According to Reuters, Timken CEO Jim Griffith recently said at a manufacturing conference “I call this the SAP recession because companies have a much better control over their inventories and so our customers did a much better job of reducing inventories immediately when they saw the demand go.” As much as I enjoy poking fun at SAP when it does something wrong, I believe that Griffith was using the name SAP to refer to all ERP software and not just the brand his company uses.
It is commonplace to use the best-known brand as the name for a product category. Most of us ask for a Kleenex rather than a tissue or we make Xerox and not photo copies. The intriguing question here is thus the degree to which current generation ERP software (including JDE) contributed to the severity of the downturn from which the world is still recovering. If it did have an impact, was it a bad thing?
Many economists believe that a systemic contributor to periodic recessions is the build-up of inventory in good times followed by sharp reductions in a downturn. The creation of extra goods in an upturn suddenly turns into an exaggerated drop in demand as use of the excess replaces the need to make more.
The bursting of the housing bubble late in 2008 started an economic downturn that became increasingly severe as the stock market crashed, financial institutions faltered and millions of jobs evaporated. Surprisingly, business profits took much less of a hit than most people expected leading to a major rebound in stock prices over the past year.
Griffith appears to be on to something in that the moderate impact that a severe downturn had on corporate profits can at least be partially credited to the more sophisticated business management tools now in place, including ERP suites such as SAP and JDE. Obviously many other factors were at play and inventory was not the only way in which sophisticated software contributed. At the same time, if software did contribute to the severity of the downturn, it will likely help moderate its longer-term impact.
An important part of my own company’s ERP practice revolves around inventory control since it is one of the things JDE software has the potential to do well. Our RapidReconciler product solves the perpetual problem of General Ledger and Inventory balances getting out of synch. As we fix this problem for customers we often discover that they are not taking full advantage of the inventory management capability that is offered within JDE.
The “SAP/ERP recession” may have provided a valuable lesson to those paying attention. It has become fashionable for executives to wonder if all the money spent putting in ERP systems in the past was worth it because of the lack of instantly visible benefits. The case can now be made that a significant benefit has been realized, but that the exact way in which ERP software contributed will always be hard to recognize. If ERP systems rapidly and efficiently led organizations to work down excessive inventories then they were doing exactly what they were supposed to do.
If the observations of my inventory experts are correct, there is also lots of room for improvement within our community. Wouldn’t it be great if we became so effective at inventory control that we have an even greater impact on the next recession – perhaps even having someone call it “the JDE recession.”