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2.1. Shortcomings with ERP and APS

During the 1990s, two types of business software appli­cation gained ascendancy in many companies around the world—enterprise resource planning (ERP) systems and advanced planning and scheduling (APS) systems. ERP was focused on integrating the various disciplines and departments within a typical manufacturing com­pany so that a high degree of internal business process automation could be achieved. APS, on the other hand, was focused on the optimized planning of inventories and capacities utilizing tools such as linear program­ming and heuristics. The successful application of both of these types of systems typically required painful and far-reaching changes to the organization in the areas of business practice, structure, and culture. The difficul­ties of getting these soft issues right is reflected in the many tales of woe one hears about failed ERP and APS implementations. However, companies with strong lead­ership and project management found that these imple­mentations brought significant benefits in their wake.

Significant benefits—BUT not necessarily sustainable or differentiating benefits, for there is a shortcoming to ERP and APS in the way they are typically adopted. They are generally applied within the context of a single com­pany or even a single plant within a company. In other words, we focused on local efficiencies and optimiza­tion. We were focused on closing local loops while the overall system (the supply chain) remained an open loop. As Eli Goldratt made abundantly clear in his book The Goal, we should be focusing on the throughput of the entire system (and herein lies one of the reasons for com­panies to turn to the Internet for competitive advan­tage). Many companies that are experiencing the reality of globalization are now realizing the significance of this holistic view of a supply chain. It is very difficult to be globally competitive on your own. You have to work with sales agents, shippers, brokers, forwarding and clearing companies, third-party logistics providers, and so on. A lack of coordination among these players manifests as excess inventories, high-cost emergency shipments, dis­gruntled customers, lost sales, and so on. The Internet gives us the means to synchronize the activities of all members of a supply chain, closing the loop for the en­tire system. This does not mean that the need for inter­nally oriented systems will go away. Indeed, many would argue that the lessons learned and capabilities gained through the imple­mentation of these systems are a vital precursor to true supply chain man­agement. We have to learn how to talk to and coop­erate with our colleagues inside the company before we can hope to success­fully move into a world of collaborative planning and replenishment.

"The ability to exploit linkages—to get people talking across their func­tional boundaries; to share information between of­fices, branches, divisions; and to make the strength of a part the strength of the whole—is the key to competitive­ness." (Tony Manning, strategy consultant.) There is no doubt that getting this ability in place internally will serve any organization well when in moves onto the Internet.

2.2. The Network Effect

Marketers seeking to explain the rapid adoption of a product or service sometimes refer to the idea of the "network effect." This can best explained by looking at the ascendancy of the VHS video format over the (argu­ably superior) Betamax standard. Once a critical mass or market share is reached by a product/service (par­ticularly one that delivers information), it rapidly feeds on itself as the universe to which it is connected realizes the benefits of that standardization and connectivity. If my colleagues all have a VHS machine, it makes sense for me to do likewise as I can then share and swap tapes with them. If we all adopt a standard such as the Inter­net we can all communicate with each other electroni­cally. This is how Lotus 1-2-3 gained a global lead in spreadsheets and why Microsoft later overtook it. No­where is the network effect more visible than with the Internet. It is no exaggeration to say that literally every student entering the workplace today will have had ex­posure to the Internet and World Wide Web and they will expect these facilities from their employers. As con­sumers and customers these technologies are shaping what we expect when we deal with suppliers. The Inter­net is, therefore, because of the network effect, rapidly becoming the de facto standard upon which we will ar­chitect supply chains.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 12


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