The Cloud never delivered a customer order on time…

The ERP industry has two new words in its vocabulary – “Cloud ERP”. According to some of the advertising coming from vendors, if you put “Cloud” in front of “ERP” you somehow get a better ERP system. Sounds like magic to me.

There are certainly benefits to hosting ERP, or any application for that matter, in the cloud. But none of these changes the inherent design and capabilities of an ERP system. Your ERP system’s functionality AND the way you use them define the true value of an ERP system to your business.

So if you are looking at a new ERP system and have the word “Cloud” shouted at you and it all sounds very technically slick and the coolest new thing, what do you do? The very first thing to do is to see if the ERP provider has moved past the classic ERP problems before it has moved to the Cloud. No amount of Cloud hosting will make an ERP system that has classic design flaws work for today’s manufacturers.

We inherited these design flaws from the development of MRP in the ‘60s. To be fair to the designers back then they were simply doing what they could with very limiting technology. As technology improved so did design, but in a very haphazard way. This resulted in ERP systems that grew through “bolt-ons” of logic. Basic processes were augmented by additional processes that tried to correct the original design flaw. For example, MRP calculations produced work orders that could not possibly be made, so secondary scheduling processes were added to try to get work scheduled properly, and so on.

Ask your ERP provider to show how easy it is to generate a material purchase plan aligned with a resource schedule plan. If you see lots of steps and processes running then that ERP is dealing with some classic design flaw issues.

Ask to see what happens when customer demand suddenly changes or material availability is reduced. If it looks like layers of steps and lots of processing to get an answer, then you are looking at an ERP based on bolt-on logic. If a schedule is produced but you cannot clearly see if material will be available to run that work order at that time then you are looking at a classic design flaw.

So before we all go running to the cloud with the expectation of this will fix these issues we need to first look at what the vendor has really put into the cloud. Here are some of the concepts that are found in newer ERP designs not limited by the technology:

  • Material and Capacity requirements are always linked. In fact the words “Bill of Material” no longer really applies. Newer terminology may refer to this as a Bill of Manufacture in which every material is linked to an operation. This provides the framework for realistic scheduling and material planning.
  • The use of time and material buffers by the ERP system to protect the flow of a work order from the ever present unexpected but real effect of machine downtime, employee absence, late material deliveries, etc.
  • Manufacturing demand from customer orders or work orders is immediately translated to the execution layer of the ERP system. MRP processing or any other type of processing is not required.
  • Any number of materials can be input into an operation and any number of materials can be output of any operation. Manufacturing is becoming very flexible. This is due to factors such as machines that produce multiple parts and work cells that produce many products that in turn can travel to other manufacturing steps on other work orders. Legacy systems were never designed to do this.
  • Constant suggestions based on predictions. Plans are always the best on the day we make them. But then time marches on and we need to change them. New generation ERP systems are able to see the effect of real time events (machines usage, late materials, etc.) and provide suggestions to minimize the effect and improve work flow.

These five points are just examples of what you should see in newer ERP system design. If you don’t see them in a “Cloud ERP” then the vendor is simply putting old technology on a newer server environment. If you find a vendor who has developed ERP with these concepts AND offers a cloud environment then it truly is the time to take a harder look at the cloud model. The cloud is proving to be a very cost effective way to deploy ERP and there are benefits to be found in its use.

The business benefits of a well designed modern ERP system will far outweigh those of any poorly designed cloud based system. As this new theme of Cloud Based ERP becomes dominate in marketing messaging business owners must continue to look at the underlying ERP design in relation to their business requirements. Remember, the cloud never delivered an order on time…