Holy grail of ERP and S&OP

Both Enterprise Resource Planning (ERP) and Sales & Operations Planning (S&OP) have been around since the 1980s. ERP experienced its real breakthrough during the late nineties because companies became – or were made to be – afraid of the impending doom of ‘Y2K’, the new millennium that made the traditional way of using only two digits obsolete for a year. Meanwhile, S&OP has been skyrocketing as a management process for the past few years because of the volatility of demand brought about by the current economic crisis.

The analysts at Gartner invented the phrase ERP for software systems across an entire organisation. In reality, ERP systems were not integrated systems, but instead consisted of several different modules for each individual, functional business silo. By exchanging internal transactions, an ERP system was meant to provide an overview of entire companies, mainly large and complex ones and, initially, mostly in manufacturing. But ERP doesn’t do any real planning – it can’t even recognise the probability distribution of the demand for each individual product, which is essential for managing the supply chain. Some companies still try to roll out a single ERP system throughout the whole company across the globe, in spite of mergers and acquisitions and huge changes in the world.

Companies are now embracing S&OP on a broad level. The process of matching supply and demand in the short term is not new; companies have been doing that for decades. But S&OP makes it formal and tries to link the demand and supply plans to the company’s budget in the long term, with a planning horizon of more than a year. In order to make this process successful, all the key departments need to contribute to it. Apart from the typical behaviour of each functional silo, another major problem is that it takes a lot of effort to obtain the necessary data and information in order to make the right decision. Large companies, or their divisions, do not yet have a truly integrated, single ERP system that provides all the right figures, on the spot.

Organisations should not regard ERP and S&OP as the holy grail to solve all their business problems; they are merely the hammer and nails. Use them with organisational common sense.

Martijn Lofvers, Publishing Director & Editor-in-Chief
Supply Chain Movement
martijn.lofvers@supplychainmedia.nl