Is ERP a Good Fit for Supply Chain Management?

A few years ago we were helping a large retailer develop their supply chain strategy. During one of the strategy meetings I was called into a one-on-one with their chief information officer. He wanted to meet with me to discuss their options for supply chain information systems and shared that they were considering a multibillion-dollar investment in an ERP solution to manage their supply chain. He asked me, “Dr. Frazelle, what do you think of that approach?”

To buy some time, I asked him a series of questions. First, “What are the main activities of your company?” He answered correctly, “buying, merchandising, inventory management, warehousing, and transportation.” Second, “If you could use one word to describe all those activities, what would it be?” He answered correctly, “logistics.” Third, “What is the weakest functionality in the ERP you are considering?” He answered correctly, “logistics.” Lastly, “So what do you think about investing billions of dollars in a system whose weak point is where you need to be the strongest?”

To make a long, sad story short, they went ahead with the investment. It was so bad at one point that they had their own suppliers in their warehouses counting inventory for them. Not many people know this, but their shelves wound up so empty that they wound up needing a large loan from the International Monetary Fund to recover from the implementation.

To help our clients think through their own functionality strategy, we frame the supply chain software decision just like we would any other optimization decision—with objectives and constraints. The objectives of the selection are typically three-fold; to minimize the number of vendors, applications and interfaces. The constraints of the supply chain software optimization are typically three-fold as well; to meet or exceed functionality requirements, return on investment requirements, and implementation timeline requirements.

Whatever mix of applications, vendors, and technologies meets those objectives and satisfies those constraints wins. If the supply chain requirements are simple, an ERP approach may be sufficient. If the supply chain requirements are highly complex and mission critical, then a best-of-breed approach may be required.


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