Implementing ERP for Supply Chain Processes

The goal for any manufacturing operation is to produce quality products at the lowest possible cost while striving to exceed customer expectations. Achieving this consistently and cost-effectively depends on gaining deep insight into the supply chain, especially when it comes to managing the complexities of formulating and producing products to custom specifications. This requires tremendous agility and a truly dynamic operating environment that's capable of assimilating real-time information flows across supply-chain touch points with ease. But when it comes to joining the supply-chain management dots, manufacturers face serious technical challenges in terms of process and data flows - especially when it comes to integrating the "spaghetti soup" of systems controlling individual customer, supplier and production functions. To resolve this integration challenge, manufacturers are taking a fresh look at enterprise resource planning (ERP) packages such as SAP, as a means of seamless connectivity to customers and suppliers.

Let’s take a brief look at the SAP Integration process for Supply chain planning data:

It is broken into 3 main parts: 1) SAP’s ERP Interface, 2) An API and Middleware adaptor, and 3) The Supply Chain Planning Master Data Management module. The setup is straightforward:

SAP’s Production Interface serves three functions; it moves static data outbound from SAP, it receives static data inbound to SAP, and it moves transactional data both in and out of SAP.

The planning API is broken into 2 functional areas.  The first functional area deals with the movement of static model data such as: product, BOM, or Route information to the applications and results data such as Forecast, Production Plan from the supply chain applications to SAP, and the second area with real-time transactional data. The final process is used to transform the customer’s data into the form needed for the planning modules. This is accomplished through the Master Data Management layer.

The integration is almost effortless with the presence of standard interfaces.  What this means is that the actual movement and transformation of the data is not going to be the risky part of a supply chain planning project, so there is no need to panic.

Potential Challenges in ERP Implementation

Almost all technical implementations are associated with challenges and risks. I’ve pointed out a few of them below:

Risk and Complexity

The FoxMeyer Drugs Bankruptcy in 1996 was attributed to their failure of ERP. SAP’s SCM deployment did not expect to handle this level of volume of orders.  According to company executives, they ran some simulations but not with the level of data we have in the operating environment. FoxMeyer tried to solve this problem by sending hundreds of workers to work around the issues but the underlying software kept failing in middle of the process. Totally, this bug cost FoxMeyer tens of millions of dollars.

Business managers usually underestimate the risk and the complexity of a SCM system. A current version of a simple ERP system now consists of millions of lines of code. This is too complex for any small team of people to understand the whole system. Complexity goes along with a big number of bugs. These bugs cause a risk that managers could not see and estimate it clearly. If the system is down for a couple of hours, it is already millions lost for the company.

Hidden Costs

There are many hidden costs in designing and implementing a new ERP system for the organization that managers usually do not plan for. This makes up the total cost for the implementation to be much higher than the benefits gained from the implementation.

• Training Cost: people usually underestimate this cost. It usually takes a while for staff to adapt from the old system to the new system, for the changing of the old process to the new process.
• Variety forms of data: Data in SCM system is usually not in a standard format. The data comes from multiple suppliers and the order requests come from multiple retailers and distribution centers. This makes it very difficult for any firm to standardize this data and match same items from different suppliers.
• High Consulting Cost: The consultant may not have enough experience to plan for the project and the project may require longer time to finish or more payment to the consultant.
• Integration and Implementation: Consultants want to test with the real dry-run to see how it affects the system, but usually the firms don’t want people to touch in their valuable data. This makes the integration, implementation and test process much harder than it is planned.

Given the challenges and concerns of implementing an ERP system, such as SAP, the questions that companies need to think over is:

To what extent would companies be successful in implementing ERP Systems and does this really add value to their SCM processes, in terms of saving costs and resources?

References:

https://community.dynamics.com/dynamicbusiness/b/theedge/archive/2011/04/05/what-can-erp-do-for-the-supply-chain.aspx

http://vodkhang.com/career/does-erp-and-scm-actually-save-money

http://web.adexa.com/adexa-blog/?Tag=ERP

http://www.mainward.com/mw/consulting/scm.jsp