Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

9.3.1 Possibilities and Limitations of the IT Support of Planning & Control

Intended learning outcomes: Explain the influence of ERP or SCM software on the extent to which corporate objectives are fulfilled. Disclose why objectives aimed at improving the company’s performance can only partly be affected by the ERP or SCM software. Identify situations where ERP or SCM software can be used to good effect.


“There is no satisfactory ERP or SCM software package.” Within companies, this type of view is generally expressed in departments involved in the strategic or overall management of the company, rather than operational management. The problem is often that such people have the wrong expectations of what ERP or SCM software can and cannot do.

These unrealistic expectations may be explained by the abbreviation PPC, which stands for Production Planning & Control, and by the term PPC system. These are used to describe both the actual task of planning & control and the software used to support this task. The same is true for the abbreviations, or the terms

  • ERP (Enterprise Resource Planning), or ERP system,
  • SCM (Supply Chain Management), or SCM system,
  • APS (Advanced Planning and Scheduling, or APS system.

An opinion about one cannot be applied to the other. The mistake is still made, however, often unintentionally but sometimes intentionally, as well (for both positive and negative purposes). The term software is therefore used below in association with IT support.

The acronyms PPC, SCM, or APS can nevertheless be misleading when used in association with the software. This mis­under­stan­ding may even be encouraged by the software vendors, but unfortu­na­tely, it leaves a large area open to attack by anyone looking for an argument.

  • The first letters in PPC and in SCM have exten­ded meanings. PPC software packages no longer relate solely to production or supply, but rather as ERP software to the entire logistics chain from sales, production, and procure­ment, through distribution and maintenance. In addition, new require­ments have arisen in associa­tion with return and recycling. It is also no longer possible to equate PPC software with MRP II packages since it incorporates the just-in-time, the variant-oriented, and the processor-oriented concept and with varying levels of quality, just like the MRP II concept. Similarly, SCM software is as useful for demand chain planning.
  • The letter “P” in PPC or APS for “planning”: Neither a PPC soft­ware nor an ERP software nor an SCM software nor an APS software does planning in the strict sense of the word. It simply supports the planning function, for example, by showing the availability of components and capacity along the time axis. Then comes the planning, e.g., action to change stocks, capacity, or order dates. Every attempt to hand this planning step over to the computer, e.g., through the use of simulation software, has ultimately failed, be­cause the software is unable to cope with the day-to-day problems of decision making, either because the relevant parameters were not all known or because they could not be reliably shown along the time axis.
  • The letter “C” in PPC for “control” or “S” in APS for “sche­duling”: Neither PPC nor ERP nor SCM nor APS software controls or schedules any­thing in the strict sense of the word. In the best-case scenario, it merely provides a snapshot of the current status of order processing in the various domains in the company and recommends options for control or regulation. The actual control or scheduling task still has to be carried out by people. Production and procurement in the manufacturing and service industries cannot be compared to the control of a machine or production system, since the equation inevitably includes people whose behavior finally cannot be predicted or simulated. On the other hand, although the inclusion of people as a produc­tion factor appears to be a disadvantage, it is also an advantage: No automated control system will ever be able to match the capabilities and potential of a human in control or scheduling, however flexible and autonomous it might be.

So what are the consequences with respect to the influence of ERP or SCM software on a company’s ability to fulfill the entrepreneurial objectives? Figure 9.3.1.1 lists the four target areas discussed in Figure 1.3.1.1 and shows, for each primary and secondary objective, the extent to which ERP or SCM software can help to fulfill the objective.

Fig. 9.3.1.1         Influence of ERP or SCM software on the extent to which corporate objectives are fulfilled.

If we consider the extent to which software influences the various objectives, we see that the objectives aimed at improving the company’s performance can only partly be affected by the ERP or SCM software.

  • Quality: The advantage of using ERP or SCM software is that a com­pa­ny has to explicitly store its products and services, and the processes by which they are created, in the form of master data or, more precisely, in the form of bills of material, routing sheets, or master data on technology and the network. In this way, products, processes, and organization are made transparent and easy to understand for all employees. However, this is only an aid to description and thus has only a minor influence over quality. The quality of products, processes, and the organization is more substantially improved by design, devel­opment of processes, and through the choice of production infrastructure, employees, and partners in the supply chain.
  • Costs: Reduction of inventory in store and in process and increa­sing the utilization of capacity lead to conflicting objectives. ERP or SCM software cannot resolve these conflicts, but it makes the processes faster, more comprehensive, and transparent to more people. As indicated above, decisions concerning scheduling and materials planning and the actual control cannot be left to the software, so the increased transparency must be converted into better decisions by the people involved. The software thus has only an indirect influence.

ERP and SCM software require a complete and accurate manage­ment of master and order data. The software thus has a direct influence on improving the input for costing and accounting. The soft­ware supports the automation of the processes. It thus has a direct influence on reducing the cost rates for administration. However, stocks and utilization are also subject to macroeconomic influences, such as the employment market and the competitiveness of an entire national economy.

  • Delivery: Information on orders in progress or stocks can be quickly called up by anyone involved in the process. Software thus directly reduces lead times within the data and control flow. Experience shows, however, that this does not necessarily affect lead times within the goods flow. This can be illustrated by an example in which it took just a few seconds to identify the physical location of a delayed order within the factory. The check demonstrated that the information was correct and reliable, but the goods had been left there because the operator was un­available. This meant that the promised delivery date could not be met.

Shorter overall lead times and increased delivery reliability therefore require a firm foundation within the company’s internal organization. Simply holding the data on the computer is not enough to improve fill rates or customer service ratios — action must be taken in practice, as well. Thus, the software has only an indirect influence on the target area of delivery as well.

  • Flexibility: As a first aspect of flexibility, today’s soft­ware allows product families with a wide range of variants to be managed efficiently. In fact, this is essential to be able to respond flexibly to customers’ requirements. However, the potential for flexibility is determined more by the way processes and the production infra­struc­ture are designed and planned. ERP or SCM software are a less important factor.

The same applies to the other aspect of flexibility — the utilization of re­sources. ERP or SCM software quickly provides comprehensive in­for­mation on the needs and options arising from a given situation. It will rarely be able to make the decision to mo­ve resources without human input, however. It is worth repeating that the ability to use people flexibly and the capacity of machines to be used flexibly will essentially depend on the qualifications of those people and on the way in which the production infrastructure was planned.

If we consider these points together with Figure 9.3.1.1, we draw the following conclusion:

ERP or SCM software provides IT support for planning & control the way in which a company provides its services. However, an ERP or SCM software package is used first and foremost — and, in most cases, successfully — for representing products and their production and procurement processes (make-or-buy) and to administer orders, and thus for administration and preparing accounting.

ERP or SCM software ultimately links people together by the way it uses information. If we assume that sufficient numbers of people have been adequately trained and are given enough time, then they could manually do everything that the software can do.

ERP or SCM software can be used to good effect in situations where human skills and capabilities are insufficient, typically because of:

  1. The increasing complexity of products and the product mix
  2. Increased volumes of data and frequency of orders (or processes)
  3. Greater requirements placed on the speed of process administration

To summarize, ERP or SCM software will always be able to do exactly what Hollerith intended data processing to do right from the start; that is, fast and accurate processing of large quantities of data. It is thus not a replacement for the task at operational level. It is merely used to automate this task. It would be wrong to expect any more of it.

Each ERP or SCM software package has roughly the same influence over whether entre­preneurial objectives are achieved. This means that if a certain packa­ge does not fulfill the objectives that a company has set itself, then these objectives will not be achieved by using a different package. If the soft­wa­re is then investigated as the cause of failure, people will be all too ready to say that, “There is no satisfactory software package.” They will view this as a welcome opportunity to pass the buck outside the company.

If the processes at operational level have to be reorganized, it is therefore advisable to divide the procedure into two steps, each with its own break-even analysis. This procedure requires attention to be paid to the training of people who will carry out the task within the company.

  • The first step is to change the organization and the processes. Can the existing organization and processes actually be carried over to the new? What will this cost? IT support should intentionally be left out of the equation because, as mentioned above, all the tasks of software can, at least theoretically, be carried out by people. The break-even analysis for this first step must then consider the cost of the training required to cope with all aspects of the new organization. Consideration should also be given to how the entrepreneurial objectives (e.g., to reduce lead times in the goods flow) can actually be achieved by the changed processes.
  • Only the second step, and thus the second break-even analysis, considers the precise value of IT support with ERP or SCM software. Here, again, there will be costs associated with training employees in the correct use of the hardware and software. On the other hand, in this case it will also be possible to reduce staffing numbers since the flow of information will no longer be processed manually.

This type of procedure can disprove the view that there is no suitable ERP or SCM software (which is sometimes used as a convenient excuse). The problems really arise because the people involved have insufficient knowledge of the processes and the associated tools.



Course section 9.3: Subsections and their intended learning outcomes

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