Tag: ERP

Guest Post: Why ERP Saves Money

Katie Decker is Marketing Manager at Account Mate, a California software firm with over 150,000 clients.

When most businesses think about implementing an ERP (Enterprise Resource Planning) system (see Ch. 14 in your Heizer/Render/Munson text), they focus on the obvious benefits: streamlined operations, better reporting, and centralized data. But the biggest cost savings from ERP often come from these 5 unexpected areas.

1. Less Money Tied Up in Stock  Too much inventory, over-ordering, poor forecasting, and lack of visibility often leave businesses sitting on cash in the form of unsold goods. ERP provides:

  • Real-time inventory visibility across warehouses, stores, and channels
  • Better demand forecasting to avoid overstocking or stockouts
  • Automated reorder points to optimize purchasing

A large retailer can reduce excess inventory freeing up hundreds of thousands in working capital.

2. Eliminating Revenue Leakage Through Better Invoicing One of the hidden money drains in many businesses is revenue leakage – money earned but never collected. It happens when:

  • Invoices go out late
  • Incorrect billing slips through
  • Credits and discounts aren’t tracked properly

An ERP system centralizes financial data, integrates it with operations, and automates invoicing so nothing falls through the cracks. When invoice turnaround times improve, collection periods drop, significantly improving liquidity.

3. Reducing Compliance Costs and Avoiding Penalties Compliance mistakes are expensive – whether it’s sales tax miscalculations, missed deadlines, or poor audit readiness. ERP makes it easier to:

  • Automate tax calculations
  • Maintain detailed, audit-ready records
  • Track regulatory changes without manual spreadsheets

A manufacturer can avoid potential fines when automating compliance tracking and reporting.

4. Optimizing Workforce Productivity Without Increasing Headcount Labor costs are one of the biggest expenses for any organization. While most leaders expect ERP to make teams “more efficient,” few realize how much efficiency translates into real savings:

  • Automated workflows reduce manual, repetitive tasks
  • Integrated data eliminates duplicate entry
  • Self-service portals empower employees and customers alike

Purchase order approvals and customer reporting can be automated – without laying anyone off.

5. Preventing Costly Errors Before They Snowball Manual processes and disconnected systems increase the chance of making expensive mistakes:

  • Incorrect shipments
  • Duplicate payments
  • Mismanaged vendor contracts

ERP systems reduce these risks by centralizing information and automating checks and balances. Reducing order fulfillment errors saves thousands annually in returns, reshipping fees, and customer appeasements.

Guest Post: Not Implementing ERP Systems Can Be Costly

Katie Decker is Marketing Manager at Account Mate, a California software firm with over 150,000 clients

Companies that hesitate to invest in an Enterprise Resource Planning (ERP) system (see Chapter 14 in your Heizer/Render/Munson text) often believe they are saving money. But the hidden costs of not implementing an ERP system can significantly impact efficiency, scalability, and profitability. While the upfront investment in ERP may be substantial, the long-term consequences of operating without one can be far more costly. Here are 8 reasons why:

1. Inefficiency Leads to Operational Silos One of the primary disadvantages of not using an ERP system is the lack of integration among different business functions. This fragmentation means employees waste time manually transferring data between systems, increasing the risk of errors.

2. Increased Human Error Leads to Data Inaccuracy Manual data entry is prone to mistakes, which can have significant repercussions on financial reporting, inventory management, and customer service. Over time, inaccurate data can result in revenue loss, compliance issues, and reputational damage.

3. Poor Decision-Making Due to Lack of Real-Time Data Businesses without an ERP system often rely on outdated reports, which can lead to poor decision-making,  missed opportunities or reactive rather than proactive business strategies.

4. Higher Operational Costs Without ERP, companies must invest in multiple software solutions, each with their own licensing fees, maintenance costs, and IT support requirements. Over time, these expenses can add up to more than the price of an ERP system.

5. Limited Scalability and Growth Restrictions Companies relying on outdated systems or spreadsheets often struggle to scale efficiently, leading to bottlenecks in production, supply chain management, and customer service.

6. Compliance and Security Risks ERP solutions provide built-in compliance tools and robust security features to protect sensitive business data.

7. Customer Dissatisfaction Can Lead to Lost Revenue A lack of integration between sales, inventory, and customer service can lead to poor customer experiences with delayed order processing, inventory shortages, and inconsistent communication.

8. Competitive Disadvantage Companies that don’t adopt ERP risk falling behind competitors who integrate ERP technology to optimize their operations. In a digital-first economy, businesses that prioritize automation, real-time data analysis, and efficiency gain a significant edge over those relying on outdated systems.

 

Guest Post: ERP as a Competitive Differentiator

Katie Decker is Marketing Manager at Account Mate, a California software firm with over 150,000 clients

In 2025, exceptional customer service is king. It is also a competitive differentiator. To meet growing customer expectations, businesses are turning to enterprise resource planning (ERP) systems, the topic of Chapter 14 in your Heizer/Render/Munson text. Modern ERP solutions enable companies to centralize data, respond to customer needs in real time, and use feedback to drive continuous improvement.

Here’s how ERP software is helps businesses achieve customer service excellence.

ERP Software Centralizes Customer Data Management through a unified platform to manage customer data:

  • 360-Degree View of Customers: By consolidating data from sales, marketing, and support teams, ERP systems create a single source of truth. This allows businesses to track customer interactions, purchase history, and preferences, enabling tailored interactions.
  • Improved Collaboration: With centralized customer data, different departments can collaborate more effectively. Sales, support, and operations teams can work together to address customer needs without duplicating efforts or missing critical details.
  • Data-Driven Personalization: Leveraging customer insights from ERP systems, businesses can personalize their offerings, recommend relevant products, and deliver experiences that resonate with individual preferences.

ERP Software Improves Responsiveness with Real-Time Insights and streamlining processes:

  • Streamlining Service Requests: ERP systems integrate with customer service platforms to manage tickets, prioritize requests, and route them to the appropriate teams.
  • Order Tracking: Real-time order tracking allow customer service teams to provide instant updates on order statuses, shipping details, and estimated delivery times, improving transparency and trust.
  • Proactive Issue Resolution: By analyzing real-time data, ERP systems can identify potential issues, such as delayed shipments or inventory shortages, before they impact the customer. Businesses can take proactive measures to address problems and maintain satisfaction.

ERP Software Integrates Customer Feedback by helping businesses collect, analyze, and act:

  • Feedback Collection: ERP tools can integrate with surveys and reviews to gather customer opinions and sentiments. This provides a comprehensive view of customer satisfaction.
  • Data Analysis for Insights: ERP analytics modules process feedback data to identify trends, recurring issues, and areas for improvement. This allows businesses to prioritize actions that enhance service quality.
  • Closing the Feedback Loop: By integrating feedback with CRM and support systems, ERP solutions enable businesses to inform customers about the steps taken to address their concerns, building trust and loyalty.

Guest Post: How Will Artificial Intelligence Impact ERP Systems?

Katie Decker is Marketing Manager at Account Mate, a California software firm with over 150,000 clients. She regularly shares her ERP expertise with our readers.

The integration of AI into Enterprise Resource Planning (ERP) systems (the topic of Ch. 14 in your Heizer/Render/Munson text) may revolutionize how businesses manage their operations. There is a lot of buzz around how AI will impact all businesses, and ERP software is not exempt. AI can transform ERP systems from mere transactional platforms to intelligent systems capable of predictive analytics, process automation, and enhanced decision-making.

Benefits of AI-Enhanced ERP Systems

  1. Increased Efficiency: Automation of routine tasks and processes reduces manual effort, speeds up operations, and increases overall efficiency.
  2. Cost Savings: AI-driven optimizations lead to cost savings in various areas, including inventory management, supply chain operations, and customer service.
  3. Better Decision-Making: Enhanced analytics and predictive capabilities provide more accurate and timely information, enabling better decision-making.
  4. Improved Customer Satisfaction: AI-powered customer service tools and personalized experiences lead to higher customer satisfaction and loyalty.
  5. Scalability: AI-enhanced ERP systems can scale easily to handle growing data volumes and business complexity, making them suitable for businesses of all sizes.

Challenges and Considerations

  1. Data Quality: The effectiveness of AI depends on the quality of data. Businesses must ensure their data is accurate, clean, and well-organized.
  2. Integration: Integrating AI with existing ERP systems can be complex and may require significant changes to infrastructure and processes.
  3. Change Management: Implementing AI requires changes in workflows and employee roles. Effective change management and training are essential for successful adoption.
  4. Security and Privacy: AI systems handle sensitive data, making robust security measures and compliance with data privacy regulations crucial.

AI is poised to have a profound impact on ERP systems, transforming them into intelligent platforms that can predict, automate, and optimize various business processes. By leveraging AI, businesses can achieve greater efficiency, cost savings, and enhanced decision-making. However, successful implementation requires careful planning, quality data, and a focus on change management.

Guest Post: 6 Ways ERP Improves Workflows and Repetitive Tasks

Katie Decker is Marketing Manager at Account Mate, a California software firm with over 150,000 clients

It is common for firms to face numerous challenges that can hinder productivity, efficiency, and overall performance. Enterprise resource planning (ERP) software, the topic in Ch. 14 of your Heizer/Render/Munson text, offers a powerful solution by streamlining operations, automating processes, and unlocking new levels of efficiency. It does this in six ways:

  1. Automate Workflows ERP software automates repetitive tasks and workflows, reducing the reliance on manual intervention and minimizing the risk of errors or delays. By defining predefined workflows and business rules, ERP systems can automatically route tasks, trigger notifications, and initiate actions based on predefined criteria.
  2. Centralize Data Management ERP software has the ability to centralize data from various departments within the organization. By consolidating data into a single, unified platform, ERP eliminates data silos and ensures that information is easily accessible to all stakeholders.
  3.  Optimize Resource Allocation ERP software enables businesses to optimize resource allocation by providing real-time visibility into resource utilization, capacity, and demand across various functions and projects. With this insight, decision-makers can allocate resources more effectively, identify bottlenecks, and adjust workflows to maximize productivity.
  4. Enhance Collaboration and Communication ERP systems facilitate collaboration and communication among team members, departments, and external stakeholders. It encourages integrated communication tools, document sharing capabilities, and collaborative workspaces.
  5. Analytics and Decision-Making ERP software provides powerful analytics and reporting tools that enable businesses to gain actionable insights from their data. By analyzing key performance indicators (KPIs), trends, and metrics, decision-makers can make informed decisions, identify opportunities for improvement, and optimize processes.
  6. Scalability and Flexibility As businesses grow, ERP software accommodates changing needs and requirements. Whether expanding into new markets, adding new products or services, or entering new business lines, ERP systems provide the flexibility and scalability to support organizational growth.

As businesses continue to embrace digital transformation, investing in ERP software is an important tool for staying competitive, agile, and resilient in today’s dynamic business environment.

Classroom discussion questions:

  1. What are the advantages of ERP?
  2.  The disadvantages?

OM in the News: John Deere’s Approach to an ERP Upgrade

In Chapter 3, Project Management, we discuss the difference between the waterfall approach to controlling projects versus the agile style of management.  With the first, waterfall, well-defined projects have changes small enough to be managed without substantially revising plans. The projects progress smoothly in a step-by-step manner through each phase. But many projects, like software development, are ill-defined and need an agile approach with constant feedback and adjustments. Such projects are tackled incrementally and small chunks meet limited objectives.

John Deere had invested heavily in a traditional ERP upgrade in Australia, with poor results. Dealers complained that the new system was too hard to use and unintuitive. For example, one process that had been 5 steps turned into 27. Data was inconsistent and often inaccurate, and the system crashed often. After numerous expensive attempts with ‘off the shelf’ ERP software developed by the waterfall approach, John Deere decided to take an agile approach as it upgrades its U.S. Enterprise Resource Planning System (the topic of Chapter 14), says Industry Week (Aug. 11, 2022). 

The old non-customized “off the shelf” ERP systems were just not able to keep up with John Deere’s innovations. For instance, Deere sales teams will be using tablets with video demos and financial data in the field to present new products to customers. Similarly, management wanted current data with product availability and payment data immediately available via a tablet.

Management also recognized the advantages of agile project management. These include faster delivery of new functionality, better alignment between users and developers, and giving users more ownership of new processes. Deere found that another distinct advantage of the agile approach is that as incremental improvements are made in the system both user and customer satisfaction improved. And improved morale supports even more changes. This closer connection between users and developers is expected to bode well for enhanced responsiveness to future changes in Deere’s business processes.

Classroom discussion questions:

1. The use of an in-house agile approach to ERP development will require changes in the John Deere organization. What are some of these changes?
2. The growing digitalization of business suggests what other changes may be coming Deere’s way?

OM in the News: Nike Overhauls its ERP System

Nike just announced it will launch its new ERP system across its global network this year in a bid to increase inventory visibility and productivity, reports Supply Chain Dive (July 11, 2022). The system is the company’s biggest investment in its digital transformation, and is set to go live in China this month, and in North America in 2024. The ERP system will be “foundational for increasing speed and agility across our supply chain as Nike leans increasingly into direct-to-consumer sales,” says the firm’s CFO. The investment involves shifting its ERP onto the SAP S/4 HANA platform.

The ERP launch comes as the retailer continues to face elevated in-transit inventories and extended lead times to get products to market, issues that the new technology system could be instrumental in tackling. Transit times remain at roughly two weeks longer than pre-pandemic levels and aren’t expected to improve significantly through the end of 2023. In China, the extended transit times and factory closures have left Nike with bloated inventory reserves, with seasonal products arriving behind schedule. The firm says it is “recalibrating” its supply and demand in the region in response to shifting market conditions.

Nike has been planning an ERP overhaul since 2020, part of a strategy to more effectively service online customers and unify financial and inventory views across the company’s ecosystem. As part of the retailer’s acceleration of its direct-to-consumer strategy, the CFO noted that the revamped digital system should help fuel profits in China. “And our ERP is frankly the backbone that’s going to enable us to take advantage of those opportunities at a more significant way,” he said.

As we discuss in Chapter 14, ERP tools can make or break a business — they track and manage inventory, procurement, supply chain and other core business operations. Systems need to efficiently enable massive transaction volumes at global scale. But the enterprise technology landscape is riddled with ERP failures. Waste Management, for example, spent $100 million on its ERP failure.  Nike itself is also still somewhat scarred by its 20 year-old reputation as the poster child for bad ERP implementations, having spent $400 million on that earlier failed system.

Classroom discussion questions:

  1. What are the advantages and disadvantages of an ERP system?
  2.  Why do many systems fail and why are they so expensive?

OM in the News: Exciting New Trends in ERP

Enterprise resource planning (ERP) solutions, our topic in Chapter 14, have grown from back-end processes like accounting, HR, purchasing and supply chain management to front-office functions such as sales force automation, marketing automation and ecommerce. Businesses rely on ERP to not only cut costs by eliminating redundant processes and automating mundane tasks but also to provide employees access to critical information to make better decisions, faster.

As companies increasingly rely on ERP, these systems continue to evolve to incorporate new technologies and support a broader range of functions. Oracle NetSuite identifies several major trends this year.

  1. Cloud ERP Historically, many organizations used on-premises ERP applications. But businesses are adopting cloud ERP to take advantage of lower costs and the ability to easily add users and functions to accommodate business growth.
  1. Two-Tier ERP Historically, many companies tried to deploy a single ERP system for both the headquarters and all regional offices and subsidiaries. Two-tier ERP is a strategy that enables organizations to leverage their investment in existing ERP systems at the corporate level (tier 1), while subsidiaries and divisions operate using a different ERP solution (tier 2), which is often cloud-based.
  1. Digital Transformation Digital transformation refers to integrating digital technology into all business functions to improve daily operations. The integration of ERP with IoT devices and the adoption of AI and advanced analytics are part of this change.
  1. Other Technology Integrated With ERP Companies are integrating their business applications with other new technologies to improve core processes. For example, retailers use warehouse management systems that collect data from mobile scanners and smart conveyers to track the movement of goods within the warehouse.  We also see a greater connection between social media and ERP.
  1. Personalization Historically, ERP platforms with complex languages were difficult to customize to the specialized needs of each business. But organizations can now take advantage of what are called “low-code” platforms.
  1. AI-Powered Insights and Improvements Artificial intelligence and machine learning capabilities embedded into ERP systems work behind the scenes to help meet increased demand for personalization and improve a broad range of business processes.
  1. Predictive Analytics The hunger for AI-infused ERP highlights organizations’ increasing desire to mine their operational and customer data for new and relevant insights that will increase the top and bottom lines. (See Module G of your text).

Classroom discussion questions:

  1. Why have ERP systems seen these major changes?
  2. What is the advantage of a 2-tier ERP?

 

OM in the News: Implementing ERP at Coach and Kate Spade Brands

Luxury-goods company Tapestry, the owner of the Coach and Kate Spade brands, has undergone a tech makeover aimed at cutting costs and improving the shopping experience, reports The Wall Street Journal (Oct. 25, 2019). Acquiring Kate Spade in 2017 and Stuart Weitzman in 2015 left the company, formerly called Coach, with 3 brands operating independently under one roof. Various employees were doing similar tasks using different processes and information-technology systems. (Tapestry also sells its handbags, shoes and apparel in department stores).

NY-based Tapestry operates 1,500 stores under its 3 brands: Coach, Kate Spade and Stuart Weitzman

The company’s overhaul that has reduced duplication and centralized business operations across the three brands with a common technological backbone for functions including inventory management, distribution and sales. The centerpiece of the IT overhaul is a new software platform built around SAP’s S/4HANA enterprise-resource planning software that bridges back-office, logistics and other systems. ERP software integrates various functions into one system, streamlining processes and data across the company.

In the past the systems were integrated into seven ERP systems across brands and geographies and now Tapestry has one, single, global, multibrand platform. That provides a foundation for real-time features including inventory checks, in-store pickup for online purchases or the ability for sales associates to reserve a product for customers. The company is taking a 2-year charge of about $80 million related to ERP implementations. As we note in Ch. 14, ERP systems are long-term investments that don’t necessarily pay for themselves right off the bat. Seven years to eight years is often the break-even where a company sees its ERP investment pay off.

Tapestry’s ERP system takes information from point-of-sales systems in stores into a common back-office operation so there is a single process on reporting functions. The company now has a common system to collect and merge data generated by operations including inventory management and sales, providing a better high-level view of business performance across brands.

Classroom discussion questions:

  1. Why spend $80 million for someone else’s ERP system? Why don’t companies hire their own team of programmers to develop a customized version in-house?
  2. Provide examples of ways in which an integrated computer system can improve operations for Tapestry.

OM in the News: Merck Introduces Automation to its Supply Chain

German pharmaceuticals firm Merck plans to deploy artificial intelligence and predictive analytics throughout its entire supply chain by the end of 2019, reports The Wall Street Journal (Sept. 11, 2018). Occupying the forward edge of an industry-wide shift towards automated supply chains comes with a competitive advantage. But it also will require that Merck address those jobs affected by the technology, a process called AI augmentation.

The company is using analytics software from Aera Technology to mitigate supply shortages, predict spikes in demand and bottlenecks with about 100 products. It plans to expand the pilot program to its 5,000 products by the end of next year. Merck views AI as a way to augment the jobs of the company’s supply chain planners, and reduce often tedious and repetitive work. By 2021, AI augmentation will save billions of worker hours.

The Aera software captures supply chain data from dozens of data bases and ERP systems throughout the company. Then machine learning algorithms analyze it and suggest recommendations, such as whether and when to adjust product supply or demand forecasts. The algorithms factor in external data such as weather, natural disasters, trends in patient health and expansion plans of pharmacies.

In the pilot test, 10 supply chain planners get detailed alerts via automated phone messages every morning about supply shortages and spikes in demand. The system offers suggestions, based on real-time demand data, such as whether to increase inventory, start production or identify a replacement product across 100 drug products globally. By the end of 2019, one hundred supply chain planners will be using the technology. The goal is eventually to have the retrained supply chain employees make more accurate decisions about how to better position inventory, in order to guarantee supply for patients more effectively.

Classroom discussion questions:

  1. What is predictive analysis?
  2. What is the goal of AI augmentation?

 

 

Teaching Tip: How Microsoft Sells Supply Chain Management and ERP

ms scm graphicHere is proof that SCM has turned into a field that every student needs to understand. The following is from Microsoft’s web site called the Dynamics of SCM, which promotes its product, called Microsoft Dynamics ERP :

Supply chain management is the oversight of the entire lifecycle of a product or service: from its infancy as a raw material or idea, to the manufacturing of the product, to its distribution, to the retailer, and then ultimately, to the consumer. Each of these stages of the product or service is a link in a chain. Each step is fastened to the next, interconnecting to facilitate the creation of a product.

Maintaining a holistic view of your supply chain activities is essential for efficiency. You need to be able to examine your business—every inch of it—in real time. To have supply chain control, you need to know what’s going on at every stage, at all times.

An enterprise resource planning (ERP) solution will provide you the control of your supply chain you need for more efficient people and processes, better costs, happier customers and greater profits.  This automation helps reduce redundant tasks and can increase accuracy, all the way to your customer’s receiving dock. That can eliminate bottlenecks, improve order processes, and minimize both handling time and overhead.

ERP gives you the ability to find exactly the information you’re looking for so you can make smarter decisions more quickly.

  • Simplify critical purchasing and receiving processes.
  • Know what your customers want.
  • Keep inventory lean and still address demand.
  • Tools to make smarter buying decisions and to negotiate better terms.
  • Help improve customer service and improve customer relationships.

Good OM Reading: The State Of Operations Management in the Military

orms today coverSeventy-five years ago, near the beginning of World War II, the field of operations research was born in Britain. Today, as the U.S. emerges from the longest sustained war in its history, the military faces a post-war drawdown. During the mid-1990s, much of the conventional wisdom was that the U.S. was in the midst of a so-called “Revolution in Military Affairs.” Technology would provide a global precision strike capability that would give us “an ability to bomb any target on the planet with impunity, dominate any ocean, and move forces anywhere to defeat just about any army.”

In an excellent article just published in OR/MS Today (Feb., 2014), we read of a “vigorous military science” in the 1990’s, resulting in an excessive focus on modeling and simulation technology. For example, medical “planning factors” were derived from attrition-based, theater-level campaign model casualty projections, vastly over predicting casualties, thereby creating unnecessary and unaffordable requirements for medical force and supply support. More recent analyses of casualties have yielded major improvements in forecast accuracy and an ability to better design more responsive, lower cost medical support requirements. Research efforts have expanded to other areas, identifying spare part consumption patterns and readiness “drivers.” Using empirically derived usage patterns, profiles, and trends, the operational planning, demand forecasting and budget requirements have been significantly improved.

Persisting supply chain problems that existed 10 years ago are now also becoming increasingly more apparent. With mounting pressures to generate savings and find efficiencies, these issues include the inability to relate resources to readiness due to poor inventory management and fragmented supply chain operations across the materiel enterprise. The promise for improved performance attributed to large investments in enterprise resource planning (ERP) systems has not been realized, continuing to plague the services. But a recent study suggests major OM improvements can be achieved using decision-support systems empowered with advanced analytics, including dramatically improved demand forecast methods, sensor-based technologies for part replacement, and integrated supply chain optimization methods. These effects are likely to be in the range of many billions of dollars, resulting in a ROI of several orders of magnitude.

OM in the News: 3 Rules of Thumb for ERP Implementation

ERP-GraphicIn our discussion of ERP in Chapter 14, we write: “ERP systems are expensive, full of hidden issues, and time-consuming to install.”  Adds Apptricity (Sept. 16, 2013):  “ERP implementations too often turn into their own little hellish experiences for companies large and small.” Getting all of a company’s various data systems to talk to each other efficiently, accurately and instantly share data makes great sense. But many companies still don’t have effective and efficient ERP systems in place. So what can a firm that do to successfully implement an ERP system?

Apptricity provides these 3 old adages:

  1. Look Before Your Leap.  ERP systems are complex, touching on every department, worker, business activity, form, and data set. That means that every need, contingency, possibility, and potential barrier must be addressed in the planning process. Failure to do that invariably leads to frustrating and expensive delays.
  2. Too Many Cooks Spoil the Broth. Managing an ERP implementation presents similar challenges. If there are too many chefs involved in development of the ERP system, the end result is likely to be system that can do lots of things only moderately well – and often at a much higher cost than anticipated. But if the planning doesn’t include the CEO, CFO, and CIO, the result is likely to be a system with gaping holes. It is critical that these execs properly define the scope and budget of an implementation and then assemble a team that includes the right workers.
  3. Be careful what you ask for. Many companies choose a vendor to design and install a system based on the dual promise that what it is being bought is a proven, bolt-on system that can still be customized to meet the company’s needs. The problem is that instead of bolting on a proven system and customizing only 15-20% of it, what typically happens is that 50-85% of the bolt-on ERP system ends up being customized. That dramatically inflates the cost of the project and creates lengthy delays.

It all goes back to the planning process. Once a company determines what its scope and budget for an ERP system should be, management should firmly commit the company to staying within that scope and budget.

Classroom discussion questions:

1. Why are ERP systems important?

2. Why are the systems hard to implement, and why do they fail to deliver so often?

OM in the News: Air Force Battles to Overhaul its ERP Systems

air forceAs we write in Chapter 14 (MRP and ERP): “ERP systems are expensive, full of hidden issues, and time-consuming to install.” The U.S. Air Force provides a perfect case study for your class. After a failed $1 billion effort to modernize its aging IT infrastructure, the  Air Force is working on a new Enterprise Resource Planning system. Part of the effort, says The Wall Street Journal/CIO Journal (Feb. 5,2013), will require finding deficiencies buried within its patchwork network of computer systems, some of which are decades old.

In 2005, the Air Force attempted to replace aging systems with new hardware and new ERP software from Oracle. The Air Force signed a $627 million contract with Computer Sciences Corporation to integrate the system, but 7 years and $1 billion later, it realized that it would cost another $1 billion just to implement only 25% of the planned capabilities. The Air Force’s main mistakes were failing to define its business requirements while trying to upgrade its disparate systems.

The new project, whose costs the Air Force declined to reveal, calls for a new software system that offers a complete view of the Air Force’s business operations, including its supply chain, sales and operations, maintenance repair and engineering data. But to meet the 2017 deadline, the team must comb through thousands of deficiencies across 19 legacy systems. For example, the current system does not allow the deletion of vehicle ID numbers, which means the Air Force cannot properly track and take inventory of existing vehicles.

“We think we can break this problem up into smaller subsets, field those subsets on a quicker cycle and at a lower cost, and with less risk,” says the general in charge. But the CEO of one IT consulting firm said that while he agreed that the Air Force’s approach of breaking up the project into smaller subsets is correct he wondered why this wasn’t done before the Air Force spent so much money on the previous project. “The most basic tenet of ERP implementation is know why you need the system and how you intend to make it work.”

Discussion questions:

1. Why are ERP (and other large programs) so difficult to implement?

2. What mistakes did the Air Force make in this project?