Necessary But Not Sufficient is the name of Eliyahu Goldratt’s last (published way back in 2000) in the series on Theory of Constraints best-sellers The Goal, It’s Not Luck and Critical Chain. This book is like a culmination of TOC principles rolling into IT implementation in companies and the evolution of ERP package to something more meaningful. I picked it up last week and reading it was like deja vu. Way back in 2000 Eli Goldratt and his co-authors (Carol A. Patk and Eli Schragenheim) outlined some paradigm shifts which we see today in the evolution Enterprise Solutions.
Just like his other TOC best-sellers, this book is like a novel with the protagonists taking you through the challenges faced by an IT (ERP) company. Usual problem for ERP company faced in late 1990s was saturation of market (already implemented in the large organisations) as well as pressure on bringing in new and innovative features that provides “bottom-line value” to the clients. Moreover Internet is also booming. In the midst of all this there were smaller specialised companies developing APS (Advanced Planning and Scheduling) solutions which proposed Optimizing the production (and distribution) process in companies which have already implemented ERP. The main idea was to provide bottomline value.
These APS solutions (based on Drum-Buffer-Rope and Buffer Management) started providing benefits in the shop-floor by focussing on the Bottlenecks and improving throughput. But this additionally freed capacity at the manufacturing plant resulted in inventory getting piled up at the Distribution Centres across the country (market). One reason for this is the “push” method followed by companies coupled with high levels of Days Supply. While the Manufacturing Plant became more responsive (by freeing up bottlenecks and improving throughput) the Days Supply levels needed rationalisation which was very often overlooked.
The next problem of Distribution getting “pushed” with more inventory was contingent of the fact that companies ran on “local optima” and failed to see the bigger picture in their current ERP solution. So the obvious choice was to go for a “Global Optima” considering inventory cutting across the supply chain levels (Distribution and Production). In terms of SAP solutions it was moving from just R/3 to R/3 coupled with APO where you see the bigger picture across the Supply Chain. With the possibility of executing a Planning Run (Network Heuristic and subsequent Optimization) across the complete supply chain you move from a “local optima” to “global optima”. Accordingly the KPIs for Manufacturing and Distribution also had to change which brought Analytics (BI) into the forefront.
But the protagonists in the book were not content with just global optima within a company. Remember this is late 1990s with Internet booming. The World Wide Web provided a platform to integrate (or Collaborate) the company’s Vendors and Customers. The IT solution was ERP + APS + Collaborative Planning (CPFR) to get more benefits and a win-win for all parties in the Supply Chain. For the ERP product company also it opened a new market segment – namely Small and Medium Industries which actually is a bigger market compared to just the Fortune 500 companies.
However the best principle was reserved in the last chapter of the book. The prime client of the ERP product company comes back and proposes a never before heard concept in software licensing. The CEO offers to pay a tiny percentage of his revenues to the ERP product company per year and in return complete IT will be subcontracted out to them. Well this is the precursor or is the concept of Software as a Service business model which now the Enterprise Solutions companies are trying to move to.
I do not regret reading this book earlier as in posterity it makes perfect sense and also points out what is coming. Reading the book (only aout 230 pages) once can very easily relate the evolution of SAP from single ERP solution R/3 to Business Suite comprising of APO (now SAP SCM), CRM, SRM, PLM etc. to the newer technology dimensions like importance of Analytics, Service Orientation enabling Software as a Service (SaaS). Even the marketing philosphy has undergone a sea change – from purely focused on number of users based licensing to more of value-based. In perpestive the whole eSOA is nothing but an enabler for flexible delivery of On-Demand (I guess IBM has Copy-right / TM) business requirements ultimately leading to SaaS delivery model.
I hope those who have read the book are in agreement. For others surely a must-read book.