider trends in industry and society, we need to refocus our attentions to ensure our System of Record better supports our supply chain.
Sam Wardill is a senior manager at GRA Supply Chain Consultants. Over the last two decades Sam has worked at both strategic and operational levels across FMCG, Pharmaceutical, Utility & Energy sectors to manage and deliver supply chain value. Sam has deep experience in supply chain inventory planning and performance management, supported by effective use of ERP, APS and BI systems (particularly SAP). He is a Chartered member of the UK Institute of Logistics & Transport and holds Masters degrees in both engineering and business administration. For more information visit www.gra.net.au.