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Why Your ERP System is Failing

Guest Contributor on Feb 22, 2016 1:53:57 PM

Prime Advantage's Conferences are an opportunity to network and learn about topics facing procurement professionals. We are excited to have Keith Launchbury join us at our Spring Conference to share his insight on Demand Driven Planning.

Why-Your-ERP-System-is-failing

After spending a substantial amount of time, money, and effort to implement the best ERP systems on the market, many company executives are wondering why they are still seeing their employees using spreadsheets while not seeing all of the business benefits that were promised. They are perplexed at how their inventories can be so high, yet still plagued with annoying material and product shortages. They see the customers becoming exceedingly demanding, while it seems more difficult than ever to deliver the products without incurring the extra costs associated with expediting.

When these executives talk to their planners they hear excuses like: the forecast was wrong, the supplier let us down, the batch was rejected, the inventory was incorrect, or the customer changed their mind. These all seem to be recurring problems.

The reality is that at the heart of every ERP system is a planning logic that was designed for the world that existed 50 years ago. The classic logic of Material Requirements Planning has not changed in five decades. MRP works with a stable Master Schedule based on forecasts of demand from customers. The Master Schedule explodes through every Bill of Material to generate planned orders, which are then used to create commitments to buy, make or distribute products under the assumption that the forecast is correct.

MRP is a pinpoint accurate tool that would work perfectly if the customers knew exactly what they needed for the entire planning horizon and never changed their minds. This is clearly not the situation today. In an ideal world MRP is precisely right. In today’s world MRP is more likely to be precisely wrong.

The solution to this planning nightmare is not to be exactly wrong, but to be roughly right. Instead of trying to accurately predict what customers want we should aim to set up a planning and control system based on the concepts of Demand Driven Planning. This is a radical rethinking of how Planning and Control Systems work that is updated for today’s dynamic business world. These concepts combine the best practices of business planning and control, the theory of constraints, and Lean Six Sigma, into one holistic view that is simple to explain and use.   

The concepts of Demand Driven Planning have provided dramatic business success with early adopter companies such as Unilever and Stemcell. They have led to impressive business results and improved customer service, while substantially reducing lead-times and inventories at the same time.

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Topics: Analytics and Technology

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