ABC of System Thinking for SAP ERP

SAP ERP system is in reality a sub-system within a larger system. It is also a system mechanism used to facilitate business processes. The ERP system resides in a further system which consists of server and network. Without server the ERP will not exist, without network, ERP will not function. A multi-national organization may consist of multiple ERP system covering territorial and legal entities.

Some Google stuff and other around ERP

  • ERP provides competitive advantage. In reality ERP projects have a high project failure and limited ability to deliver expected benefit.
  • Majority of CIO truly believe that ERP provides competitive advantage and have promoted project expenditure on this basis
  • Marin County accuses SAP, Deloitte Consulting of a racketeering scheme
  • Hershey ERP project failure
  1. Could not meet committed delivery date
  2. Product inventory started to pile up, increase of 20% post implementation
  3. Announcement of system malfunction resulted in 8% stock price reduction
  4. Profits and sales declined.
  • HP announces a 5% drop in revenue due to migrating central ERP system , total financial failure around US 160 million
  • U.S. Air Force Blows $1 Billion on Failed ERP Project
  • CIO : where one study found that nearly 70 % of the time, project success is “improbable.”  Where CIO is positive: sees “bright lights on the horizon,” such as the gradual emergence of cloud-based ERP. So CIO made a mess of ERP but will come out smiling with cloud based ERP. Angles in the clouds make a difference.

 Why these failure? Are these ERP so poor?

Some are technically poor, but using SAP as standard one can confirm that SAP ERP provides adequate platform to support organization. Some key consideration around SAP ERP:

  • It does not provided Competitive advantage, basic cost saving is the replacement of legacy with SAP. This implies that ERP system do not result in real competitive advantage. It may result in IT cost saving with the replacement of legacy system into one but real efficiency and effectiveness aspect that directly influence Competitive Advantage (productivity and profitability) are rarely achieved or rather never achieved due to the inability to manage system dynamics.
  • SAP generally a stable technical platform in that generally works (ability to process)
  • SAP does provide strong functionality critical for setting up a stable environment:
    • Centralized master data management
    • Well defined processes to support many organization requirements and industry unique requirements
    • It has a excellent technical platform to manage enhancement
    • Ensure good integration with external system
    • Performance (process time) fairly adequate
    • Provides compliance such as FDA, SOX IQMS

So one can conclude that yes SAP good technical system, but then why not delivering expected benefits, real leverage? Reality a combination of many things,

  • Role of the CIO
    • CIO undermine complexity, they firmly believe marketing hype provided by vendors
    • Many have a poor project framework (scope, methodology) resulting in overruns
    • Simple thing like addressing keeping certain legacy system have no qualitative process to make informed decision resulting in costly interface that create additional constraints
    • Too reliant on external partners
    • Are not forceful with the business to ensure that skilled resources that really know the business partner the IT teams
  • The business
    • CEO rarely request real leverage criteria from efficiency and effectiveness perspective.
    • CEO does not ensure that the project is supported by knowledgeable resource
    • Implementation Partners
    • Poor support and guidance of CIO to set up an efficient project framework and governance
    • Resource have limited business skill, are only familiar with software
    • Due to competition amongst partners there has been a drive to reduce billable rates resulting in poorly skilled technical resources
    • Outsourcing has aggravated the ability to deliver quality solution.
    • Implementation Partners focus on delivery of capability, never efficiency and effectiveness. This is one the key areas why ERP project fail: close to 99% of ERP never consider and understand system dynamics. Project that result in inventory problems , poor customer service are all due to not considering system dynamics
  • The SAP system
    • The SAP system can be generally defined as fairly good ERP system to set-up a proper baseline and foundation for managing and leverage business
    • Reality is that no Supply Chain can be optimized without clearly understanding system dynamics
    • The SAP system does have its flaws:
      • It does not handle well enough system dynamics, even the SAP APO platform has its limitation
      • System aspects like balancing feed-back (positive or negative) or reinforcing feed-back generally not supported
      • It is not a learning system that tries and understand system dynamics in order to provide refinement

What then? Do nothing?

Obviously one can get the SAP to be perfect but if one does not address weakness with CIO, implementation partners and lack of skilled business resources one will still not achieve leverage.

  1.  CIO must have proper project framework in place, Not rocket science
  2. Continuous transformation using system thinking and system dynamics approach to continuously increase and maintain competitive advantage allows skill set within the organization to support the CIO with their SAP ERP project. Continuous transformation and learning becomes a way of life within the organization
  3. Implementation partner in their design must consider system dynamics
  4. SAP system currently as is will require custom enhancement (not really a problem, SAP provides good technical platform to manage enhancement) to address system dynamics and the handling of feedback.

Many organization have already SAP in place, therefore the next step is to address how SAP can leverage the organization for real tangible benefits that result in the increasing and maintenance of competitive advantage (productivity, profitability and service) .

This optimization and transformation should be carried-out adopting System Thinking and System Dynamics framework. Once there is clarity on how to qualitatively and quantitatively reduce cost and increase effective’s one can identify areas of intervention within SAP with related organization changes to provide leverage. Small changes can result in big benefits.



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