In our last post we said that If You Still Rely On ERP, You Could End Up in the Supply Chain Disaster Record Books, and we meant it. Over-reliance on outdated and antiquated ERP systems is just a disaster waiting to happen, and here are just a few reasons why in half a dozen supply chain areas.
Sourcing and Contract Management
A critical requirement of a multi-round RFX or multi-round negotiation is the ability to support multiple prices at different volume levels and price history. One of the biggest ERP systems on the market today still does not support this simple, basic, requirement. It’s crazy, but it’s true. And without the ability to store proper prices, volume breaks could be missed and millions could be lost.
A critical part of Procurement is m-way matching between the invoice, purchase order, and goods receipt. And a critical part of procurement performance management is tracking each mismatch. How often does a supplier over-bill? How often does a supplier under-ship? This can only be tracked if there is a complete invoice history, but many so-called “modern” ERPs only allow for one version of an invoice. So when it is corrected, the history is lost. And a supplier’s true performance is never known. Performance that could cost you dearly if an under shipment results in a stock out that costs millions in revenue.
A critical part of logistics is tracking not only order dates and received dates, but required ship-by dates, receive-by dates, and outbound ship-by dates to avoid missing customer requirements. Some ERPs can only track the date the PO was cut and the date the goods were received — that’s not enough. Another critical part of logistics is ensuring that each carrier has enough insurance to cover the replacement cost of the load, which requires tracking the cost of the load and the insurance coverage of the carrier. With respect to this, the best the average ERP system can do is allow you to look up the PO total and, if you are lucky, extract the last copy of an insurance certificate stored as a PDF in a blob or similar structure in the document store. No meta-data to tell you what’s in the certificate or if it’s even still valid — which could expose you to a huge liability.
Most ERP systems are still using 20 year old forecasting models, and look at what these models did for Cisco and Nike! Should you still be using them?
Most of these systems were built before the introduction of acts like 10+2, REACH, SOX, and WEEE — acts which require you to track, report, and store certain data to maintain compliance with these acts. Compliance which is critical to avoid fines, penalties, seizures, [temporary] business closures, and even criminal charges. Compliance which is not maintained by ERP systems that aren’t set up to store all of the data required on an import/export form, track detailed BoM (Bill of Material) data to ensure acts like REACH and WEEE are not violated, and the detailed audit trails required to satisfy SOX.
While there are a plethora of risks that can not be predicted due to their nature (like natural disasters, geopolitical uprisings, etc.), there are a plethora of risks that can be predicted with high likelihood if they are monitored for. However, this monitoring depends on the availability of good data. For example, supplier failure can often be predicted if the organization monitors shipments, third party risk data, and market data. If shipments get progressively later, contain higher defect rates, and third party financial ratings for a supplier get weaker every month, that’s a sign of supplier distress and a potential bankruptcy, and it’s critical that the buyer assess the supplier’s health and monitor the situation. This will only be detected if the system tracks delivery dates and defect rates, third party data, and appropriate econometric models. However, all most ERPs track is good receipt dates and returns (but no meta data tying them to orders to calculate defect rates). No market data, no financial ratings, no modern econometric models. No way to detect imminent disaster.
And this is just a short list of ERP failings that could bring imminent disaster. To find out more about ERP’s shortcomings, if you still have not done so, (register for and) download the recent white-paper by b2bconnex on Why ERP is NOT Enough. The sooner you learn this, the sooner you can correct the situation and join the leaders with a modern supply chain.