The ERP Challenge[1]

by Robert Fabian

At one point in the past, many people believed that total management information systems were the way to answer all important management questions. Organizations invested many millions in the effort to develop their own total MIS system, and, with few exceptions, these attempts fell very far short of the mark. The widely accepted explanation was that the technology, that was then available, was not up to the task.

Much of the same sort of thing seems to be happening today with enterprise resource planning (ERP) systems. These aim to provide an integrated, enterprise-wide information service that allows the organization to efficiently respond to any changes in level of market demand. And, just as they invested heavily in total MIS systems, many organizations are investing millions in the effort to install their own ERP system. While there have been some success stories, the evidence suggests that most organizations have failed to realize the expected benefits from their (all too expensive) efforts to install ERP.

It is my contention that full-blown ERP systems are the right answer for only some organizations. To understand what ERP can and cannot deliver, it helps to go back to the manufacturing resource planning (MRP) systems that preceded ERP. Leading vendors like SAP and Baan offered MRP systems before they were reborn as ERP systems. And the current ERP- system logic has many parallels with the logic that was used with earlier MRP systems.

The challenge facing manufacturing can be described in terms of buffer stock. It's easy to put a large buffer stock in front of every production stage. That work-in-progress allows the separate stages to run at peek efficiency. With everything at peek efficiency, overall factory productivity should be high. Nice theory, but it didn't work as planned. The stock of work-in-progress was expensive. Nothing moved very rapidly. More and more work became "expedited" orders.

Successful MRP systems replaced the old buffer stocks with better information. The cost of production went down. Even more important, the response time of the factory improved, and the firm was much more responsive to changing markets..

This manufacturing transformation was relatively simple - everyone could see work-in-progress, and could see the "expedite" job tags. ERP systems take a similar approach, but now the buffer stocks are generalized to include men, money, material, and time. All efforts are focused on driving out the need for buffer stocks across the entire organization. When successful, the results from ERP can be even more dramatic than they were with MRP.

Initially, people will not be very comfortable in the new ERP world. The ERP logic strips away buffer stocks and subjects everyone to an unrelenting and constant pressure to produce. The required social transformation is a major undertaking. It needs resources, and it needs constant support from the most senior people in the organization. People must believe the organization has no option but to undergo the change, however painful this may prove to be.

Senior executives must find ways to make the required changes necessary and inevitable to the people who will have to live through the process. Some of the problems with ERP systems can be traced back to a failure to make the huge organizational and social changes that are required seem necessary and inevitable. In some cases, the problems with ERP can be traced back to a failure to recognize that a major organizational transformation was required. And in some cases, the technology used with the chosen ERP system was not up to the task - the organization was too large, or too diverse, or too whatever.

However, my main concern is for organizations that should not strive for the efficiencies that can be provided by total ERP systems. There is a very real cost behind the focus demanded by ERP. Everything and everyone is focused on meeting the objectives set for the organization. If all the market demands is a continuing refinement in how those objectives are to be met, then ERP can fully deliver on its promise. Some markets, some of the time, demand fundamental change in how objectives are to be met.

The problem, to my way of thinking, lies with the idea of a total ERP system. Most organizations would benefit from having ERP applied to their current "today" processes. It is almost always wise to keep the "tomorrow" part of the organization outside the relentless driving logic of ERP. A properly installed ERP system can buy an efficient "today." An effective "tomorrow" needs people with a vision for the future, and the freedom to make it happen.

[1]This article has been reprinted from the June 1998 issue of CMA Magazine with permission of The Society of Management Accountants of Canada. top

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