Why spreadsheets cannot manage the supply chain

     

When the discussions about investing in new software come up, it's all too tempting to look at what the business already has and assume that existing solutions will be just fine because they've worked for years. However, this concept fails to take into account inefficiencies and other problems that not having sophisticated functionality can create. Spreadsheets provide a good example, as many businesses continue to use them for complicated tasks that they were not designed to handle.

Stop before the problem Excelerates
supply chain spreadsheets are ineffectiveIn 2010, Oracle and Financial Director conducted a survey of organizations to determine the extent to which they used Microsoft Excel. More than half of respondents admitted to using spreadsheets for financial reporting analysis. Although spreadsheets serve a valuable purpose in a business setting - particularly considering they are more affordable than a database - they are ill-equipped to handle the complexity of some sets of information.

For example, Financial Director highlighted an audit of the banking group Credit Suisse, which was fined $8.8 million for relying too heavily on spreadsheets in its booking structure. This made the system too complex and resulted in a lack of transparency.

"The main problem with Excel occurs when inputting data, or trying to change incorrect data entries," wrote Financial Director's Neil Hodge. "People see an incorrect entry and change it within the cell, but they often forget to make sure that the new entry does not corrupt the data for the entire column."

Recent research showed that some disciplines have improved in the past three years, but many organizations could still benefit from using more sophisticated software. For example, an August 2013 survey from APICS and Logility found that 47 percent of respondents used spreadsheets for supply chain management tasks, and another 37 percent admitted to using enterprise resource planning applications for this purpose.

Logility vice president Karin Bursa warned that spreadsheets and ERP software pose a problem when a large number of users need to share or manage data. In addition, these tools become overly cumbersome to use when a large number of stock keeping units (SKUs) are involved. Bursa highlighted several qualities in particular that traditional demand planning solutions lack, which include:

  • Structure and flexibility: This requires the ability to establish multiple hierarchies and to forecast for each level of the hierarchy.
  • Product life cycle planning: Products have different value depending on the stage of their lifecycles. Proper supply chain management requires the ability to dynamically shift profiles to accommodate these fluctuations.
  • Measurement: Businesses must be able to determine the accuracy of their records. In addition, there should be a system for quickly and easily forecasting and measuring results to ensure that initiatives meet expectations.

"Spreadsheets provide a false sense of automation and lack many of the basic capabilities you need to run your supply chain," Bursa wrote. "The advantages of more accurate visibility across your global business for a horizon or 12, 18, 24 months or more and plan accordingly are tremendous."

Addressing data complexity
With businesses collecting more and more data each day, many have come to realize that they are facing issues traditionally associated with big data. While not every firm needs to jump on the analytics bandwagon, there are a few lessons to understand from those that have. Perhaps the most pressing takeaway is that traditional data management solutions and analysis tools were not able to keep up with information at that scale. Just as entirely new platforms such as Hadoop were designed to tame the beast that is big data, more sophisticated supply chain management software has been developed to streamline otherwise complex processes.

Besides creating unnecessary risk, using spreadsheets to document complex business processes takes a great deal of time. A recent white paper from Ventana Research found that many business users spend 18 hours per month doing tasks such as updating, revising and consolidating spreadsheet data. Despite how many work hours are allocated to these tasks, approximately half of respondents said they found errors frequently. Furthermore, many businesses must deal with different versions of spreadsheets that do not agree with one another.

"We find it puzzling that people are rather complacent about these encumbrances, according to the research. Despite the frequency of errors found in their most important spreadsheets (not to mention the the likelihood of others), few of even the most experienced and proficient users said they do rigorous checking to ensure accuracy of the data; half check only when something doesn't look right, and they look only at selected cells," analysts concluded.

It may be tempting to keep using spreadsheets for the potential short-term benefits. There is little, if any, delay between investment and deployment. They are easy to use when it comes to small data sets and they are inexpensive. However, the scale of information that supply chain managers deal with in today's business environment is too large for spreadsheets to be an effective long-term answer. When considering the cost of an investment, it is essential to think beyond the initial procurement expenses. A comprehensive total cost of ownership analysis must consider factors such as the labor hours put into managing that solution and the risks that may be introduced.

These statistics and the incident with Credit Suisse show that businesses are too reliant on software that is ill-equipped to meet their needs. Even those that feel confident in their solutions can run into hiccups, particularly during compliance audits. As a result, it may be a good time to carefully evaluate existing solutions and business processes to ensure that they really can enable the degree of visibility and flexibility that supply chain management professionals need to keep operations running smoothly.

"When spreadsheets are used in recurring, collaborative processes, their versatility is more than offset by the frequency of errors resulting from the manual entry of data and formulas and the lack of referential and data integrity," Ventana warned. "For users who rely on this information, these inherent defects pose the risks of making wrong decisions based on inaccurate analysis or financial misstatement."

Re-staple yourself to your orders, digitally and automatically - leave the spreadsheets to accounting: