Monthly Archives: May 2015

A Few Reasons Why Your ERP is a Disaster Waiting to Happen

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 Over-reliance on outdated and antiquated ERP systems is just a disaster waiting to happen, and here are just a few reasons why in half a dozen supply chain areas.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.

Procurement

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.

Logistics

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.

Forecasting

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?

Compliance

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.

Risk Analysis

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.

Three Hundred and Forty Five Years Ago Today

One of North America’s oldest companies was founded when the Hudson’s Bay Company was granted a permanent charter to open up the fur trade in North America. At the time its charter was granted, it was the de facto government in parts of North America before other European states and, later, the United States laid claim to overlapping territories.

While it may not be a household Fortune 500 name anymore, and may not have participated in the fur trade since 1987, it was at one time the largest landowner in the world (with 15% of North American acreage). The trade routes that it opened up paved the way for settling, and eventually, administrating in North America, and it paved the way for the colonies. When it signed the Deed of Surrender (on November 19, 1869), its remaining territory became the largest component in the Dominion of Canada, in which the company was still the largest private landowner.

It’s primary business today is, of course, mercantile, as it owns multiple chains of retail stores throughout Canada and the US, and it is still doing fairly well, with Wikipedia listing its 2013 Total Assets at almost 8 Billion Canadian.

What Would the Acquisition of SalesForce Mean to the Procurement Market?

Who Cares?

While the doctor and the maverick see eye-to-eye on a lot of issues, and that’s why they have been collaborating on the new Spend Matters CPO site because there are important messages that are just not being communicated by the new press at large, the doctor believes that the impact this acquisition will have on the Procurement market, as summarized in yesterday’s post on “what would the acquisition of salesforce mean to the procurement market” by the maverick, is not as important as the maverick seems to believe it is.

While the acquisition of SalesForce is an important topic, it’s no more important than the acquisition of any non-Procurement technology vendor. (While some SRM vendors use the platform, one has to remember that it is, at its core, a CRM platform). It’s (primarily) upstream, while Procurement is primarily downstream. While the processes should connect, they are still distinct and, unless you are in the middle of a negotiation, there’s no reason to even think about it as a Procurement issue.

The real issue is what does the acquisition of SalesForce mean to the technology market, and the market at large?

And while the doctor knows that he’s not just stirring the pot but the entire honeycomb on this subject, it’s a subject that needs to be addressed. So what does it really mean?

Simply put, too big to succeed!

One of the biggest problems with the technology market is that the misconception that bigger is better, and too big to fail, is a reality. The whole point of big was to benefit from economies of scale. But economies of scale have a limit. A single factory with a single production line can only produce so much going 24 hours a day. To go beyond that, you have to add another production line, or even another factory. If you do so, and you only reach half of the capacity, you don’t have the same economy of scale on the overage.  The biggest economy of scale was when you were at full capacity on the one line.

In other words, if you expand faster than demand, you waste time, money, and resources. This situation is bad, but the situation that occurs in an acquisition is much worse. Not only do you have more capacity, but you have a huge debt load as a result of the acquisition. So you are paying more to produce, and then you are paying even more to service the debt that you took on to produce more than you needed to.

But even this situation isn’t as bad as the situation where you are talking about technology companies that don’t produce physical goods, don’t have demand that typically rises with population increase or market growth, and have valuations that are many multiples of annual revenue — not profit, revenue. And we all know that the misconception that the product has already been built and the residual cost of sale is minimal is incorrect. Software has to be maintained, debugged, and constantly improved in order to be saleable to the mass market. That is costly. Whereas a product has a single production cost, possibly a single repair cost under warranty, and possibly a single reclamation or disposal cost, that’s it. The cost for each product is essentially one-time, whereas the cost of software is continual and adds up everyday it is in use.

As a result, you have software that typically:

  • cost millions to build
  • costs millions to maintain

and now you want to

  • add millions to the cost just so you can change ownership and assign a different name

It doesn’t make a lot of sense. Especially when you are talking about the acquisition of an 800 lb gorilla which already has a (relatively) complete solution. In this situation the acquirer is essentially admitting that either

  • its solutions are totally inadequate and it wasted millions of its customers dollars on its solutions (versus realizing that it has some good solutions, is missing a few key elements, and just needs to acquire a few point solutions from smaller vendors to fill the holes) or
  • it has no inherent capability to enter the space (and maybe it shouldn’t be entering the space to begin with).

And the acquiree is essentially admitting that

  • it cannot maintain (rapid) growth on its own anymore (which may not be bad if it’s the dominant player and has a very large recurring revenue and could continue to increase profitability with improved efficiency) or
  • it’s shareholders are greedy and impatient and don’t care what’s best for their customers and just want a quick payout.

Neither situation is good for either party. Nor does it make sense for any of the de facto tech giants who would likely acquire SalesForce to do so. None of the six AMIGOS (Amazon, Microsoft, IBM, Google, Oracle, and SAP) should acquire SalesForce. Here’s why.

  • Amazon
    They are an online e-commerce giant, with inherent ability to be a commodity supplier to large enterprises. They are not a software provider and beyond insuring quality, and receipt of goods, would not benefit from CRM. Sure the Force.com platform would allow them to offer even more apps, but they can already offer Android apps and sell online software, so it’s not a huge leap in capability.
  • Microsoft
    They already have huge back office suites that they have made huge investments in, including investments to port these suites to the cloud. Plus, their focus, and strength*, is back-office apps. They’d be taking a huge-write off on existing technology and would have to rewrite a lot for a whole new platform. They already run on Windows and Mac, that power the vast majority of office desktops, so why do they need the Force.com?
  • IBM
    IBM already has platforms for just about everything, including Alliance for CRM, have heavily invested in Watson, and need to keep building on the workflow and integration platforms they spearheaded in the early naughts.
  • Google
    the doctor will admit that it almost makes sense for Google, but Google’s market, and expertise, is apps, and it is still learning how to make money off of enterprise apps. It’s not ready for SalesForce, would have to let it run as a completely separate division, and take a huge hit to its balance sheet to pull of the acquisition. And while it’s the one company that could probably pull of a successful integration in a reasonable timeline without bleeding blood red everywhere, it would likely be quite a divergence from its other projects.
  • Oracle
    Oracle has too many CRM platforms as it is (with Siebel, PeopleSoft, CRM on Demand, and integration to about a dozen other platforms) and needs to continue to integrate and build on what it has. What makes Oracle strong, and great, is that it has always believed in eating it’s own dog food (while Microsoft ran off of third party databases even after SQL Server was released and has demoed Windows software releases on MacBooks on more than one occasion), but even Oracle can only integrate its acquisitions so fast. It’s still catching up on acquisitions past (and it took about 3 years to integrate the majority of Sun applications into its “single instance view”), so just imagine the effort to do a true end-to-end integration of SalesForce. Plus, it’s still a database / ERP company and with SAP so aggressively pursuing its marketshare in the US, with IBM and Microsoft still aggressively pursuing its global market, and with some companies (still) proclaiming that non-relational or in-memory databases can be faster and better for the average application, it has to focus on winning that fight.
  • SAP
    SAP is an ERP company with a very heavy focus on SRM, as evidenced by the huge amount of money it has dropped on Procurement, T&E, and Supply Management vendors over the past few years. This is where it has to focus to not only break-even on its acquisitions, but generate future value. And it still has a lot of integration to do. A lot.

the doctor‘s sure not everyone will agree with him, especially since people seem to get a little blind when such big numbers start flying around, but someone has to start putting this in perspective.

And now to put up the tarps in expectation of the reactionary mud-slinging from third parties not inclined to think deeply about the issue.

* And yes, the doctor cringes when he says this because most of their software, in his view, while standard, is sub-par — but they are the de facto solution and their Office apps, when you cut through the clutter (and the ribbon), work very well.