Letter to Operations: no more spreadsheets for Purchasing

Editor’s Note: This article addresses supply chain issues in the form of a memo written to the operations management department.

Memorandum

To:      Operations Management

From:  Doug Potter

More Read

Google’s Acquisition Spree

Art and Science of Data Visualization (Part 2)

USAF Prevents Insomnia with Geospatial

Find yourself a safer place to swim or fish in the Bay Area

Projected Growth Rates of the BI Software and Big Data Analytics Markets [VIDEO]

Re:      No more spreadsheets for Purchasing

Supply Chain management would be so much better off without spreadsheets. I see this over and over. Purchasing and operations management has a spreadsheet to tell them what and how much to reorder. And the spreadsheet has grown to a behemoth that takes constant care and feeding.

Don’t bother with cloud based supply chain planning systems, like MRP for manufacturers and DRP for distributors. People often tell me: “Our spreadsheet takes care of everything we need.”

That’s probably a true statement. As long as we can agree:

1. You don’t need any higher profits
2. You already programmed the spreadsheet with a complete set of supply chain best practices for purchasing and manufacturing planning.

But seriously, the biggest cost from spreadsheet-based supply chain planning is higher overhead. Related problems include:

• Order Point versus MRP. A spreadsheet never rarely provides complete time-phased planning, usually it is just a device for enhanced order point, or min/max replenishment.
• More Overhead. There’s tremendous overhead in the development and maintenance of the spreadsheet. Usually this shows up as time spent using, customizing, debugging, and maintaining it. One sign things are out of hand: someone on the staff decides they have to learn programming using Excel macros to help.
• Lost Productivity. Inventing your own methods of replenishment and reordering is usually far less effective since you cannot really deliver all the money-saving features of a true MRP system (for example, try implementing “pegging” from a spreadsheet).
• “Not Invented Here”. We humans have an innate problem. We tend to like things we made ourselves. (Ladies, if you think this is a male problem, I’m interested in your opinion – email me at dpotter (at) newportconsulting.com). So anyone associated with the development and invention of that spreadsheet will typically defend its use and block any attempts at best practices or real supply chain improvement.
• Involve Everybody. Spreadsheets frequently live on a computer and are passed around via email. When more than one person needs access to the most current information. MRP systems (especially cloud based systems) allow multiple users and your entire organization to get real-time status regarding supply chain activities.
• Not Scalable. As business volumes increase, the management of Excel as a planning device becomes exponentially more uncontrollable.

I suppose you could consider the Excel Spreadsheet an extension of the enterprise it management system. My counterargument: it’s an improper extension of the company enterprise software. There’s a much better solution, if you follow standard best practices in supply chain planning. These best practices should include Cloud ERP so you entire organization, your business partners, and other stakeholders can participate in supply chain planning.