ERP or Planning System, Which Comes First?

Supply chain executives have a “chicken or the egg” problem when it’s time to put their data to work: it’s hard to know which to choose first: an ERP system or a planning system.

My colleague Dave Brown discussed this choice in his blog post earlier this year: while ERP systems or enterprise platforms are important they are not typically suitable for planning and optimizing production processes and the supply chain in disassembly industries like meat and dairy.

An ERP (enterprise resource planning program) is a vital part of your business infrastructure that does static, non-volatile tasks well, such as your financials, contract to cash cycle, or housing key data. However, it’s not built to do everything well or to handle the kind of fluctuation and volatility we see in the global food supply chain. When you need support software to handle aspects of your business that are unique to you or that involve complexity and volatility you’ll need to look beyond your ERP system.

If ERP systems are not the complete answer it then raises the question of what software you should implement first – thus the title of this blog. You may assume you can’t implement a supply chain optimization system when you’re in the middle of a multi-year ERP implementation or about to start one. You may feel resigned to the fact that that your ERP solution is not going to be able to deliver what you need in the planning space. I can reassure you that it’s possible to have a successful tandem implementation – my colleague Simon wrote about that in this blog post.

What ERP systems are really good at are areas where processes and data are static and standard across the majority of the business. ERP providers have built the appropriate checks and controls around these processes that manage risk and provide good governance. However, ERP providers look to sell their platform across diverse industries from banking, to food production, mining and industrial manufacturing. This results in compromises that impact performance, as they are offering the same product regardless of industry. It can also result in surprise costs if you don’t want to fit to the existing ERP mold and need to customize. In that scenario a tandem implementation with an optimization and forecasting product can be a better fit, as can a decision to implement your optimization, planning, and forecasting system first.

ERP systems are important where there are standardized processes, however, as pointed out by Dave’s analogy they are not the complete answer. Think of your challenges in terms of systems of record (ERP systems) vs systems of differentiation (optimization tools, forecasting tools, etc). The two are complementary, not competitive; this is what supports companies to develop their unique competitive advantage.

In a company I worked for previously we didn’t use the ERP system to solve the core planning/optimization problem. We decided to go to a specific optimization and planning solution to solve a complex product mix problem where there were interrelated product choices, a complex network of plants, and different customer propensities to pay. Our ERP provider simply couldn’t handle this.

Back to the question of the chicken or the egg. Factors you need to consider in making the “ERP or optimization and forecasting system” decision are:

ERP projects are significant and can take 2-3 years from initiation to delivery – best case scenario. This means time to value with an ERP system is quite long, whereas we can deliver a project in as few as 6 months, depending on complexity – a significantly shorter time to value equation.

An optimization, planning, and forecasting project will have a significantly smaller resource drain and disruption on your business than an ERP implementation.

Our experience with customers has shown revenue uplift of between 1-5 % (significant for multi-million and multi-billion dollar global companies in the food supply chain) and a payback within 3-12 months.

Our open data ingestion architecture means we can immediately take native code from existing systems and begin work, then simply switch to receiving data from the ERP system and returning it as you bring the ERP tool online.

Doing the supply chain optimization first will significantly reduce the cost of your ERP implementation. It does this by reducing the scope of ERP purchase which are more expensive and difficult to implement. It also enables a much more focused and targeted ERP implementation, making it cheaper and faster with less disruption to the business.

I’ve discussed several benefits of tandem implementation, but one additional significant benefit of doing the supply chain optimization in tandem with the ERP implementation is that the ERP system can be funded with the benefits from the planning/optimization system.

In summary I would advocate that instead of looking to roll out an ERP system first you carefully evaluate if it makes sense to do your planning, forecasting, and optimization platform either first or in tandem with your ERP system.

I can help you think through this challenge – reach out to schedule a time to talk!