Are ERP Systems Becoming Obsolete?

Popular Examples of ERP Systems

There are now hundreds of platforms that specialize in one or two business functions, however. Think of Salesforce for marketing and sales, or Workday for HR.

Despite their commendable efforts to change with the evolution of technology, solutions like SAP, Oracle ERP and others are now facing serious challenges from these platforms.

This is especially true with the supply chain function, whose practitioners don’t use ERP to carry out their work even if their organizations are officially ERP adopters.

Why ERP systems Don’t Work in Supply Chain Management

To be fair to ERP systems, they took on a massive challenge: to bring all business functions together in one integrated software package. But it’s now becoming increasingly apparent that achieving that goal just hasn’t happened. Here’s why.

1. Cost to Purchase and Integrate

ERP systems cost millions of dollars to purchase and deploy. In order to start using the system, companies must buy licenses for any individual modules and suites they want to use.

Further, integrating ERPs often requires hiring consultants and other specialists to configure the system for the unique needs of each business.

These specialists learn about the business structure, recommend a new system architecture (sometimes reengineering structures and processes to comply with best practices), map the old to the new structure, evaluate and clean up available data, configure the application and oversee the roll out.

All these costs create a barrier to entry for small to medium sized businesses, and this is ultimately signaling  the end of ERPs—more on that under “the connectivity imperative”, below.

2. Poor Usability

There are three points here: workflows, training time, and support. All create barriers to adoption for employees, resulting in resistance to adoption.

Speaking to this point in an article about the successful digital transformation of Li & Fung, one of the world’s largest supply chain organizations, CEO Spencer Fung said, “I’ve noticed that the process of digitization is not about building or buying the next generation of technology.

It’s about convincing people to actually use it. We have seen dozens of companies fail with their ERP implementation projects because of resistance from the people who use those systems.”

The fundamental usability flaw in ERPs is that they are designed to serve C-level management and finance, with practitioners relegated to an afterthought. In supply chain, there is zero loyalty to enterprise resource planning software.

Richard Donaldson, formerly the head of operations at eBay says, “What we found in SAP was just the financial view of the assets we owned. It was really difficult to get a view of the vendors we worked with and the assets we bought from them. SAP wasn’t designed for this. That’s why we had to start building our own supply chain tool—what eventually became Requis.”

Training

ERP systems typically take at least a week to learn. This is a huge burden for busy supply chain practitioners. That week spent in workshops, plus the additional time burden of adjusting to new workflows, creates more than a minor annoyance to supply chain managers (SCMs).

SCMs simply can’t risk taking their eye off the ball for that length of time. In a business landscape where mistakes can cost millions or even billions of dollars, the risk to the practitioner’s career means that they don’t use the ERP.

Alan Dunning is the principal supply chain manager (procurement and contracts) for Worley. A 30-year veteran of supply chain, he has worked in key supply chain roles for companies in many verticals around the world.

Commenting on a long history of working with ERPs, Dunning says, “I consider myself a victim of bad systems. The training courses take three to four days, and the manuals are massive. For one Oracle system, there’s a 48-page manual on how to issue a purchase order.”

Workflows

ERP applications, even those designed for supply chain, only capture some of the steps that practitioners use in their processes. Many practitioners only use them to log completed actions instead of to carry out the actual workflow from beginning to end.

Urvashi Carraway, a project procurement manager for Worley, and colleague Zakk White, a senior buyer, have seen first-hand that ERPs have serious limitations.

“One of things that we have noticed as we’ve gotten to know certain client-based systems such as Ariba, Maximo, and SMART by GEP, is that these systems don’t quite have all the steps that are typically involved in the industry standard format, such as the inquiry and quotation, the technical bid evaluation and the commercial bid evaluation. They only cover the tail end of the system.”

Alan Dunning agrees. “Most ERP systems are not user friendly or intuitive. The teams have to find workarounds to achieve more efficient work practices,” he says.

While many ERPs can legitimately cite adoption statistics in the thousands, it’s clear that in supply chain, most managers and practitioners are either not using the ERP system or are using it in a highly limited way.

Dunning notes, “ERP systems typically have to have super users or else have someone who is employed to simply manage the system.”

This creates a time delay for other managers higher up the ladder, who are always looking at old data as a result.

Support

Dunning also notes that support is an issue for most ERP software. “Supply chain managers don’t want to wait around for days for a response to their support ticket. I often hear things like ‘support takes so long that I just give up after a few days’, or, ‘it takes so long to get an update to happen that we just give up and find a workaround’.”

He also comments that support workers are not generally supply chain practitioners. “Phone support is often outsourced, and those workers just have no way to understand what front end users need.”

3. Lack of Innovation

ERP systems have been playing catch up since the rise of cloud platforms.

To give SAP credit, it has been trying to adapt, and has released new iterations that are available on the cloud. SAP’s latest incarnation, SAP S/4 HANA, has a much more user-friendly interface.

They’ve also been buying companies with capabilities it lacks, like Ariba’s procurement solution. Supply chain professionals, however, are often unimpressed with the results.

“For me, SAP single-handedly killed innovation in supply chain,” said Dr. Muddassir Ahmed, supply chain strategist and educator, in the Supply Chain Next podcast. “That sounds like a big claim to make, but I can substantiate it. This is because SAP built their solution, and everybody ended up using it (or Oracle, because between the two of them they cover almost 70% of the industry), but their innovation is pretty rubbish. Compare that with what’s happened in sales and marketing over the last ten years. Compare that with the fintech industry.”

But instead of simply moving to the cloud, legacy ERPs should have been rewritten from the ground up. Again, to be fair to the big ERP solutions, part of the reason they haven’t done this is that they can’t.

As mentioned above, ERPs have large, important clients. And it’s difficult to keep these large clients happy if they’re used to how things are currently done, but you want to make sweeping changes.

In short ERPs are, in part, victims of their own success.

The Digital Transformation Imperative

It’s no secret that there are still large organizations that are running their supply chains on spreadsheets, small siloed applications, or even through manual processes.

Part of the blame lies in the fact that most software systems, whether they’re ERP systems or not, simply aren’t designed for the way that supply chains work. As we saw above, supply chain managers don’t use them simply because they aren’t useful.

But it’s becoming increasingly important that organizations need to make that leap to digital and make it soon. If practitioners still need to keep track of workflow in spreadsheets, however, ERPs are not going to be a big part of that movement.

The Connectivity Imperative and the Rise of the Value Network

In the last five to ten years, there has been a shift in thinking about how roles and resources interact in supply chain. While the term “supply chain” conveys the idea of a fixed, linear process from suppliers through producers to end users, the current reality is more reflected in the term “value network”.

Briefly, value networks are the webs of relationships between organizations and individuals that generate value. In supply chain, value networks convey the idea of more complex interactions between the many roles in supply chain, including between the many tiers of suppliers.

Because of the increased concern for supply chain resiliency due to the COVID-19 pandemic, more organizations are searching for better ways to communicate with suppliers. These smaller organizations often can’t afford tools like ERPs, most of which aren’t designed to work between companies.

In Gartner’s Magic Quadrant for Multienterprise Supply Chain Business Networks, published in May of 2020, the authors note, “…Ultimately, end-to-end insights—visibility, the information hub—will be the foundation for end-to-end intelligent decision making and response. Much of this is simply not possible within the confines of traditional single-enterprise applications (e.g., ERP).”

Why More Investors are Looking at Platforms

Since ERP systems first arose in the 1990s, the technological landscape has completely changed.

Venture capitalist Brian Aoaeh of REFASHIOND comments on how technology improvements have changed the game.

“If you talk to some investors who have a background in supply chain,” says Aoaeh, “they will tell you a lot of horror stories about technologies that they thought would be ground-breaking many years ago but weren’t. At that time, the potential was there but the technology wasn’t mature enough. So the massive companies that had the balance sheet to invest in that sort of thing could do it, but for everyone else it wasn’t realistic. If you invested in technology at that time, you probably lost your shirt, but that has all changed with cloud computing, edge computing, mobile devices, etc.”

This technological boom has spawned hundreds of startups, like Requis that have new ways of looking at how we work and what we track to assess supply chain efficiency.

Dave Anderson of Supply Chain Ventures describes supply chain investment as being “white hot” in the past five years, citing valuations like Flexport, which became a unicorn with a $1B investment from Softbank. “Prior to that, there wasn’t as much going on, but recently at Supply Chain Ventures we’ve looked at around 300 startups a year.”

A Future Role for ERP

Will enterprise resource planning rise from the ashes yet again? That will depend on to what extent they’re willing to reinvent themselves, and what they’re prepared to sacrifice to incorporate all the advantages of the new platforms.

Meanwhile, there are a host of cloud platforms racing to become the supply chain solution of the future. To learn more about Requis and how our supply chain platform can help your business, visit the case study below.

Read the Worley procurement case study >