by Lora Cecere’s
“Companies state that they want bold change; but within the company, I find swirling inaction. It baffles me. Why? Companies are at a tipping point. Traditional processes are not sufficient and there is a war being waged between traditionalists and reformers. Within IT organizations, there are many zealots of existing systems. I am speaking to companies that are being held hostage to SAP HANA upgrades with 70% cost overruns and 60% time-schedule expansion. Similarly, SAP Ariba frustration is mounting in the market. I have 15 clients trying to implement Ariba for direct materials, and struggling to make the flows work. Yet, the IT team is still mandating SAP standardization. Why? For many, mandating SAP is job security for the IT implementation team.”
In this post, I am going to make an argument to augment ERP with new cloud-based solutions to improve decision making. I am going to start with the management of direct materials. The headline is parts are not parts. Yes, companies need the right materials at the right time to drive customer service. In today’s world, this is an issue. Here I make the argument for change, and close with insights on two best-of-breed technologies to consider in order to augment direct material processes.
The Driver for Change
Today, management of the supply chain is harder. Supply chain management is more complex. It requires the oversight of a nonlinear, and often very unpredictable, system. Systems thinking is tough for people with a transactional mindset. And we find many teams within a company are very transactional.
Sometimes the changes within a supply chain are subtle, but have a large impact. A slight change within a function—in sourcing or manufacturing, or along the chain—can greatly impact the outcomes of cost, customer service, or working capital. Today’s supply chain—with greater outsourcing, global manufacturing, and complex bill of materials—requires synchronization of the links. Historic processes focus on efficiency within the functions. As a result, the functions do not align to drive flows, and small changes throw the system out of balance. The topic of synchronization is far more complex than the concept of integration. As a result, the processes of yesteryear are not adequate.
Today’s reality is that we have optimized functions, not flows. Organizational alignment is an issue. Bonuses and incentives align with functions and are often counterproductive to driving supply chain excellence.
In parallel, there are also large alignment gaps in planning: the tension between planning and execution. Organizations reward the urgent. Firefighting is the result. Planning is about time to think about the important. When companies are good at planning there is less firefighting. However, when a job combines the urgent and the important, the urgent always wins, and planning gets short shrift. The gaps create waste. Insights and process synchronization help to close these gaps.
More Data Has Not Resulted in Improved Results
While many business leaders believe that Enterprise Resource Planning (ERP) and Advanced Planning Solutions (APS) will be equal to this task, it is not sufficient. In the words of planners, “Through ERP they can see the trees, but not the forest.” Today, over 90% of companies have deployed ERP and APS, but as shown in Table 1, inventory levels have grown, not decreased, in over 80% of industries studied. The largest increase is in Aerospace and Defense (A&D). And while inventories in automotive have decreased slightly, this progress is primarily due to shifting inventory back to suppliers versus overall value chain improvement.