3 causes of ERP supply chain management failure

Supply chains can fail for any number of reasons. Many, such as a supplier that suddenly goes out of business are often beyond the control of management. However there are some causes of supply chain failure, such as poor ERP supply chain processes, where the blame lies squarely at the feet of senior management.

1. Viewing ERP as the answer to cost cutting pressures

When supply chain management is all about finding the lowest cost supplier, there are risks. If the low-cost supplier delivers poor quality products a business can compensate by increasing quality controls or they can accept a decline in product quality.

Many businesses have come to rely on ERP as their supply chain safety net. In the case of low cost suppliers, many use their ERP quality control modules or CRM to accommodate the risk involved. This can often place pressure on the system and its users increasing the likelihood of supply chain failure. ERP supply chain management is a valuable tool, but one that must be used alongside common sense and the other tools in our toolbox.

2. Automating supply chain processes without fail-safes

Both supply and demand can be hurt when ERP supply chain management processes are automated without important fail safe controls in place. If a poor forecast drives demands and orders are placed with suppliers without forecast verification, the result can be a surplus or deficit in inventory.

Recommended Reading: seven steps to distribution ERP selection success

When a purchase order is placed and conditions change during the lead time, similar inventory problems can occur. We all strive for automated ERP processes as they bring lower overall costs and usually improved control, but we need to ensure these automated processes are regularly audited for accuracy and reliability.

3. Over-estimating efficiency gains

Outsourcing production is often a good method of improving efficiencies – we should stick to our core competencies after all. This can mean we ask our suppliers to deliver assembled components instead of several components we assembled in-house in the past. We also can outsource fulfillment. The final assembly in production may be whether to deliver our product with a pink cover or a green one and our third party distribution center can help.

We will expect gains in efficiency to pay for these outsourced operations. What happens when we use ERP to predict a 30% gain in efficiency and decided to lay off 30% of our own labor force? We save money and our stock price goes up. But when we realize we should have only laid off 25%, we are already late on the next orders and some of the 5% already have new jobs, the importance of accurate efficiency forecasting becomes apparent.

Our supply chain is a critical process and we must manage it well using our ERP. Good management can lift our business above the competition. Pay attention to the details and constantly seek ERP supply chain management improvements.