Was Integrated Planning a Hoax?

by Lora Cecere on June 20, 2014 · 9 comments

Hoax: An act intended to deceive or trick.

Integrated Planning: Tight Coupling of Enterprise Resource Planning (ERP) to Supply Chain Planning (SCP)

Was it intentional? Or accidental? We will never know. However, what is clear from our recent study of 73 manufacturers using supply chain planning is that companies using best-of-breed solutions implement faster, achieve a quicker Return-on-Investment (ROI), and are more satisfied. When companies tell me that they need to exchange their current Supply Chain Planning (SCP) from a best-of-breed provider to get a leg-up, I ask, “Why?” It makes no sense to me. In this post, I want to make my argument and stir a debate.

Let’s start with a definition. The term integrated planning, as used in this blog, defines the relationship between Enterprise Resource Planning (ERP ) and Supply Chain Planning (SCP). (It should not be confused with the term Integrated Business Planning (IBP) which is the process and technology integration of business and supply planning in S&OP.) Over the last decade, many supply chain experts advocated that tighter integration of SCP with ERP would deliver higher value. However, this is not supported by the facts of a recent study. (At Supply Chain Insights, we conduct twenty quantitative studies a year to understand the impact of technology and process decisions on business results. This is one of the studies in this series.)

 

Background: My Personal Experience

In the period of 1985-2000, the SCP market was defined by a list of best-of-breed vendors that included names like American Software, Chesapeake, Demantra, Fygir, i2 Technologies, Logility, Manugistics, Mercia, Numetrix, Red Pepper…. The list is long, and most are history. Today, in many organizations, these solutions are legacy.

The SCP market has consolidated. These companies were merged into other entities and/or changed their names. JDA acquired Manugistics and i2 Technologies; Fygir and Mercia rolled up into the INFOR platform, and Oracle combined the assets of Demantra, Red Pepper, and Numetrix through their multiple acquisitions. Webplan changed names to Kinaxis. Only Logility and American Software have the same name and business structure. We now have new technology players entering the market like AIMMS, Enterra Solutions, OM Partners, Quintiq, ToolsGroup, and Terra Technology. For many, it is confusing. It keeps old gals like me in business.

The period of 2000-2010 was turbulent for these best-of-breed APS technologies. Their available market contracted. There were several forces:

  • M&A: Through many mergers and acquisitions, the available market for solutions shrunk. This is a barrier for innovation.
  • Competition: The aggressive marketing of the Enterprise Resource Planning (ERP) vendors introducing planning suites (led by SAP with a product named SAP APO) took the market off course. As SAP APO skyrocketed to capture the dominant market share, the best-of-breed vendors could not shake the perception that an “integrated solution” was better. It did not matter that most of them had integrated to SAP suites for over a decade.

During this time, I worked for Manugistics. As I watched the hype of “integrated planning” swell, I asked, “Why?” It did not make sense to me. After Manugistics, I worked for two analyst firms; Gartner and AMR Research, and I continued to question if the extended ERP platform that included SCP delivered greater value. I did not see it. The implementations were longer, the purchase costs were higher, and the functionality was less robust and lacking flexibility. Yet, the positive market perception continued. It was largely sustained by consulting partners that made more money on the implementation of larger, and more costly projects of less capable solutions.

During this period of time, I tried to highlight the gap in my writing. However, it is tough for an analyst to take a stand against the larger ERP vendors. The ERP public relations machines are mighty; and they invest heavily in the larger, more established analyst firms. As a result, it is hard to take a tough stand in the more established analyst worlds. Not so today, I am independent. I can voice the truth. I can call a spade a spade. I have raised the ire of both Oracle and SAP multiple times in an effort to help businesses identify the best partner for SCP to propel their supply chains forward.

 Study Results

In early 2014, using the principles of open research, we at Supply Chain Insights hosted a study on Supply Chain Planning. We currently have 73 company respondents, representing 133 planning instances. We have left the study open, and would love to hear from you. If you share the data from your implementation, we promise to never share your or your company’s name. All of the results are reported in aggregate. Here are some of the results that we have collected so far:

  • Extended ERP Solution Implementations Are Longer with a Less Favorable ROI. The implementations of extended ERP solutions for demand and tactical supply planning is 20 months while the best-of-breed solution deployments are averaging 11 months. (The predominate ERP SCP solution for the respondent in the survey is SAP APO. There are few implementations of Infor and Oracle.) The time to achieve ROI averages seven months for a best-of-breed provider and over 13 months for the extended ERP solution.
  •  Demand Planning Implementations Are Faster with Fewer Issues Than Supply. Demand planning is less industry specific than supply. While 67% of the demand planning implementations were at and under budget, 55% of the implementations of supply planning are over budget. My take? Supply planning requires a more detailed understanding of SCP. The models are industry specific. These solutions require greater insights and understanding by the manufacturer and implementing company. Over the last decade, many consulting partners have not been equal to this challenge.
  •  Does Integrated Planning Make Sense? Really? The average company greater than $5 billion has five ERP instances, three instances of demand, and three instances of supply planning. The enterprise environment is complex. It is not as simple as one ERP instance connected to a single SCP implementation. As a result, there is a greater and greater need for a visualization layer and planning master data system. As a result, the basic tenants and assumptions of integrated planning dissolve and become less relevant. The argument is becoming less and less germane.
  • Organizations Are Not Static. If this is not complicated enough, just when many IT managers build a system for tightly integrated planning, there is an M&A event making the IT environment even more heterogeneous. In addition, with over 30% of manufacturing and 55% of logistics outsourced, it is now a business network, not an enterprise, planning problem.
  • Ability to Use Data. While the extended ERP solution architectures make look nice on paper, the reality is that line-of-business users struggle to use the data for “what-if” analysis or business analytics. The supporting analytics around the extended ERP packages have not been equal to the business requirements.

What Should You Do?

This post is part of my series of “Do No Harm” which is a focused series to help line-of-business leaders get their supply chains unstuck. (In prior posts, I have written how nine out of ten supply chains are stuck in their ability to improve operating performance on the Effective Frontier of managing growth, profitability, inventory turns and business complexity.) To move forward, I recommend the following:

-Recognize the Facts. Each of the ERP providers is at a very different place.

  • SAP. The SAP team has built an incredible system of record to enable flows from ERP to SCP, but has failed to deliver a solution to deliver SCP planning excellence. In companies with an SAP APO environment, companies should use SAP APO as a system of record and buy other optimization solutions that are industry-specific to improve decision support. In addition, line-of-business leaders should push for clarity on the SCP footprint and the supporting business intelligence strategy to ensure that they can get data in, do “what-if” analysis, and get data out. Question the consultants that come to your door stating that, “… 80% is good enough.” The study clearly shows that it is not.
  • Oracle. The Oracle solution is strong in demand and transportation, but weak in tactical supply and production planning. It is not a good system of record. Oracle has cobbled together the acquired assets from the SCP market. Oracle has delivered neither a system of record, nor differentiation. It is integrated only by the words on the contract. Instead, what you have is one throat to choke; but, by and large, the references are unfavorable.
  • Infor. In contrast, Infor has done a better job. The ION integration layer attempts to provide a system of record and the many SCP solutions acquired through their mergers are being rolled up into a framework that is starting to make progress.

-Don’t Wait. A ROI in less than a year in today’s market is an opportunity. Why wait?

-Use Talent from the Technology Provider to Implement. The participants in the study that use consulting talent from the solution providers are more satisfied than those that implement using larger consulting firms. Use the large firms for program management and change management, but let the SCP providers tune  and implement the technologies in the SCP market.

Next Steps:

Is this a fluke, or a market reality? We are trying to gather more data. We would love to hear from you. If you fill out our survey on integrated planning, we will be glad to share the results with you and your team. Your responses on our survey are always kept confidential. We do not share the survey results of any individual. All of the responses are reported in aggregate. In addition, with more responses, we want to correlate these results to the corporate financial ratios to see the impact of supply chain planning choice. We hope to hear from you!

In addition, at our Global Supply Chain Summit in Scottsdale Arizona, on September 10th and 11th, we will have a facilitated breakout session for business leaders to network with each other on the future of demand and supply planning. It is a closed-door session with no technology or consulting partners. With SAP APO moving to a HANA architecture, the business leaders have requested this, and we want to help. We would love to see you there!

This week, we also kicked off our Supply Chain Planning Benchmarking Service with a webinar yesterday. We have five customers signed up and we are hoping for another twenty. We want to kick-off this project during the summer to gather more data around “What Drives Supply Chain Planning Excellence.”  Let us know if you are interested.

 

{ 8 comments… read them below or add one }

Mike Gilliland June 20, 2014 at 5:09 pm

Lora, I appreciate your critical look at the issues, rather than just the rah-rah stuff we so often see from analyts and commentators. Not sure if you’ve seen Shaun Snapp’s recent book, “The Real Story Behind ERP,” but he comes to many of the same conclusions based on his own research and experience. Glad to see you both working on this important topic.

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Lora Cecere Lora Cecere June 21, 2014 at 10:14 am

Thanks Mike. Please share the link with your network. I am looking to be able to make this a pivotal study on supply chain excellence. We will leave it open for another couple of months.

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Shaun Snapp June 23, 2014 at 6:01 pm

Lora,

Michael is correct. I reviewed all of the published academic research for the book The Real Story Behind ERP and the research lines up consistently with what you found through independent observation and from your survey.

No matter where one looks, no ROI can be found from ERP systems. If you look at the early statements regarding ERP the ROI was proposed as strong, but over time the story was deliberately changed. Soon ERP was proposed as a “platform” component that you needed to access ROI from other systems like SCM, CRM, etc.. where the real “ROI action” was. This was simply another false projection that replaced the earlier false projection (apparently without anyone noticing) that ERP systems would provide strong a ROI for buyers. I verified every one of the logics used to market ERP from when ERP systems were first introduced, and found not just a few of the logics, but every one of them proved untrue when checked against what actually happened.

My conclusion is that there was never any reason to buy ERP systems. The integration savings were small, (integration costs should never drive an enterprise software purchase) but the problems and costs associated with poor functionality, high customization costs and lock-in to one vendor intent on gobbling up more and more of the IT budget were high. Furthermore, as I explain in a high degree of detail in the book — integrating to an ERP system increases the costs of integration. This is supported by research into what actually happened, as integration costs in total have risen since ERP became the dominant enterprise software purchased by companies, not decreased as was originally projected (yet another projection which proved to be false). In total cost of ownership estimations that I performed at Software Decisions which included many best of breed applications and ERP systems, of the various enterprise software strategies that could be followed, one which combined an ERP system with best of breed applications was the worst — it provided the lowest scored functionality with the highest total cost. The performance of this strategy was not somewhat worse than the alternative strategies, but far worse. And as is well know, this is the dominant enterprise software strategy that is followed by buyers.

It is a complicated story, which took a while for me to trace through all of the threads and there are quite a few of them. In fact, in my opinion it is one of the most interesting stories in the short history of enterprise software. However, the rough synopsis is that a very large number of advisors have been providing incorrect information to their clients on ERP for decades. How much they knew is a point of debate. However, the consulting companies specifically would have known the true outcomes of ERP because they had access to large number of implementations of ERP systems and could easily tabulate the results. If the IT analysts had cared to look they would have found the same thing. But releasing such information would not have been profit maximizing.

What this all means is that enterprise software buyers have greatly over invested in ERP systems, and greatly underinvested in best of breed solutions — and they did this in great part because they were told that this was the “smart strategy” a series of advisors who had a financial bias to support ERP regardless of the actual outcomes.

As ERP systems have been purchased since the mid-1980′s, and have been such a large portion of the overall IT budget of most companies since this time, this means that ERP is an excellent candidate for being the largest misallocation of enterprise technology spending since the enterprise software market first developed.

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Lora Cecere Lora Cecere June 23, 2014 at 6:52 pm

Hi and thanks for your comment. I think ERP is necessary as a system of record for transactions. I think we have to be careful here; because, I do not think we would have built effective global supply chains without the ERP system of record. However, I think analysts that did not understand planning overstepped their levels of understanding with the definition of the ERPII platform in 2002. ERP never delivered on this platform promise for planning.

My two cents….

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Shaun Snapp June 23, 2014 at 10:01 pm

Lora,

Everyone that I have told this story to eventually proposes the same thing, that ERP is necessary. There are a number of shades of grey that one must get into to explain why I say ERP is not a necessary fixture and I don’t want to dominate the comments of this article. However the short version of the story is that planning or initial objects can be converted into final “transactions” within the best of breed application — and these can then be sent to a best of breed financial system for posting. This actually provides the company with more flexibility in all of the best of breed applications — enhancing the ROI of each of them.

Best of breed financial applications like FinancialForce and Intacct are so far advanced over the financial functionality within ERP that companies that go the ERP route are at a competitive disadvantage — and that is just in finance. The same issue generalizes to best of breed vendors outside of finance. FinancialForce and Intacct are very rapidly growing software vendors because some buyers have figured this out.

I would be happy to go through the logic and the evidence in much more detail for this architecture at your Imagine conference for an interested audience. I have a large amount of research to present, not only technical, but total cost of ownership and functionality ratings per strategy as well. I think anyone who were to attend the session (if it were to occur) would come away quite surprised.

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Stefan de Kok June 24, 2014 at 6:31 pm

Lora,

I feel heartened that your study validates what the practitioners have witnessed in practice all these years, but never had aggregate data to support.

Thank you for fighting the good fight. I am with you!

Stefan

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Jim Cerra June 26, 2014 at 1:28 am

Lora,

Thank you for the well explained and “brave” article that takes the big companies head on (ERP and their consulting friends). I confess that as a best-of-breed APS provider your findings are music to my ears. We’ve been in this business for over 20 years –best-of-breed then acquired by Epicor ERP then back to best-of-breed (where focusing on software innovation is much easier). What seems to happen time and again is that ERP purchases are made in hope that with the new system will miraculously flow business improvements, literally buying into the expert marketing and assurances, while ignoring or discounting the clear lack of software function that can be demonstrated by smaller, more focused providers who do nothing but solve the core (and tricky) problem of interest every day. Maybe it’s an example of human nature choosing what we want to be true despite the hard facts staring us in the face. Whatever the reason, what we’re trying to do at our company to help businesses avoid this trap is make it as easy as possible to get started, as fast as possible to finish, and keep improving our software — all to make the contrast that much clearer and the risks of taking a “chance” with a smaller company that much lower. As you say, with a less than one year ROI, why not just solve your problems the focused and easy way? Perhaps the next generation will see that best-of-breed software is to business what “apps” are to their smart phones — easy drop-ins that do the one thing they want very well.

Jim

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Lora Cecere Lora Cecere June 29, 2014 at 1:24 pm

thanks Jim!

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