Why Automotive Suppliers need to rethink their ERP Strategy (Part 2) - ERP as the main obstacle to digitalization

In my first episode I described the challenges with the current change in the automotive market and the new role of IT. Read it here:

The current status of Industry 4.0

The adoption of Digitalization and Industry 4.0 is becoming a matter of survival in automotive companies to maintain profitability and competitiveness. Many if not most companies gained experiences within the last years in successful implementing isolated use cases. But the adoption of Industry 4.0 is still at its beginning and yet the full potential is far from being explored.

In the article “The Coming Of Age Of Industry 4.0 In A Post-Pandemic World” from the 6th of October 2020 Forbes describes the situation like this:

“Industry 4.0, as a concept, has been around for almost 10 years now, but not much of it has seen the light. Many Industry 4.0 projects hover in the realm of "pilot purgatory," a Dantesque term that encapsulates the fate of most Industry 4.0 initiatives, 70% of which never make it out of proof of concept (POC) to be deployed in production.

In their study from June 2022 about the status of the digitalization of the economy the German Bitkom describes that 89% of the survey companies found unexpected difficulties in the digitalization efforts and two thirds consider themselves to be laggards in digitalization.

Finding the Reasons

What are the reasons that many Industry 4.0 projects fail or don’t offer the expected results? In the mentioned Bitkom study reasons stated are the lack of qualified staff, missing time to execute the projects and missing budget.

But yet in my experience there is another very important factor that is often forgotten: The lack of integration of the isolated digitalization use cases with the broader process landscape of the business and its valuable data treasures. In a Webinar in 2021 about the Smart Factory less than 10% of the participants declared that they succeeded in integrating the isolated projects in the broader IT business application landscape of their enterprises. And without the integration there are no sustainable and significant productivity gains and costs reductions possible.

The ERP is main obstacle to digitalization

The reason for the missing integration is quite simple to point out: for an integrated use of Industry 4.0 you need the right tools for the integration, better even a digital platform that leverages the use of digital concepts like AI, big data, analytics etc. And this digital platform must be part of your ERP system. Without the data and processes build within the ERP you will only obtain a fraction of the potential Industry 4.0 offers.

Yet the ERP systems are most of the time not the digital core but the biggest roadblock to use new technologies and Industry 4.0. How will you take advantage of the latest digital technologies and get agility with a rigid ERP system that is 2, 5 or even 10 years old. And, sorry to say, the next release update will not solve the problem, even if your vendor is telling you this. Traditional ERP system haven’t been designed to keep pace with the velocity that the market is moving and technology is evolving. They are too complex.

The problem of Source Code Changes

But why is that so? The concept how an ERP works is more than 30 years old and haven't changed too much. Traditional ERPs are generic and you add your special requirements by source code changes or add-ons from different vendors. Over the years source code changes can evolve to tenths or even hundreds of thousands lines of code. And each change adds complexity to your already complex ERP system. And with the complexity the costs of running and maintaining the system increase exponentially. And the situation gets even worse if you try to run the newest version of the ERP. Release upgrades are used to be risky, expensive and long-lasting projects. There is a whole ecosystem being nurtured by this complexity. Nearly all available IT resources in the market are needed to keep the system up and running instead of working on the next steps of the digital revolution.

The Consequences

Because of this approach and the resulting complexity nearly any innovation is done isolated. This way complexity and costs are kept down, at least initially, but the results are very limited, and many projects and initiatives are abandoned in the long run.

Without an integrated digital platform there is no integrated approach to digitalization, no visibility on data to support decision making, no integrated processes to increase efficiencies and consequently no sustainable results.

At the end the ERP became the biggest obstacle for innovation in the enterprise while its vendors preach innovation.

Questions to ask:

• What digital initiatives has your company implemented? At what stage are the projects?
• What are the outcomes of the digital use cases? What was/is the expectation?
• Do you have integrated the processes and data of your digital projects with your business applications? What was the effort? Do you have the right platform to do so?
• How many source code changes have you done to your ERP system?
• How complex has the ERP become with the code changes? Are you able to manage this complexity? What does it cost?
• How many resources are needed to keep the lights of our ERP on. What if you could use these resources to run our digital initiatives?
• How many add-ons are you using? Are those integrated? Is there a wholistic view on the data including the add-ons?
• How old is the version of your ERP system? How difficult has it been to update it?
• What doo you need to change to explore the potential of Digitalization and Industry 4.0?

Next Episode

Watch here the next episode “The Revolution in Enterprise Applications”

Did you like this article? Do you agree or disagree? Leave your comments or contact me at [email protected]