With the growth of AI, IoT and data analytics, supply chain management software capabilities are exploding.
The large ERP vendors are continually designing and incorporating new capabilities into their suites, but it’s not a one size fits all solution. ERPs were initially created to be an integrated software system providing the backbone of a company’s business management system, including finance, accounting, project management and human resources systems.
But we are now in the era of a postmodern ERP system, says Nigel Montgomery, research director for ERP at Gartner.
Instead of an inflexible ERP system, there’s now suite-based systems with optional modules, some created in-house, some acquired. “It’s not a single entity. It’s a series of capabilities that are brought together by the vendor,” he said.
At some point, companies may decide they need additional functionality. But given the vast number of options, figuring out what technology a business needs can be both time- and resource-intensive.
To help ease the burden, Supply Chain Dive spoke with various providers to put together a starters’ guide on ERP systems:
What is the sweet spot for ERP suites?
A suite provider delivers solid functionality at an industry level to get the job done, but it’s not a best in class solution, nor is it meant to be, said Montgomery. Some industries require deeper microlevels or layers of capabilities that ERP suites can’t provide – so it is pivotal the systems can integrate with others.
Gartner describes this phenomenon with five layers of technological complexity systems seek to achieve: react, anticipate, integrate, collaborate and orchestrate. Each function builds on the other, but not all systems can do it all.
"The supply chain system of record tends to cover the first three levels of maturity," and includes basics like inventory, manufacturing and demand planning, said Henry Canitz, Logility’s director of product marketing. "You see a lot of companies at level three today and they’re starting to become more advanced in their maturity."
Levels four and five are where ERP systems fall down a bit, he said, and this is where differentiation comes in for specialized supply chain software companies.
The higher maturity levels include more industry specific capabilities like continuous planning instead of weekly or monthly planning, allowing companies to react quickly to events in their supply chain. ERP systems are lighter in automating processes, collaborative work flow and configuring limits and active alerts, Canitz said.
Because large ERP companies have a broad offering, “I think there’s a little watering down that takes place. They can’t focus everywhere. They have to set some priorities about where they’re going to build out solutions,” Canitz said, adding that ERPs in general provide a good supply chain system of record.
When is an ERP platform not enough?
ERP systems can be a good solution for supply chain programs if the system is set up to be demand driven instead of supply driven. The system needs to be responsive to changes. If the system isn’t flexible, and it’s set up to meet forecasted demands, an incorrect forecast will cause problems.
"The supply chain today is a lot more around operations planning, integrated business planning, social media insights and how my promotion is performing, than driving manufacturing," said Roddy Martin, vice president of SCM product marketing at Oracle. "It’s not manufacturing making a pile of stuff and hoping sales will sell it. It’s sales sensing what is selling."
Companies whose ERP systems don’t have demand side capabilities resort to using control towers, hoping that the visibility will give feedback to the MRP system to make the right decisions.
"When you get your ERP system right, it becomes the plumbing in the network," Martin said.
It’s a challenge for the suite vendors to maintain the food supply of revenue to keep the bigger animal viable.
Research Director for ERP, Gartner
Whether looking at an ERP system or at specific supply chain software to integrate, come up with a written strategy. Otherwise you won’t know if your company is following the right path, Montgomery said.
"You’re thinking about seven to 10 years. You want to make sure whatever you’re going to need will be provided by the vendor," he said, as the cost of changing systems is significant.
As a result, he recommends a buyer first evaluate their needs to determine whether basic functions are adequate, and if outside software may be required.
"If I can find that in one solution, fine. If it’s in a suite by the same vendor, fine," Montgomery said. Otherwise, it’s time to look at additional solutions. "It’s doing best of breed with a purpose."
All technology has space to grow
Even the ERP vendors agree that there’s a place for additional niche software.
"It doesn’t have to be one monolithic environment," said Hans Thalbauer, senior vice president of digital supply chain and IoT at SAP. "We have an open environment where partners can build on the SAP platform, where solutions can be connected to the network. We know some specifics cannot and will not be covered (by SAP)."
Your needs may depend on the nature of your industry. Consumer packaged goods companies doing multiple product changes and launches need quick demand responsiveness. Companies producing engineered-to-order products may not.
A toy company that manufactures in China and ships via ocean carrier can’t respond quickly to demand, so demand-driven software may not make a difference unless they change manufacturing locations.
One consideration is whether you’ll need to sacrifice time for functionality. Integrating too many outside best in class programs into an ERP can add time to planning processes, whether that’s in data transfer time or in accessing multiple user interfaces.
"Think about an end-to-end solution to support the business," Thalbauer said.
Who is the supply chain software competition?
There will always be coverage gaps between what ERP and niche supply chain software provides – but that gap will shift.
Currently, there are around 170 contract management software vendors, and it’s a growing market, Montgomery said. In the next few years, he anticipates that the ERP suites will swallow some of them into their core offerings, and the market will drop off.
The competition, though, also depends on the business process and industry. ERP companies not only see other ERP providers as competition, but also some of the niche software companies and vice versa.
The future of ERP suites
Are the ERP suites going anywhere? No, says Montgomery. But the bigger they get, the more they need feeding.
"It’s a challenge for the suite vendors to maintain the food supply of revenue to keep the bigger animal viable," he said. Not all the niche software is best in class. ERP companies sometimes find themselves outflanked by smaller vendors who offer inferior products at lower cost.
If the vendor has 90% of the capabilities of the suite products, but is significantly less expensive, ERP companies can lose out.
"The vendors losing out in the past were ones that became complacent," assuming they’d retain customers because of the high cost to change systems.
(Software providers) have to set some priorities about where they’re going to build out solutions.
Director of Product Marketing, Logility
SAP and Oracle will continue to deliver their supply chain platforms, said Canitz, while eventually building out additional capabilities, like advanced analytics with easy graphical user interfaces and strong prescriptive or cognitive functions.
"I don’t think they’ll catch up because other companies like Logility are spending time and money to build up capabilities now. It would be difficult to close the gap," he said.
Many of the older ERP systems were implemented before AI and IoT were developed, or in their infancy.
"A lot of the data we need in order to an AI-centered approach doesn’t exist today," Montgomery said. "It’s not about the system, but the fact that you have to collect the right level of data in the right way to make it meaningful."