ERP : The definite way to failure

Those who cannot remember the past are condemned to repeat it.

George Santayana

Every day there is a new story about another company apply the state-of-the-art IT technology into their operation. Most of them is ERP. Company staffs exclaim. Managers feel exuberant and wait for ERP’s effectiveness. They wait for the fruits of ERP to come into exist. The problem is that, most of the time, those managers end up frustrating and angry when ERP does not work. In that case, nobody know why.

It actually happened that way when I did my internship last year at a textile firm in Hue. As a fledging industrial engineer, I always base my understanding on quantitative analysis, especially Math. While everyone in the managing team extol the use of ERP, I feel a little bit of uneasy. I believe that it seems like everything is too good to be true. Just emplement ERP then your company would thrive like magic. Well, it just happen in dream.

At that time, my boss asked me about my opinion about their ERP system that they were going to buy. He knew that I, as a newbie in the field, would have fresh mind and would add something extraordinary. Having interviewed a few consultants who always touted the use of ERP, I started my journey into the investigation about the effectiveness of ERP. The more I probed into the papers and scientific journals, the more I becomed astonished. What I found is a nightmare: ERP and its previous incarnation MRP are disasters.

Let’s look at what I found from digging up some scientific journals (both ERP and MRP are functionally same while ERP is applied throughout the company, not just in Manufacturing like MRP):

  1. (Anderson 1982) : just merely 10% companies are class A users according to the APICS-funded servey.
  2. (Faforge 1986): the average cost for implementation is $795,000 with deviation of $1,191,000
  3. (Whiteside 1984) : MRP causes high inventories and inefficiency
  4. (Arbose 1984): MRP is $100 million mistake
  5. (Kanet 1988): MRP does not reduce inventories or improve customer service. First, we were told that the reason MRP did not work is due to inaccurate computer records. We fixed them and still, MRP did not work. We tried everything, from more realistic Master Production Schedules, more top management involment and more education, MRP still not worked.

The more amazing thing is even in my Operation Management textbook, the authors prised the use of ERP/MRP without telling us any darksides of it.

So in the end, from the viewpoint of history at least, ERP/MRP failed.

But why?

In the next post, I will show the machanism why ERP/MRP fails. The reasons is not computer, not from management, not from human, but the underlying assumption of ERP/MRP itself.